A Guide to Running Payroll in Malaysia

Your step-by-step guide to Malaysia payroll processing

In Malaysia, where statutory contributions like EPF, SOCSO, EIS, and PCB come with strict deadlines and regular updates, payroll teams can’t afford best-guess payroll processes.

From setting contribution rates to filing reports and remitting payments, clarity in each stage reduces your risk of costly errors and missed deadlines. When everyone understands what’s required and when, it’s easier to stay compliant, earn employee trust, and respond confidently to audits or leadership queries.

At Deel, our local, in-house payroll and legal experts support payroll compliance across Malaysia, whether you’re managing payments for a small domestic startup or an international company.

This guide helps you confidently run payroll in Malaysia, avoid common mistakes, and learn how to scale your team with ease.

Who is this guide for?

We built this guide specifically for:

• Payroll managers expanding operations into Malaysia

• Finance leaders focused on keeping tax compliance airtight across borders

• HR professionals onboarding teams in APAC

• Founders who need payroll done right (the first time)

Malaysia payroll guide overview

This guide walks you through every step of setting up and managing payroll in Malaysia:

Key payroll laws and compliance requirements
Understand the legal foundations of payroll in Malaysia, including the Employment Act, Income Tax Act, EPF, and SOCSO regulations. Learn which government bodies enforce compliance and how their rules shape payroll operations.

Employer registration with authorities
Before processing any payroll, employers must register with the Inland Revenue Board (LHDN), the Employees Provident Fund (EPF), and the Social Security Organisation (SOCSO).

Setting up your payroll system
Learn how to structure your payroll system for compliance and efficiency—from collecting employee details and defining salary components to determining statutory deduction eligibility.

Processing payroll and issuing payslips
Discover how to calculate gross-to-net pay accurately, apply EPF, SOCSO, EIS, and tax deductions, and generate payslips that meet Malaysia’s legal requirements.

Remitting contributions and filing returns
Stay compliant by following the right procedures and timelines for remitting statutory contributions and submitting required tax and insurance filings.

Handling payroll variations and off-cycle payments
Understand how to manage optional payments like the 13th-month bonus, handle allowances and reimbursements, and process off-cycle or prorated payouts.

Payroll solutions and centralized management
Explore your options for running payroll in Malaysia, including how Deel Global Payroll can centralize multi-country operations, streamline compliance, and automate complex calculations.

5 steps to setting up payroll in Malaysia

1. Register with local authorities
   Before hiring or paying employees in Malaysia, register your business with the country’s Inland Revenue Board (LHDN), the Employees Provident Fund (EPF), and the Social Security Organisation (SOCSO). Each agency has its own online portal and requirements.

2. Collect employee information
   Gather accurate details for every employee, including tax identification numbers, EPF and SOCSO IDs, bank account information, and, for foreign hires, work permit details.

3. Define salary components
   Structure employee compensation clearly—basic salary, allowances, bonuses, and overtime—and understand which parts are subject to statutory deductions.

4. Set up statutory deductions
   Ensure your payroll system calculates the right contributions for EPF, SOCSO, EIS, and Monthly Tax Deductions (MTD), based on employee type, salary level, and current rates.

5. Prepare to issue compliant payslips
   Payslips must include a detailed breakdown of earnings and deductions. You’ll also need to follow Malaysia’s strict deadlines for salary payment and statutory filings.

How Deel simplifies payroll management in Malaysia

Whether you have an entity or not, Deel makes it easy to hire, pay, and stay compliant with Malaysian labor laws:

Hire employees without a local entity

• Use Deel EOR (Employer of Record) in Malaysia to hire full-time employees without setting up a legal entity
• Deel owns its Malaysian entity, giving you faster onboarding, direct compliance control, and local accountability
• If you already have an entity, you can use Deel Global Payroll to manage in-country payroll with the same platform experience
• You can also hire independent contractors in Malaysia and use Deel to onboard, manage, and pay them

Strengthen compliance with Malaysian labor laws

• Deel automatically handles statutory contributions

• You benefit from real-time tax and labor law updates, including AI-powered alerts to stay ahead of regulatory changes

• Deel ensures all IP rights and contracts are legally compliant and PDPA-aligned for data protection

Simplify payroll and tax management

• Deel’s real-time payroll engine enables instant gross-to-net (G2N) calculations and instant payroll processing
• No reliance on third-party engines—Deel’s unified native payroll system eliminates manual errors and streamlines reporting
• Monthly tax deductions and contributions are automatically calculated and remitted to LHDN and other authorities

Manage the full employee lifecycle

Deel integrates seamlessly with your existing HR and accounting platforms to cut down manual admin. Use Deel to centralize all HR operations in one place:

• Draft compliant employment contracts
• Run background checks
• Administer payroll, equity, and employee benefits
• Automate global IT provisioning with Deel IT