A study found that 71% of employees worked overtime at least once a week. While this can boost productivity, failing to compensate your employees for these extra hours violates a major Philippines labor law. 

ADP Research Institute reports that unpaid overtime increased from an average of 7.3 hours a week in 2020 to 9.2 hours per week in 2021. This trend is concerning in a country like the Philippines, where protecting employees and ensuring fair compensation are priorities.

When it comes down to how to compute overtime pay Philippines, it can be complex for HR professionals and business owners, especially if they are not familiar with the labor laws. Manual methods can be time-consuming and prone to errors.

This guide explains how to compute overtime pay Philippines, helping you navigate this process and ensuring compliance with labor laws.

What is overtime pay?

Overtime pay is a crucial component of how to compute overtime pay and is mandated by Philippine labor law, governed by the Labor Code, as it compensates employees for working beyond regular hours. 

The law stipulates normal work hours of eight per day or 48 per week, with overtime pay rates varying depending on the day. For instance, on regular workdays, overtime pay is set at 25% of the regular hourly rate, while on rest days and holidays, it is 30% of the hourly rate.

This compensation is designed to protect employees from exploitation and ensure fair pay. HR teams and employers should foster transparency in their company culture. The essence of overtime pay is to protect employees from exploitation and ensure they receive fair compensation for their work. Understanding how to compute overtime pay rates accurately is essential to avoid errors.

What are the types of overtime pay?

In the Philippines, there are specific labor laws governing overtime pay. These regulations state the types of overtime pay and the different rates for regular days, special days, rest days, and holidays. 

1. Regular day overtime 

Employees get this compensation when they work overtime on ordinary work days

2. Rest day overtime 

This is the compensation for employees who work during their rest days. Usually, rest days are at least 24 hours after every six consecutive regular work days. 

3. Special holiday overtime 

When employees work on a day the government declares as a public holiday, they are to be compensated with extra pay for the additional hours rendered.

4. Regular holiday overtime

This is the pay for working on regular holidays like Christmas, Eid’l Fitr, Maundy Thursday, Christmas, or New Year’s Day.

5. Emergency overtime

This is the payment for work done during war, natural disasters, or emergencies when urgent work is needed to prevent loss of life or damage.

In addition to understanding how to compute overtime pay Philippines, it’s crucial to use an accurate formula that takes into account specific circumstances and labor regulations. This is necessary because computations differ for each additional hour worked, and employees can earn more based on the type of overtime pay.

For example, when employees work on a special holiday, they should receive an additional payment of at least 30% of their regular wage. If the holiday falls on their scheduled rest day, the employee is entitled to an extra rate of at least 50% of their regular wage. 

Who is eligible for overtime?

To learn how to compute overtime pay Philippines, it is important to first understand who is eligible for overtime. Regular employees are eligible for overtime pay. However, exceptions include:

• Managerial employees

These are employees whose main job involves supervising the company, a department, or other management team members. Managerial employees aren’t entitled to overtime pay when they exceed eight working hours.

• Field personnel

This refers to non-agricultural employees who carry out their duties outside the principal place of business. They’re not eligible because their actual work hours in the field aren’t certain. 

• Retail and service establishments

Retail and service establishments with less than ten workers are not eligible for overtime pay.

Other employees not eligible for overtime, as provided under Article 82 of the Labor Code, are:

• The employer’s family members depend on them for support.
• Domestic helpers 
• Individuals in the personal service of another
• Workers are paid by results determined by the Secretary of Labor in appropriate regulations.

When can employers require overtime work?

The Labor Code spells out the requirement for overtime work Philippines and provides a legal framework for fair compensation. Per the code, employers can request overtime work during:

• National emergencies

The National Assembly or the Chief Executive can declare a national emergency during situations that threaten the nation’s security, economy, or welfare. Such emergencies include natural disasters, terrorist attacks, economic crises, and public health emergencies. You can request overtime work during this period.

• Local emergencies

Demand extra work during certain events threatening public safety, health, or property within a particular city, state, or town. Such local emergencies include natural disasters, power outages, pandemics, or other unforeseen emergencies.

• Urgent tasks on machines, installations, or equipment

When your company’s machines, installations, or equipment need urgent fixing, you’re entitled to demand extra hours.

• Prevent loss or damage to perishable goods

Request additional working hours when needed to avoid the loss or damage of certain goods. However, you must be sure the situation requires overtime work by considering the nature of the perishable goods, how urgent they are, and the likely consequences of not acting on time.

• Abnormal pressure of work due to special circumstances

Ask employees to work overtime when there’s much extra work due to special situations. This request should be made when alternatives like outsourcing tasks, hiring makeshift workers, or adjusting schedules are difficult to adopt.

• Completion of work needed before the regular 8-hour workday

Employees can work extra hours if needed to complete or continue a task started before the eighth hour to avoid serious problems for business operations. 

Can employees request or refuse overtime work?

Employees can request overtime to extend their working hours beyond the regular schedule, but approval depends on factors like labor laws, operational needs and company policies. 

HR teams consider factors such as performance, availability, budget, workload, and staffing levels when granting these requests.

Overtime work in the Philippines is voluntary, and employers should not compel employees to work beyond their standard hours. However, compulsory overtime is allowed during emergencies, imminent losses, or critical business situations. Refusal to work additional hours during such circumstances may lead to disciplinary actions or termination. 

How to compute overtime pay Philippines?

Paying for overtime has the advantage of boosting employee productivity. The additional compensation enhances employee engagement, motivating employees to strive harder to achieve goals. Ultimately, this approach ensures that every hour worked is fairly compensated in accordance with the law.

