Introduction to Employees Provident Fund (EPF) Malaysia
The Employee Provident Fund (EPF) in Malaysia plays a pivotal role in securing the financial future of Malaysian citizens. It’s not just a retirement savings scheme but a comprehensive social security institution that offers various benefits to its members.
This article will guide you through the intricacies of the EPF, from understanding its fundamentals to the eligibility criteria, contribution rates, and the diverse array of benefits it provides.
Whether you’re an employee, employer, or simply seeking to comprehend the Malaysian EPF system, this article is your comprehensive resource. With these complexities in mind, follow RS 36 Solutions to delve into the intricacies of Malaysia’s payroll landscape to help you navigate this financial terrain effectively.
Understanding the Employees Provident Fund (EPF) in Malaysia
The Employees’ Provident Fund (EPF), or Kumpulan Wang Simpanan Pekerja (KWSP), is a vital social security institution within Malaysia. Its primary purpose is to serve as a retirement planning mechanism for employees across the country. This scheme mandates contributions from both employers and employees on a monthly basis.
Employer Registration and Legal Framework:
Employers are obligated to register with the EPF within seven days from the date of hiring an employee. This registration process aligns with the legal framework established under the Laws of Malaysia, specifically the Employees Provident Fund Act 1991 (Act 452). This act provides the essential legal foundation for the EPF’s operation, allowing it to effectively manage members’ savings and ensure the provision of reliable retirement benefits.
Understanding EPF Contributions:
The cornerstone of the EPF system is contributions, which constitute the funds credited to individual members’ accounts. The contribution amount is determined based on an employee’s monthly wages. Presently, the contribution rates are structured according to an employee’s monthly wage or salary:
Monthly Salary | Employee's Contribution Rate | Employer's Contribution Rate |
---|---|---|
RM5,000 or less | 11% | 13% |
More than RM5,000 | 11% | 12% |
This contribution structure ensures that employees, regardless of their income levels, are on a path to receive suitable retirement benefits.
In summary, the Employees Provident Fund (EPF) stands as a pivotal institution in Malaysia, enabling employees to secure their financial future in retirement. It operates through obligatory contributions from both employers and employees, embodying a significant element of Malaysia’s social security landscape.
Eligibility for EPF Membership
Membership in the Employees Provident Fund (EPF) is a mandatory requirement for the following categories of individuals:
Individuals employed for wages in any capacity within an establishment, whether their work is manual or otherwise.
Individuals employed through a contractor or engaged as an apprentice, with the exception of those considered apprentices under the Apprentices Act, 1961.
Individuals covered by the standing orders of an establishment, whose monthly earnings do not exceed Rs. 15,000. This includes all eligible employees, except those who have been excluded or exempted under Section 17 of the Act.
Obligations of Individuals Subject to Employee Provident Fund (EPF) Contributions
With the exception of individuals specified in the 1st Schedule of the EPF Act 1991, employers are legally required to make EPF contributions for the following categories of individuals engaged under a Contract Of Service or Apprenticeship:
Part-time, temporary, and probationary employees.
Directors who receive wages from the company.
Employees up to the age of 75 years, provided they continue working, regardless of whether they have withdrawn their savings, either in full or in part, after reaching the age of 55 or 60 years.
Employees who have withdrawn their savings under the Pensionable Employees and Optional Retirement Withdrawal schemes and are employed by entities other than Federal or State Governments, statutory bodies, or local authorities.
Employees who have previously made a full withdrawal under the Incapacitation Withdrawal scheme and have subsequently recovered, being re-employed in any service.
Minimum and Maximum Age Considerations:
The age at which individuals can be employed is subject to the Children and Young Persons (Employment) Act 1966. The maximum age for EPF contributions is 75 years, ensuring a broad scope of contributions to the fund.
Individuals Exempt from Employee Provident Fund (EPF) Contributions
As per the First Schedule of the EPF Act 1991, the following categories of individuals are exempted from making EPF contributions:
Nomadic aborigines, unless recommended in specific cases by the Director-General of the Department of Aborigines.
Domestic servants, as defined under Section 3 of the Workmen’s Compensation Act 1952 [Act 273], such as maids, cooks, house guards, gardeners, and personal drivers, EXCEPT when employed by:
Employers listed in the Second Schedule of the Act.
Associations already registered or mandated to register under any applicable written law pertaining to the registration of associations or cooperative bodies.
