Guide to mandatory retirement scheme

The Malaysian Reserve

December 23, 2013

Among the remunerations that be ca deducted under the Employees Provident Fund include commissions and wages for study leave.

 

by Hann Liew
PETALING JAYA: Last week, in SaveMoney.my’s guide, we explained about the Employees Provident Fund (EPF) and your responsibilities toward it. This time around, we’re back with more about your contributions to Malaysia’s EPF.

What types of income are included for EPF deductions? In general, all payments which are meant to be wages are accountable in your monthly contribution amount calculation.

These include:
• salary;
• payment for unutilised annual or medical leave;
• bonus;
• allowance (except travelling allowance);
• commission;
• incentive;
• arrears of wages;
• wages for maternity leave;
• wages for study leave;
• wages for half day leave; and
• other payments under services contract or otherwise.
Meanwhile, the fol lowing payments are not liable for EPF contribution:
• service charges;
• overtime payment;
• rewards (in kind);
• retirement benefits;
• retrenchment, temporary and lay-off termination benefits;
• any travelling allowance or the value of any travelling concession;
• payment in lieu of notice of termination of employment; and
• director’s fee.

What is the Rate of Contribution to the EPF
Employees below 55 years of age — For employees earning below RM5,000, the portion of the employee’s contribution is 11% of their monthly salary, while the employer contributes 13%.

For employees who receive wages/ salary exceeding RM5,000, the employee’s contribution of 11% remains, while the employer’s contribution is reduced to 12%.

Employees between 55 years and 75 years of age — For employees who have wages of RM5,000 or below, the employer’s new share contribution rate is 6.5% (an increase of 0.5%).

For employees earning more than RM5,000, the employer’s share contribution remains at 6% subject to the total of the wage.

Voluntary Excess Contributions to the EPF
If you or your employer intends to contribute at a rate which exceeds the Statutory Rate, either you or your employer may do so by giving a notice of your intention to the EPF.

To do so, your employer is required to complete Form KWSP 17 (employer) while you are required to complete Form KWSP 17A (employee).

This new rate will be your new Statutory Rate. Upon receipt of the notification, your employer is required to comply with it, as instructed by the EPF.

How are My Contributions Paid?
Your employer must contribute part of your wages along with the employer’s share to the EPF according to the rates specified under the EPF Act 1991. These contributions must be paid monthly.

To do this, your employer has to deduct part of your wages before they are paid to you.

This deduction, together with the employer’s share, must reach the EPF before the 15th day of the following month; any later than the specified date and they will be fined by the EPF. It is an offence under the EPF Act for your employer not to deduct your wages and not to remit the contributions to the EPF after deduction has been made on your wages.

If your deductable wage is RM2,000 a month:
Net amount to employee after EPF deduction: RM1,780 (ie 100%- 11% = 89% of deductable wage);
Employee Contribution: RM220 (11% of deductable wage);
Employer Contribution: RM260 (13% of deductable wage);
Amount payable to EPF by employer: (RM220 + RM260) = RM480.

So now you are aware of how much you contribute, but what happens with the money?
Part 3 of SaveMoney.my’s guide to the EPF will explain all next week.
Hann Liew is the founder and editor-in-chief of SaveMoney.my, an online consumer advice portal which aims to help Malaysians save money.