However, it all begins with an accurate overtime pay formula to properly show you how to compute overtime pay. This process may appear complex at first glance. For example, you cannot simply calculate overtime pay by multiplying additional hours worked by a fixed rate. Instead, you must adhere to the specific regulations that govern how to compute overtime pay Philippines.

1. Determine the regular hourly rate

The first step on how to compute overtime pay Philippines is to set the hourly rate. As we established previously, the standard working hours in the Philippines are eight hours per day or 48 hours per week. So, to get the regular hourly rate, work with the employee’s salary or daily wage.

Read next: Philippines Minimum Wage Guide for Employers

Say you’re in the Davao region, and your company is in the non-plantation agricultural sector. The Philippine minimum wage for this sector is ₱457 per day. To get the hourly rate, divide the daily wage by eight hours.

For example: ₱457/8= ₱57.125 as hourly rate.

On the other hand, you’ll have to determine the daily wage if you’re working based on salaries. 

For example: if an employee earns ₱50,000 monthly and works 22 days per month, the daily wage would be:

₱50,000 / 22 = ₱2272.727

Now, to get the hourly rate, divide the daily wage by 8:

 ₱2,272.727 / 8 = ₱284.09 

2. Identify the applicable overtime rate

Up next on how to compute overtime pay, identify the applicable overtime rate, which typically ranges from 125% to 200% of the employee’s regular wage rate, with higher rates during rest days and holidays. 

Since the overtime rate depends on the type of overtime, here are examples of applicable rates per day:

• Regular work day: 25% wage increase for each hour.
• Rest day or special day: 30% wage increase per hour.
• Special holiday that falls on a scheduled work day: 50% wage increase. 
• Regular holiday: 30% wage increase.
• Overtime work falling on a scheduled rest day: 30% wage increase.
• Night shift: at least a 10% wage increase for each hour.

3. Calculate the overtime hours

The next step on how to compute overtime pay is to calculate the extra hours worked for overtime pay. For example, if an employee worked overtime for a day, that would be eight hours. If they worked an additional two hours, the overtime would be two hours. This information is crucial for the subsequent steps in the overtime pay formula.

4. Compute the overtime pay

Compute the overtime pay depending on the applicable OT rate. 

For example, using the 25% overtime rate for a regular workday:

Multiply the hourly rate by 125%, that is 1.25. 

If the base hourly rate is ₱100, the overtime pay per hour will be ₱125.

5. Add up the total overtime pay

The final step on how to compute overtime pay Philippines is to add up the total overtime pay. 

If an employee works two extra hours on a regular workday at an hourly rate of ₱100, their overtime pay would amount to ₱125 X 2, totalling an additional ₱250 to their regular wage. Working two hours for five days in a week would result in an additional of ₱1250 to their regular wage by the end of the week.

Calculating overtime pay for night shift employees

Employees who work between 10:00 pm and 6:00 am are entitled to a night shift differential (NSD) of at least 10% of their regular hourly wage.

In this case, the steps above to compute overtime pay for night-shift employees still apply.

For example, if an employee worked two additional hours during a night shift and their hourly wage was ₱100, it’ll amount to:

₱100 x 10% = ₱10 + ₱100 = ₱110 as the NSD rate.

₱110 x 1.25 = ₱137.50 as the overtime rate.

₱137.50 x 2 hours = ₱275 as overtime pay.

Ways to Ensure Responsible Overtime Practices

Overtime can boost productivity and income in a company. However, knowing how to compute overtime pay Philippines is just the beginning; effectively managing the process is equally important. 

Failure to manage extra working hours properly can lead to serious consequences, including a lack of work-life balance, employee burnout, reduced engagement, and ironically, lower productivity.

To mitigate these risks, consider these steps to manage your employees’ overtime effectively: 

Plan and schedule work effectively

Forecast workload changes by reviewing past data and business trends. This prepares you and leaves enough room to add extra working hours to the company’s schedule. Then, set realistic goals and delegate tasks based on importance and urgency for better execution.

Compensate employees fairly

Fair compensation is a fundamental aspect of the Philippine labor code and a key driver of employee motivation. By following the steps outlined on how to compute overtime pay Philippines, your company will give employees fair payment for additional hours worked.

Maintain clear communication and accurate records

Effective communication is essential in any organization. Internal communication channels should facilitate this to ensure employees provide prompt responses and feedback. It’s also important to align communication with your company values. Use channels such as newsletters, emails, communication apps, and 1-on-1 meetings to enhance communication and involve everyone, including remote workers.

Additionally, maintaining accurate records of employees on your payroll is crucial. Managing performance ensures alignment with your company’s remuneration and goals. Secure employee records allow HR teams to easily access employment contracts and necessary documents to assist with how to compute overtime pay Philippines and other wage adjustments. This approach helps in developing a company culture that fosters employee satisfaction and growth.

Promote healthy work-life balance

Maintaining a healthy work-life balance is a crucial aspect for employee well-being, productivity, and job satisfaction. Encourage employees to manage their time effectively and prioritize their health, relationships, and interests outside of work. 

Provide support through flexible work arrangements, rest periods, clear communication of expectations, time off, and activities that enhance mental, physical, and emotional well-being.

Optimize Overtime Management with HR Tools

Ensuring accuracy in computing overtime pay is crucial for both employees and employers. It not only helps in complying with labor laws but also fosters trust and fairness in the workplace. 

Additionally, optimizing overtime management with HR tools like Omni can streamline processes, reduce errors, and improve overall efficiency on how to compute overtime pay Philippines. 

With features like support for Philippine peso, automated tax calculations, and managed SSS, PhilHealth and PAG-IBIG contributions, Omni can help HR simplify the overtime pay formula and ensure compliance to the Labor Code with ease. 

Book a demo with us today and see how Omni can simplify the intricacies and complexities on how to compute overtime pay in the Philippines and minimize the costs associated with common errors.

