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Employee Provident Fund (EPF & KWSP) in Malaysia

EPF stands for Employee Provident Fund. An EPF is a government-managed retirement savings scheme that is compulsory in countries like India, Hong Kong, Singapore, Malaysia, Mexico and other countries that are similar to the United States’ Social Security program. As the name goes, EPF in Malaysia is a form of social safety net run by the government that provides retirement benefits to its members.
 

What Is EPF (KWSP)?

In Malaysia, the EPF (also common known as KWSP or Kumpulan Wang Simpanan Pekerja) is a social security institution formed according to the Laws of Malaysia, Employees Provident Fund Act 1991 (Act 452) which provides retirement benefits for member through the mandatory contribution from two parties: a portion of an employee’s salary and employer’s contribution on behalf of their workers. The EPF actually provides a framework for employers to meet their statutory and moral obligations to their employees through persistent monthly contribution into the employee’s retirement fund.
 

Who Is An Employer?

An employer is defined as a person(s) with whom an employee has a contract of service or apprenticeship.

Employer includes:

  • Manager, agent or person responsible for the payment of wages to an ’employee’
  • Any group of persons whether statutory or non-statutory or incorporated
  • Any Government, Government Department, Statutory Body, Local Authority or other bodies as specified in the Second Schedule to the EPF Act 1991

 

Who Is An Employee?

An employee is defined as a person who is employed under a contract of service or apprenticeship. The contract of service or apprenticeship can be written or oral, expressed or implied. 
 

Is Partner or Sole Proprietor An Employee?

Under the definition of EPF, sole proprietor or partner is not an employee but self-employed person. Therefore, EPF contributions are not compulsory but they can opt for self contribution.
 

What are the payment that are liable for EPF contribution?

All remuneration in money due to an employee under his contract of service or apprenticeship whether it was agreed to be paid monthly, weekly, daily or otherwise.

Among the payments that are liable for EPF contribution:

  • Salary
  • Payment for unutilised annual or medical leave
  • Bonus
  • Allowance
  • Commission
  • Incentive
  • Arrears of wages
  • Wages for maternity leave
  • Wages for study leave
  • Wages for half day leave
  • Other payments under services contract or otherwise

 

What is the Mandatory Monthly Contribution of EPF (KWSP)?

i. Employee – 8% (or 4% for employees above age 60) contribution of the monthly wages will be automatically deducted from the employee’s salary#1

ii. Employer – 13% contribution of the monthly wages of RM 5,000 and below; 12% contribution of monthly salary above RM5,000#2

#1 Employees who wish to maintain their employees’ share contribution rate at 11% (or 5.5% for employees above age 60) must complete and sign the Form KWSP 17A (Khas2016) and submit it to their respective employers. Employers should then verify that the form has been properly completed before compiling them and submit to the nearest EPF branch.

The optional rate(s) will be reset to 11% (or 5.5% for employees above age 60) with effective from 1 Jan 2018 wages.

#2 Malaysian government encourages the employer to contribute more than the statutory requirement where any extra contributions is tax deductible up to 19% of the employee’s pay.
 

What is Self Contribution?

The EPF contribution is not limited to those required under the EPF Act 1991. Voluntary participation of those who are not covered under the EPF law is strongly encouraged. Furthermore, it is an advantage to have retirement savings.

Persons who are allowed to make a self contribution under the EPF Act 1991 are as below:

a) A domestic servant working in a residential home and employed by a private individual (owner of the residence).

b) Owners of a sole proprietorship or business partners who do not receive wages, retired workers and those who not defined as employers or employees in the EPF Act 1991.

c) Malaysian citizen employees who have withdrawn all of their savings under the Leaving the Country Withdrawal Scheme and have returned and working in Malaysia.

The contribution payment can be made via Form KWSP 6A(1).

On a final note, the mechanism of compounding can enhance the value of savings where each Ringgit you save now can be greatly outweighed by the flexibility you gain later. In addition, EPF, as Malaysia’s premier retirement savings fund, promises to deliver real dividend to all its members.