Businesses registered or licensed or mandated to be registered or licensed under laws such as the Registration of Businesses Act 1956 [Act 197], Trades Licensing Ordinance for the State of Sabah [Sabah Chapter 144], Business, Profession, and Trade Licensing Ordinance for the State of Sarawak [Sarawak Chapter 33], or Business Names Ordinance for the State of Sarawak [Sarawak Chapter 64], or similar legislation, as applicable.
Corporations incorporated under any relevant written laws.
Out-workers, as defined under Section 3 of the Workmen’s Compensation Act 1952 [Act 273].
Individuals detained in prisons, Henry Gurney Schools, detention centers, mental hospitals, or rehabilitation centers defined under the Drug Dependants (Treatment and Rehabilitation) Act 1983, or leprosariums.
Members of the administration (referring to Article 160 of the Federal Constitution).
Expatriates whose country of domicile is outside Malaysia (foreign citizens) and who elect not to contribute.
Employees who have reached the age of 75 years.
Eligible Salary / Wages for EPF Contributions
All monetary compensation owed to an employee under their contract of service or apprenticeship, regardless of the agreed payment frequency (monthly, weekly, daily, etc.), is subject to EPF contributions.
Monthly Contribution Deadline and Breakdown
Employers are required to submit their monthly EPF contributions on or before the 15th of each month.
For instance, if the salary pertains to January 2018, the corresponding contribution month would be February 2018, with the payment deadline set on or before the 15th of that month.
It’s crucial to note that employers are responsible for remitting both the employee’s and employer’s contributions to the EPF. The employee’s share can be deducted directly from their salary by the employer.
Calculating Employee Provident Fund (EPF) Contributions
To determine EPF contributions, employers should refer to the contribution rates specified in the Third Schedule of the EPF Act 1991. However, there’s an exception for wages exceeding RM 20,000.
The Third Schedule comprises five parts, each outlining the monthly contribution rate based on the employee’s status:
Part A: Applies to employees under the age of 60, including Malaysian citizens, non-Malaysian citizens with permanent residency in Malaysia, and non-Malaysian citizens who were EPF members before 1 August 1998.
Part B: Applicable to employees under the age of 60 who are not Malaysian citizens and became EPF members on or after 1 August 1998.
Part C: Pertains to employees aged 60 and above, including non-Malaysian citizens with permanent residency in Malaysia and non-Malaysian citizens who were EPF members before 1 August 1998.
Part D: Applicable to employees aged 60 and above who are not Malaysian citizens and became EPF members on or after 1 August 1998.
Part E: Addresses employees who are Malaysian citizens and are aged 60 and above.
Contribution Rate
Important Points:
- Employers must refrain from calculating the employer’s and employee’s share using precise percentages, except for salaries surpassing RM20,000.00. Total contributions, including cents, should be rounded up to the nearest ringgit.
- The new regulations become effective starting from the salary/wage of July 2022, impacting the contribution month of August 2022.
Employee Provident Fund Contribution Calculation Example
Let’s consider an example for better clarity. Suppose there’s an employee who is a Malaysian citizen and is under the age of 60 with a monthly wage of RM 15,150. According to the Third Schedule’s monthly contribution rate:
The employer must contribute 12%, which amounts to RM 1,824.
The employee must contribute 9%, totaling RM 1,368.
This calculation ensures that EPF contributions are accurately determined based on the employee’s specific status and salary, as outlined in the Third Schedule.
Calculation Sample:
EPF Contributions must be paid in only ringgit denominations and without any cent value.
Submitting Employee Provident Fund Contributions
Employers have several options for submitting EPF contributions, ensuring flexibility and convenience:
Akaun: Employers can utilize their Akaun (account) for EPF contributions.
e-Caruman Application: The e-Caruman application offers a digital platform for making contributions.
Internet Banking: Many financial institutions provide internet banking services, enabling online submission of EPF contributions.
Bank Agents: Employers can utilize bank agents from Bank Simpanan Nasional, Maybank, Public Bank, and RHB Bank.
EPF Counters Nationwide: Physical EPF counters are available across the country for in-person contributions.
These multiple submission methods offer employers the flexibility to choose the most convenient and efficient way to fulfill their EPF contribution obligations.
Registering for an Employee Provident Fund Account
There are four primary methods for registering as an EPF member:
1. Automatic Registration: You’ll be automatically registered as an EPF member once the EPF receives the first contribution from your employer.
2. Registration at an EPF Counter:
- Use your MyKad for registration. If the registration attempt is unsuccessful or you are not a Malaysian citizen, you’ll need to complete Form KWSP 3.
- After successful registration, you will receive your EPF member number.