What is the Philippine Labor Code?

The Philippine Labor Code is a comprehensive legal framework designed to regulate employment practices, labor relations, and company standards within the Philippines. Established to protect the rights and welfare of workers, the Code sets forth the legal standards for wages, working hours, benefits, and conditions of employment. 

It serves as the cornerstone for labor relations, providing mechanisms for dispute resolutions between employers and employees and ensuring fair labor practices. The Labor Code of the Philippines 2024 is dynamic, periodically updated to address the evolving needs of the workforce and the economy, making it essential for employers in medium-sized businesses across APAC to stay informed and compliant to foster a positive work environment. 

Who is covered under the Labor Code?

The Labor Code of the Philippines 2024 encompasses a wide range of individuals within the employment sphere, aiming to provide comprehensive protections and standards across various employment types. Specifically, it covers:

• Regular employees: Those who perform activities necessary to the usual business operations of the employer, signifying a long-term relationship.
• Project employees: Individuals with fixed employment for a specific project, of which the employer specifies the duration and scope at the engagement time.
• Seasonal employees: Workers employed for tasks or activities that are seasonal in nature, and their employment is limited to the duration of the season.
• Casual employees: Those engaged in work that is not part of the employer’s regular business and is only occasional or temporary.
• Probationary employees: Employees on trial during a given period, allowing the employer to determine their suitability for regular employment based on standards made known to the employee at the time of engagement.

Additionally, the Labor Code provides specific provisions for domestic workers, known locally as “Kasambahay,” covering their rights and welfare distinctly.

However, the Labor Code excludes certain groups from its coverage, including government employees governed by civil service regulations, international organizations with diplomatic immunities, and individuals in the informal sector under specific conditions.

This broad coverage ensures that the vast majority of workers in the Philippines are protected under labor laws, promoting fair treatment in the company and providing mechanisms for resolving employment disputes. Understanding this coverage as HR teams and business owners is essential in developing policies compliant with the Labor Code of the Philippines 2024, fostering a sound and supportive work environment.

What are the types of employment?

The Labor Code of the Philippines 2024 defines various types of employment to accommodate the diverse nature of work arrangements and industry practices. Understanding these classifications is crucial for HR teams and business owners to ensure compliance with labor standards and foster a productive work environment. Here’s a breakdown:

Regular employment

This type signifies a permanent employment status, where an employee performs tasks necessary to the business’s operation. The Labor Code ensures that regular employees are entitled to full benefits and job security, including the right to unionize and receive employer-contributed social, health, and welfare benefits.

Project employment

Employers hire project employees for specific projects or undertakings with predetermined durations. The employment automatically ends at the project’s conclusion. While project employees receive the same benefits as regular employees during their project’s term, they lack tenure security after the project finishes.

Seasonal employment

Similar to project employment, employers hire seasonal employees for work that aligns with the seasonality of the operation, and the employment lasts only as long as the season does. One may consider these employees as regular employees, but this status lasts only during the season of their employment.

Casual employment

Casual employment involves hiring workers for tasks not typically essential to the employer’s main business. Employers may consider a casual employee as a regular employee with respect to the performed activity if they work for at least one year, continuously or intermittently.

Fixed-period employment

Also known as term or contract employment, this arrangement involves an employee agreeing to provide services for a specific period. This type of employment remains valid only when based on the intrinsic quality of the work and not aimed at circumventing workers’ tenure rights.

For modern, medium-sized businesses in APAC with a progressive mindset, recognizing these employment types and their respective rights, benefits, and limitations is key to managing a happier team. Proper classification avoids legal pitfalls and fosters a better company culture by ensuring employee engagement under fair and clear terms.

What are the key provisions of the Labor Code?

The Labor Code of the Philippines 2024 provides a framework of rights and standards aimed at protecting workers while ensuring that employers can maintain a productive and efficient workforce. Here are some of the key provisions outlined in the labor code that HR teams and business owners should be aware of:

Minimum wage

The Labor Code of the Philippines 2024 requires employers to pay a minimum wage for workers, which varies across regions to account for the differential cost of living. Employers must comply with the Philippines minimum wage rates, ensuring that employees receive fair compensation for their labor.

Read next: Philippines Minimum Wage Guide for Employers

Working hours

Standard working hours are set at eight hours per day, for a total of 48 hours per week. Employers must compensate employees at a higher rate for hours worked beyond the standard, known as overtime pay.

Night shift differential

Employees who work between 10 PM and 6 AM are entitled to a night shift differential of at least 10% of their regular wage. This provision ensures fair compensation for workers contributing labor during less desirable hours.

Rest days

The Labor Code guarantees employees a minimum of one rest day after every six consecutive workdays. This provision enables them to rest, recover, and allocate time for personal activities or spending time with family, thereby helping to prevent employee burnout.

Maternity & paternity leave

Female employees are entitled to maternity leave benefits, while male employees can avail of paternity leave, supporting parents in balancing their work and family responsibilities.

Parental leave

In addition to maternity and paternity leave, the law allows qualified solo parents to take parental leave, acknowledging the unique challenges single-parent families face.

13th month pay

Employers must give their employees a 13th-month pay, equal to 1/12 of the total basic salary an employee earns within a calendar year, and pay it on or before December 24th each year. This practice serves as a meaningful way to recognize and reward employees for their hard work and dedication throughout the year, boosting employee morale and fostering a positive work environment. 

Read next: 12 Employee Recognition Examples to Keep Your Team Engaged All Year

Special leaves for women

Female employees are entitled to special leaves for reasons related to their health and safety, such as cases of gynecological disorders, provided that they have rendered at least six months of continuous aggregate employment.

Service incentive leave

Employees who have rendered at least one year of service are entitled to a yearly service incentive leave of five days with pay.

For businesses in the APAC region striving to cultivate a progressive company culture, adherence to these provisions is about valuing employee welfare and promoting a supportive and equitable work environment. Understanding and implementing these key provisions of the Labor Code of the Philippines 2024 can significantly contribute to fostering happier, more productive teams.

What are the three ways of termination under the Labor Code?

The Labor Code of the Philippines 2024 specifies conditions for terminating employment, protecting employees’ rights, and enabling employers to manage their workforce effectively. Understanding these conditions is crucial for HR teams and business owners to handle termination processes legally and ethically. Here are the three primary ways of termination as per the Labor Code of the Philippines 2024:

Termination for just cause

This refers to termination initiated by the employer due to actions of the employee that constitute a serious violation of company rules or standards. Examples include habitual neglect of duties, willful breach of trust, commission of a crime against the employer or any immediate family member, and other similar cases. The process requires due notice to the employee, providing an opportunity to explain or defend their actions.

Termination for authorized cause

This type of termination is due to operational requirements of the business such as installation of labor-saving devices, redundancy, retrenchment to prevent losses, closure or cessation of operation, and disease or illness of the employee that risks the health of the workforce. In such cases, the employer must give both the employees and the Department of Labor and Employment written notice at least 30 days before the termination takes effect, along with the appropriate separation pay as the law mandates.

Termination based on serious diseases or health conditions

When an employee cannot perform their duties due to a serious illness, the employer has the right to terminate employment to maintain operational productivity and protect the wellbeing of other employees. The Labor Code requires a medical certificate to support the termination decision, stating that the disease remains incurable within six months despite proper medical treatment. The employee is entitled to separation pay in accordance with the provisions of the Labor Code of the Philippines 2024.

Navigating the termination process and notice periods with fairness, compassion, and legality is paramount for fostering a better company culture and growing productive teams. Adhering to the Labor Code’s stipulations on termination reinforces your company’s commitment to ethical business practices and respect for individual rights.

Relevant reads: 10 Impactful Exit Interview Questions to Improve Your Employee Experience

Ways to Stay Compliant with the Labor Code

Staying compliant with the Labor Code of the Philippines 2024 is essential for businesses in the APAC region, to avoid legal repercussions and foster a positive company culture that values fairness and respect for employees’ rights. Here are practical ways for HR teams and business owners to ensure compliance:

Stay updated on regulations

Labor laws and regulations can evolve, reflecting changes in the socio-economic landscape or in response to emerging company trends. It’s crucial for businesses to stay informed about these changes. You can achieve this by regularly consulting with labor law experts and participating in seminars and training sessions focused on labor law compliance.

Adopt clear and transparent policies

Developing and implementing company policies that align with the Labor Code of the Philippines 2024 is fundamental. These policies should cover all aspects of employment, from hiring to termination, and include detailed provisions for wages, benefits, working hours, leave entitlements, and grievance-handling procedures.

Leverage HR technology 

Modern HR tools can significantly aid in maintaining Labor Code compliance. These systems can help in maintaining accurate employee records, which are crucial for audit purposes and in case of labor disputes. Investing in the right HR software not only streamlines administrative tasks but also minimizes the risk of non-compliance.

Read next: Top 6 HRIS Philippines for 2024

For businesses aiming to cultivate a progressive and inclusive company culture, adherence to the Labor Code of the Philippines 2024 is non-negotiable. By staying informed, adopting clear policies, and utilizing technology, HR teams and business owners can ensure compliance and build stronger foundations for happier, more productive teams.

Building a Just and Equitable Work Environment

The Labor Code of the Philippines 2024 plays a crucial role in shaping a fair and equitable work environment by providing clear guidelines for employment practices. Organizations can ensure compliance with its provisions by implementing HRIS. 

With Omni’s all-in-one HR solution, you can enhance transparency and communication between employers and employees. Our self-service portals empower employees to access their work related information, including payslips, leave balances and company policies, fostering trust and engagement within the team and promoting a positive workplace culture.

Omni streamlines payroll processes, reducing manual errors and reducing the administrative burden on HR. With secure and centralized employee records, HR teams can easily store, update and share employee information across departments and with employees, ensuring compliance with the Labor Code of the Philippines 2024 at every step of the way. 

If you’d like to learn more about how Omni’s all-in-one HR software automates the entire end-to-end employee lifecycle, book a demo with our team.

Tax in Malaysia comes with varying regulations and frequent updates for individuals and businesses alike, it can be tough to keep up with these changes. 

Even though some employers use all-in-one HR systems that offer compliance to stay on top of their game, as the year unfolds, one of the tax-related responsibilities Malaysian employers are required to do for their employees is preparing the EA and E form with the Inland Revenue Board, or Lembaga Hasil Dalam Negeri (LHDN). 

In this article, we’ll guide you through understanding the EA Form Malaysia and Form E,  it’s importance, and overall human resource development 

Understanding EA Form Malaysia

As an employer operating in Malaysia, understanding the rules and regulations on payroll processes and taxation helps run your organization.

Employers or business owners are expected to prepare and provide the EA Form Malaysia for their employees as required by the Inland Revenue Board of Malaysia (IRBM). 

Employers must prepare EA Form for every employee, regardless if they are full-time or part-time employees. As long as the employee has worked for more than seven days, and has received payment for their work, they are eligible for the EA Form Malaysia. 

To comply with regulations, HR managers must correctly prepare the EA Form Malaysia, which should be distributed to employees before the end of February as required by the revenue board. 

What is EA Form Malaysia?

The EA Form Malaysia is a statement of remuneration from employment, it is a statutory document that contains the summary of an employee’s total earnings from his/her employer for the year.