3. Employer Registration through i-Akaun (Employer): Your employer can register you as an EPF member through i-Akaun (Employer), and you’ll be issued an EPF member number upon successful registration.
4. Registration at an EPF Smart Kiosk:
- Use your MyKad for registration and verify with your thumbprint.
- After successful registration, you will receive your EPF member number.
Activating i-Akaun (Member)
EPF members can access their EPF balance, print statements, and apply for withdrawals through i-Akaun (Member). Here’s how to activate it:
Upon registration, you’ll receive a temporary user ID and password via SMS, which you should use to activate your i-Akaun within 30 days. To do this:
- Visit the i-Akaun website.
- Click “Login” under “I’m a member (i-Akaun).”
- Enter the temporary user ID and click “Next.”
- Enter the password and click “Login.”
- Review and accept the terms and conditions by checking the tick box and clicking “Next.”
- This will take you to the First Time Login page. Create a new user ID and password, then click “Next.”
- A successful i-Akaun (Member) new login creation message will be displayed, and you can proceed using your new login information.
Employer’s Responsibilities Towards the Employee Provident Fund Board When Making Changes
Notification of Company Address Change:
If there is any change in the company’s address, it is mandatory for the company to inform the EPF within 14 days after the change, as per regulation 9(5) of EPF Rules 1991.
Notification of Employer Status or Name Change:
In the case of a change in the status or name of the employer, the EPF must be notified within 21 days, as per regulation 9(4) of EPF Rules 1991.
Cessation of Business or Employer Status:
If the company ceases its business operations or is no longer considered an employer, the company is required to inform the EPF within 30 days from that date, in accordance with s.41(3) of the rules.
Information to be Maintained by the Employer
According to Rule 24(1) of the EPF Rules 1991, employers must maintain a register that includes the following details for each employee:
- Full name of the employee
- EPF membership number
- Gender
- Date of birth
- IC or passport number
- Permanent house address
- Occupation
- Employment commencement date
- Duration of the wage period
- Wages and remuneration, along with EPF contributions by both the employer and the employee.
These records should be retained for a minimum of six (6) years to ensure compliance with regulations and to maintain accurate and comprehensive records.
Information Required in the Statement of Wages/Payslip
Employers are obliged to prepare and provide employees with a monthly statement of wages/payslip that includes the following information:
- Name of the employee
- EPF number
- Employee’s gender
- Identification card number/passport (for foreigners)
- Duration of the wage period
- Wages or other remuneration
- Employer’s registration number
- Amount deducted for EPF contributions, specifying the employer and employee portions.
How the EPF Account Functions
The EPF account operates through a division into two accounts: Account 1 and Account 2.
Account 1: This account comprises 70% of contributions and is primarily designated for retirement purposes.
Account 2: This account encompasses 30% of contributions and serves various purposes, including:
- Partial fund withdrawal upon reaching age 50
- Funding personal or children’s education
- Home purchase or construction
- Reducing or redeeming housing loan balances
- Covering medical expenses or acquiring healthcare equipment
Upon reaching the age of 55, the contributions held in Account 1 and Account 2 are consolidated into a single account, referred to as Account 55. Withdrawals can be made from this account at any time, either as a lump sum or partially.
For individuals who continue working beyond the age of 55, additional contributions are allocated to a new account named “Akaun Emas.” These funds can only be withdrawn upon reaching the age of 60.
At age 60, both Account 55 and Akaun Emas are consolidated for withdrawal. This consolidation allows individuals to make lump sum or partial withdrawals to support their retirement.
It’s important to note that there is no age limitation for contributing to the EPF, ensuring flexibility in saving for retirement.
Steps to Register for EPF in Malaysia
The registration process for EPF in Malaysia can be carried out manually or online. Here are the essential steps to register for EPF in Malaysia:
The EPF office located at regional levels throughout Malaysia is responsible for overseeing all EPF registration activities.
Employers of companies must initiate the EPF registration process for their employees as soon as they are hired.
Employees are required to complete Form KWSP 1 as part of the EPF registration process.
Additional forms, such as Section 14 and Section 15, must be submitted. These forms are typically provided by the Companies Commission of Malaysia.
Upon successful registration, the company employer will receive several approval documents, including:
- An Employer’s Reference Number, which facilitates monthly EPF payments.
- Form KWSP 3
- Form KWSP 4
- Form KWSP 6
- An Employer’s Registration Certificate, serving as proof of EPF contributions on behalf of the company’s employees.
These steps ensure that both employers and employees are properly registered with the EPF, facilitating the contributions and benefits associated with the program.