The EA Form Malaysia which can also be referred to or recognized as CP8A form or Borang EA, allows for individual tax returns to be put together and also includes statutory contributions paid from the past year.

Filling this form allows employees to file their taxes properly and enables them to accurately declare their earnings to LHDN. 

What is the purpose of the EA Form?

With the EA form Malaysia, employees can determine their income tax bracket and help with the payment of personal income tax in the year. 

The purpose of the EA Form is to make sure that the exact amount of earnings, deductions, contributions, exemptions, and any other taxes paid although the year is declared correctly in the employee’s income tax filing. 

Another purpose of EA Form Malaysia is that it serves as a guide for tax payment and can also be used as a reference to declare or disclose the accurate amount of yearly earnings as well as deductions when filing income tax in Malaysia.

Who is in charge of preparing the EA Form?

Employers are expected to prepare EA Form Malaysia for their employees, this is required by the Inland Revenue Board of Malaysia (IRBM).

Although employers are not required to submit EA Form Malaysia to LHDN, neglecting to prepare it could lead to penalties including a fine of up to RM20,000, imprisonment for a maximum of six months, or both.

If an employee switches jobs multiple times within a year, they can have more than one EA Form. The HR manager of the organization must know how to prepare the forms correctly and distribute them to the company’s employees before the provided deadline.

What is included in the EA Form?

The EA Form Malaysia should include details on: 

• Employee’s gross salary
• Supplemental compensation
• Contributions to private pensions done by by employers
• Current rebates
• Commission
• Bonus or other gratuities
• Allowances/perquisites (e.g. travel allowance, meal allowance)
• Benefits-in-kind (such as health insurance, company apartment, and  car)
• Value of Living Accommodation (VOLA)
• Compensation for loss of employment
• Additional tax deductions

Understanding Form E for Tax in Malaysia 

Aside from EA Form Malaysia, companies and business owners are expected to also submit another mandatory document for tax in Malaysia, which is Form E Malaysia. 

Form E Malaysia is an essential report that must be submitted by the company to the LHDN. Due to recent updates, the LDHN no longer accepts manual entries from companies when filing Form E, therefore companies have to use the LHDN’s e-PCB system or an LHDN-approved payroll software.

Read next: The Top 5 Payroll Software Malaysia Teams Are Using in 2024

What is Form E Malaysia?

Form E Malaysia is a report submitted by employers to the IRB, declaring the total number of employees the company has and the list of employees’ income details yearly.

Form E Malaysia, also known as Borang E, is an annual report submitted by employers to the Malaysian Inland Revenue Board. It includes the total number of employees in the company and details of their income. 

What is the purpose of Form E Malaysia?

Form E Malaysia is used by employers to report employment income, tax deductions, and other relevant information for their employees to the Inland Revenue Board of Malaysia. 

It provides employees with information necessary for filing their tax returns for annual tax reporting and compliance with tax regulations. 

Who is in charge of preparing Form E Malaysia?

Similar to the EA Form Malaysia, companies or employers are responsible for preparing and submitting Form E Malaysia, with the human resource department typically managing this task.

Companies registered with the Companies Commission of Malaysia (Sdn Bhd, Berhad, LLP), whether or not they have employees, as well as sole proprietors and partnerships with employees, are required to submit Form E Malaysia. 

While sole proprietors and partnerships without employees are not obligated to prepare Form E Malaysia, it is advisable for them to maintain relevant details. 

What is included in Form E Malaysia?

Form E Malaysia includes details of the company/employer’s name, identification number and reference number.

It also contains information such as: 

• Number of staff employed by the company
• Amount of tax deductions annually 
• Employee’s salaries 
• Numbers of new employees hired
• Amount given as compensation
• Numbers of employees who have resigned and no longer work with the company.

When are the EA Form Malaysia and Form E Malaysia due? 

The employer is expected to distribute the EA Form Malaysia to employees by the last day of February following the end of the financial year, which is the year immediately following the first year mentioned. 

This requires employers to provide employees with an EA Form by the 28th of February of the assessment year. 

Form E Malaysia, on the other hand, is submitted by companies or employers once ever year. For those who fill out the form online using the portal, the last day of submission in the succeeding year (year of assessment) is the 30th of April.

What are the penalties for late submission?

Failing to meet deadlines for tax in Malaysia can result in significant consequences, both in terms of monetary fines and other penalties. Employers are acutely aware of these implications and must prepare EA forms for their employees on time to avoid the penalties imposed for non-compliance.

Here are some of the penalties associated with both the EA Form Malaysia and Form E Malaysia: 

Legal and monetary consequences 

According to Section 83(1A) of the Income Tax Act 1967, Malaysian employers are mandated to prepare and submit EA Forms to their employees on the last day of February.

Companies who fail to comply with this requirement can get penalties, including monetary damages ranging from RM200 to RM20,000, and imprisonment for up to six months, or both. 

When a company constantly submits late, the tax authorities will begin to closely review future submissions and it can tarnish the company’s reputation if not corrected. 

Possibility of errors in taxing 

Preparing the EA Form Malaysia and Form E Malaysia ahead of time gives employers ample time for thorough inspections, guaranteeing accuracy. 

Data inaccuracy can lead to errors in tax calculations and payments, potentially leading to issues with tax authorities. 

Employers should be reminded to also account for any change in employment status, such as promotions or resignations, and employee benefits while preparing EA Form Malaysia.

Risk of employee dissatisfaction 

Submitting the EA Form Malaysia and Form E Malaysia ahead of schedule can alleviate the tax season rush for employees. It also demonstrates employers’ commitment to employee well-being and tax compliance. 

When employers provide these forms early for tax in Malaysia, employees can concentrate on their tasks as planned. This enhances employee engagement and fosters trust in the employer, cultivating a more positive workplace culture.

Empowering HR Leaders for Tax Success

Timely submission of EA Form Malaysia and Form E Malaysia is crucial for both employees and employers for filing tax in Malaysia. It not only ensures compliance with tax regulations but also demonstrates an employers’ commitment to their employees’s financial security. That’s why it’s important to have the right HR tools by your side to ensure accuracy.

Omni helps HR teams stay up to date with the latest laws and regulations while streamlining the end-to-end employee management lifecycle. Our comprehensive payroll solution is tailored to Malaysia’s specific requirements. With features like support for MYR, automated tax calculations, and instant payroll reports, Omni can help HR teams simplify the preparation of EA Form Malaysia and Form E Malaysia, while ensuring compliance.

Ensuring compliance with tax regulations in Malaysia is a crucial responsibility for both individuals and businesses. While tax filing can sometimes feel like a complex process, having a clear understanding of the relevant requirements can significantly reduce stress and expedite the completion of your tax return. We’ve prepared a guide that contains everything you need to know about filing Malaysia income tax. 

What is LHDN/IRBM?

The Inland Revenue Board of Malaysia (IRBM) also known as Lembaga Hasil Dalam Negeri (LHDN), is the government agency responsible for managing Malaysia tax. They are directly connected to filing Malaysia tax either from individuals or businesses, and their roles include collection of taxes and administration of tax laws. Various taxes such as income tax Malaysia, corporate tax, and property tax are collected by the IRBM. They also oversee the implementation of Malaysia tax laws such as the Income Tax Act 1967. 

What is Potongan Cukai Bulanan (PCB)/ Monthly Tax Deduction (MTD)?

Potongan Cukai Bulanan (PCB) refers to the monthly tax deduction for Malaysia tax. It comprises a series of monthly deductions that go towards your employment income. These monthly deductions are retained by your employer and paid over to the inland revenue board. 

What is the purpose of PCB?

When it comes to filing Malaysia tax, PCB simplifies the process for both taxpayers and the government in two ways:

1. Spreading out payments: Employees can choose to file annual tax returns on their income, but instead of having a larger tax bill at the end of the year, PCB allows for a pay-as-you-earn system. In other words, employers can deduct from employees’ monthly salary. This makes tax payments more manageable and avoids a big financial burden come Malaysia tax season. 

2. Ensures timely collection of taxes: By collecting Malaysia income taxes throughout the year, the IRBM receives a steady stream of income. This helps the government with budgeting and ensures they have the funds they need to operate. It reduces the risk of people neglecting or delaying Malaysia tax payments.  

What is subject to PCB?

PCB is mandatory for employees whose annual employment income exceeds RM 34,000 after EPF deductions. This means you have to register for an income tax file with IRBM first. In other words, the monthly tax deduction applies to those who have registered for a tax file and whose salary surpasses the monthly threshold, which leads to the next thing — the income threshold.

The income threshold for filing for income tax Malaysia is the minimum amount of income you must earn to be required to file a tax return. The specific income threshold depends on several factors, including your filing status (single, married, filing jointly, etc) and age. 

For Malaysia tax, it falls under these two categories:

Single individual: RM 2,851 and above

Married and Unemployed spouses: RM 3,851 and above. 

While some items are not subject to PCB, such as certain benefits or allowances received with your salary, they are typically referred to as Benefits-in-kind (BIK) and Variable allowance (VOLA). 

BIK includes benefits that cannot be converted to money such as dental benefits, childcare benefits, leave passage (subject to specific conditions, which you should consult your employer and HR department about), and free transportation. You can choose to include these benefits in your PCB deductions by informing your employer through a specific form. 

Relevant reading: Your Guide to Malaysia Payroll

What is the income tax rate for residents?

The Malaysia income tax rate for residents refers to the percentage of an individual’s income that they are required to pay in Malaysia tax based on their tax residency status.

Tax residency status

In Malaysia, you are considered a tax resident if you meet any of the following criteria:

• 182-Day Rule: This is the most common way to qualify as a tax resident. If you spend at least 182 days physically present in Malaysia during a calendar year, you’re considered a resident for tax purposes. The days don’t have to be consecutive.

• Less Than 182 Days with Ties: Even if you’re in Malaysia for less than 182 days, you might still be a resident if you have strong ties to the country. This could include having a permanent home in Malaysia, your family residing there, or being employed in Malaysia for most of the year.
• 90-Day Rule with History: This is a temporary rule valid until December 31st, 2026. If you’re present for at least 90 days in a year and have been resident/present for 90 days in any three of the past four years, you may be considered a resident.

Malaysia’s income tax rates for resident taxpayers are progressive. This means that higher-income earners pay proportionately higher taxes. 

To figure out how much tax you owe, you’ll need to refer to the official tax tables published by the Inland Revenue Board of Malaysia (LHDN). 

However, If you’re a non-resident individual, your income is taxed at a flat rate of 30% on the taxable income.

If you’re filing for Malaysia tax, it is important to know the types of income that are taxable and they include:

• Employment income
• Gains or profits from a business
• Dividends, interests, or discounts
• Rent, royalties, or premiums
• Pensions or annuities
• Any benefits offered by the employer that can be converted to cash

Employer’s Responsibility for PCB

1. Register with IRBM

Employers need to register with the Inland Revenue Board of Malaysia (IRBM) to be authorized to deduct PCB from their employees’ salaries. If your employee is newly taxable, he/she must register an income tax reference number. You can also register online via e-Daftar. 

2. Monthly tax deduction

Calculate and deduct based on the schedule of MTD

Employers in Malaysia must calculate each employee’s monthly PCB income tax Malaysia using a schedule provided by the IRBM. 