EPF Account Withdrawals
If you have been a part of the EPF scheme and contributed as required during your employment with a Malaysian private company, you may be eligible to withdraw funds from your EPF account in Malaysia. However, specific requirements and conditions must be met:
Full Settlement:
- Complete withdrawal in full settlement is possible when you reach the age of 58 or retire.
- Alternatively, if you are unemployed for a period of two months or more, you can claim for a complete settlement.
- In the unfortunate event of an employee’s demise while in service, before reaching retirement age, the nominees or legal heirs are entitled to withdraw the accumulated funds.
Partial Withdrawal:
- Partial withdrawals from the EPF account are permitted for various purposes, including:
- Educational opportunities
- Medical treatment
- Repayment of home loans
- Marriage
- Purchase of land, house, or flat
- In the case of the closure of the establishment/factory
- Natural calamities
- One year before retirement
- Unemployment for a period exceeding one month.
- Partial withdrawals from the EPF account are permitted for various purposes, including:
These withdrawal options cater to the diverse financial needs and circumstances of EPF members, ensuring that they can access their savings when necessary.
Benefits of EPF
You might be curious about the advantages of having an EPF contribution beyond the lump sum available upon retirement. Here are the benefits you can enjoy:
1. Account 1 Savings Top-Up: You can make voluntary contributions to your spouse or family’s EPF account.
2. Hajj Registration: Change your initial Hajj registration under Lembaga Tabung Haji (LTH) to the current EPF Hajj Registration facility without affecting your earlier Hajj rotation date.
3. Yearly Dividends: Your EPF contributions, along with those made by your employers, may be invested, earning you a minimum of 2.5% in dividends annually. These dividends are credited to your savings, allowing your contributions to grow beyond the original amount.
4. Incapacitation: Access your savings if you’re unable to work due to incapacity.
5. Death: In the unfortunate event of a member’s passing, RM2,500 is paid to the member’s dependents or next-of-kin.
6. Tax Exemption: EPF contributions are tax-deductible, up to a maximum amount of RM4,000.
Update (Year 2022): Malaysia’s Prime Minister Ismail Sabri Yaakob announced in a special press conference on March 16, 2022, that citizens can withdraw up to RM10,000 of their retirement savings from the EPF to help recover from two years of pandemic-related restrictions.
Update (Year 2023): As you may already know, the EPF had allowed four tranches of withdrawals over the past two years due to the pandemic and its economic impact on citizens. An EPF withdrawal of up to RM10,000 was permitted in 2022, following the i-Citra scheme in July 2021, and the i-Lestari and i-Sinar schemes in 2020. As of recent news, EPF withdrawals may not be possible to exercise for 2023.
Conclusion:
The Employee Provident Fund in Malaysia, commonly known as KWSP, is more than just a retirement fund; it’s a lifeline for financial security. From the obligation of contributions to the intricacies of withdrawals and the array of benefits offered, the EPF is a cornerstone of Malaysia’s social security framework.
Understanding how it works and the advantages it provides is crucial for both employees and employers. By offering a safety net for Malaysians at every stage of life, the EPF has become an indispensable element in the nation’s social and economic landscape.
Frequently Asked Questions (FAQs)
What is the EPF in Malaysia?
The EPF, or Employees Provident Fund, is a social security institution that provides retirement benefits to employees in Malaysia through efficient management of their savings.
Who is obligated to contribute to the EPF?
All employers and employees in Malaysia are required to make monthly contributions to the EPF.
Who is exempt from EPF contributions?
Nomadic aborigines, domestic servants, expatriates with foreign domicile, and employees over 75 years of age are exempt.
What are the EPF contribution rates?
The contribution rates vary depending on salary, with both employers and employees contributing, ranging from 9% to 13%.
How can I calculate my EPF contribution?
Employers should refer to the Third Schedule of the EPF Act 1991 for contribution rates, except for wages exceeding RM 20,000.
When should EPF contributions be paid?
EPF contributions must be paid by the 15th of the following month, with late payments incurring penalties.
How can EPF contributions be submitted?
Contributions can be submitted through various methods, including Akaun, e-Caruman application, and bank agents.
How can I register for an EPF account?
Registration can be done automatically through your employer’s first contribution, at an EPF counter, via your employer through i-Akaun, or at an EPF Smart Kiosk.
What are the benefits of the EPF?
Benefits include savings top-ups, Hajj registration, yearly dividends, incapacitation access, death benefits, and tax exemptions.
How do EPF withdrawals work?
EPF withdrawals can be made at 58 years of age, upon retirement, during unemployment, for education, medical expenses, housing, or in cases of natural calamities.