This schedule considers factors like the employee’s salary and eligible tax reliefs. Deducting income involves calculating the total monthly remuneration. Reimbursements (money paid back for spending), allowances (money paid by employers for specific purposes, not as income), and other statutory deductions (EPF, SOCSO, and EIS) must be deducted from the monthly pay first. 

To determine the amount applicable to an employee, refer to the MTD table published periodically by LHDN. 

Pay deducted MTD amount to IRBM

After the deduction is done, you may proceed with submitting the MTD statement to LHDN through e-Data PCB.

You may remit payment in any of the following channels:

• FPX on the IRBM website after filing e-CP39/e-Data PCB/e-PCB
• IBG at all bank counters by using PCB/CP39 account number
• IBG through Internet banking by using PCB/CP39 account number (CIMB only) or
• Cheque/cash/counter (CIMB only)

3. Annual tax reporting

Employers are required to submit various forms to the IRBM annually for Malaysia tax reporting purposes. These forms include:

Form E submission

Employers are required under the Income Tax Act to file an annual tax report with the authorities by March for income tax Malaysia. This report consists of Form E, which summarizes employee headcount, and Form CP8D, detailing employee earnings. 

Form E is a declaration report submitted yearly to the IRBM, listing each employee’s income and deductions. It is crucial for accurate and timely submission, as it plays a critical role in reporting employee income. 

Form E requires information on employees’ income, benefits, allowances received in the previous year, and deductions such as EPF contributions. The submission deadline for Form E for Malaysia income tax is usually at the end of February. Late or inaccurate filing can result in penalties for employers.

According to Section 120(1)(b) of the Malaysia Income Tax Act, employers who fail to submit Form E are liable to a fine of not less than RM200 and not more than RM20,000, or imprisonment for a term not exceeding 6 months, or both.

Statement of Remuneration (Form EA/EC)

EA Form for Malaysia tax details the salaries, wages, pensions, and other taxable benefits paid to each employee. The purpose of this form is to enable employees to file their own taxes properly and declare their earnings to LHDN. That way, it can be determined what Malaysia income tax bracket they fall under. 

Incentive Payment Statement (Form CP58)

This form reports any incentive payments made to employees during the year.

4. Record keeping

Employers must maintain proper records of all PCB income tax Malaysia deductions made for their employees. These records should be kept for a minimum period as specified by the IRBM and be available for inspection by the tax authorities if needed.

Read next: The Top 5 Payroll Software Malaysia Teams Are Using in 2024

Employee’s Responsibility for PCB

When it comes to Malaysia tax, an employee’s responsibilities for PCB income tax Malaysia are different from an employer’s. Employees don’t directly handle filing the PCB, but they do have some key responsibilities to ensure a smooth tax filing process:

1. Filing income tax return

Filing deadline

Your filing deadline depends on the Malaysia income tax form you fill and this is determined by whether you’re a salaried employee, someone who carries on a business, resident/non-resident, and several other categories. 

For example, those with Form BE (residents who do not carry on a business) have a deadline on the 30 April(manual filing). If you choose to e-file, you get a grace period of 15 days and the deadline for e-filing is 15 May. 

For resident individuals who opt for Form B (individuals who carry on a business), the deadline falls on 30 June for manual filing and 15 July for e-filing. 

Filing methods

Under Malaysia tax, tax returns can be filed either manually or electronically through the e-filing system provided by the IRBM.

For the e-filing method, you can file your Malaysia tax returns online through the ezHASiL portal. E-filing offers several advantages, including automatic calculations, faster processing, and easier tracking of your submission.

Manual filing involves a traditional method of filing out a physical income tax return form (ITRF) manually and submitting it to a branch of the IRBM. This method can be time-consuming and bound to errors. 

2. Maintaining records

Keep copies of your payslips and any other income tax documents you receive throughout the year. This will be helpful when you review your annual Malaysia tax assessment or if there are any inquiries. Additionally, you should have your forms ready before filing Malaysia tax. The EA form (or Borang EA) should be given to you by your employer by February. 

3. Understanding tax reliefs

Familiarize yourself with the various tax reliefs you might be eligible for when submitting income tax Malaysia. These can include reliefs for medical expenses, education, or dependents. You can find information about reliefs on the Inland Revenue Board of Malaysia (LHDN) website. 

4. Provide accurate information

You should ensure your employer has your correct tax identification number and other relevant details. This helps them withhold the appropriate amount of Malaysia tax from your salary.

5. Pay additional tax on time

While you don’t file the PCB income tax Malaysia yourself, you may need to pay additional tax if your annual income exceeds a certain threshold and it must be paid on time to avoid a 10% penalty on the unpaid amount. 

6. Stay updated on regulations

Tax regulations can change from time to time. It’s a good idea to stay updated on any Malaysia tax changes that might affect you. The LHDN website is a good resource for staying informed.

Learn more: Top 5 Challenges of Malaysia’s Tax Season and How HRIS Solutions Can Help

Make Malaysia Tax Easy with Omni

Understanding Malaysia tax regulations is crucial for businesses to fulfill their tax obligations accurately and timely. That’s why it’s important to have the right tools by your side to ease this complicated process.

Omni offers a comprehensive payroll solution tailored to Malaysia’s specific requirements. With features like support for MYR and automated tax calculations, Omni can help HR teams simplify the process for Malaysia income tax. 

With our automated payroll software, digitized and secure pay slip distribution, and dedicated support teams to guide your team and ensure compliance with Malaysia income tax, Omni’s payroll processing reduces the administrative burden of your HR team and frees up valuable time to dedicate to more impactful business processes.

Book a demo today and learn how Omni can help you streamline your Malaysia tax processes and expertly navigate PCB income tax Malaysia management to ensure compliance for your organization.

According to Deloitte’s survey, 46% of respondents find tax compliance and reporting requirements in Singapore to be straightforward. This percentage is among the highest in the region, trailing only behind Hong Kong, Macau, and Mauritius.

With that in mind, income tax Singapore filing doesn’t need to be stressful, and the different Singaporean taxes doesn’t have to be overwhelming. All you need is a reliable guide on taxation in Singapore to get you started. By doing so, you can ensure your business remains compliant and safeguards its reputation and revenue.

Key Taxes Applicable to Employers

Understanding the SG taxes and Singapore tax rate regulations that the Inland Revenue Authority of Singapore (IRAS) sets out, helps keep your business compliant.

Corporate Income Tax

The IRAS collects the Corporate Income Tax Singapore on business profits sourced in the country. The income tax Singapore mandates is a flat rate of 17%. Partial tax exemptions and three-year start-up tax exemptions apply to qualified startups when it comes to this Singapore tax rate.

Goods and Services Tax (GST)

Aside from income tax, Singapore mandates the GST: a consumption tax that you file for the supply of goods and services and the goods imported into Singapore.

If you run a GST-registered business, you have to pay such SG taxes for the selling price of your goods and services at a Singapore tax rate of 9%.

Property Tax

The property tax, another of the required SG taxes, applies to the ownership of immobile properties in Singapore. For your company, a non-residential property, you’re taxed at a flat Singapore tax rate of 10%.

To calculate your property tax, you multiply this Singapore tax rate by the Annual Value (AV) of that property. The AV depends on the value of similar or comparable market rentals.

Payroll Taxes

In Singapore, SG taxes or payroll taxes encompass all tax rates applied to various forms of compensation. While you are responsible for filing your own annual income tax declaration in Singapore, the taxation system does not require you to withhold SG taxes for your employees. 

However, despite not having to file taxes like income tax, Singapore’s Employment Act mandates that you withhold certain contributions and levies.

Read more: Payroll Singapore Reference Guide: Everything You Need to Know

Employer’s CPF Contributions

For monthly wages exceeding S$750, employers are required to make contributions to the Central Provident Fund (CPF). This CPF is a government-managed social security fund that supports retirement, housing, and healthcare, funded by contributions from both you and your eligible employees (at a variable Singapore tax rate).

The specific Singapore tax rate deducted from your employee’s salary is determined by their age. Additionally, you are required to make certain CPF contribution rates from your own funds to your employees’ CPF accounts.

Foreign Worker Levy

The system of taxation in Singapore incorporates the Foreign Worker levy as a way to regulate the number of foreign workers in the country.

You pay this monthly income tax Singapore or, more accurately, levy for every employee in your company with a Work Permit or S Pass. The exact Singapore tax rate differs according to your industry, employee qualifications, and the ratio of foreign employees to total employees in your company.

Read next: Singapore Employment Pass: Updates & Requirements in 2023

Skills Development Levy (SDL)

The fund provides support for workforce upgrading programs and offers training grants for when you enroll your employees in training under the National Continuing Education Training. You’re obliged to pay the SDL, which is a Singapore tax rate of 0.25% deducted from your employees’ monthly wages, subject to minimum and maximum contribution limits.

Employer Responsibilities

As an employer, it’s important to incorporate these compliance practices for SG taxes into your business operations to ensure adherence to regulations to the Singaporean Employment Act.

Registering for taxes

Before you can pay your income tax, your company needs to be registered for Singaporean taxes. Fortunately, Singapore is ranked as the second easiest country to do business in and the fourth best country to start a business in. To register your business, you’ll need to register with the Accounting and Corporate Regulatory Authority (ACRA) and also register for GST.

Filing tax returns

Tax returns are income tax Singapore forms used to report income, expenses, and other details related to taxes. According to the IRAS, “employers are required by law (S68(2) of the Income Tax Act) to prepare Form IR8A and Appendix 8A, Appendix 8B or Form IR8S (where applicable) for employees who are employed in Singapore by 1 Mar each year.”

The system of taxation in Singapore requires businesses to file tax returns by 15 April each year, with the possibility of later deadlines in some cases. E-filing using the IRS Free File and tax preparation software are available options for filing your taxes.

Paying taxes

This guide to taxation in Singapore aims to assist you in meeting all income tax requirements promptly and accurately. To do so, you must calculate the Singapore tax rate and accurately process and report all payroll components, including benefits, wages, and deductions.

If managing SG taxes seems overwhelming, don’t worry. Payroll software can automate the process, ensuring precise payroll calculations for you.

Maintaining record

Record keeping is crucial when it comes to income tax Singapore. The IRAS says that you should keep records for five years so that you can easily determine the claimed income and business expenses.

Records relate to income or sales and claims or expenses. To authenticate these records, keep receipts, invoices, payslips, vouchers, and other relevant documents to SG taxes. Aside from information about income tax, the regulation requires you to keep records about employees, including the following information:

• Employee Address
• Gender
• Employee NRIC or Work Pass number and date of expiry
• Date of joining of employment
• Employment date of leaving
• Working hours (including breaks duration)
• public holidays and leaves used

Withholding taxes

A unique aspect of taxation in Singapore is that you are not required to withhold SG taxes from your employees’ monthly salaries. However, you must withhold certain Singapore tax rate variations, such as contributions and levies.

Reporting foreign workers

According to the IRAS, you must submit employment income information for foreign workers in Singapore for the respective year.

Employers are required to use the Foreign Identification Number (FIN) issued to foreign employees by the Ministry of Manpower (MOM) or Immigration and Checkpoints Authority (ICA) in their AIS submissions. This reporting enables you to pay the relevant Singapore tax rate, known as the Foreign Worker levy.

Struggling to understand the Singaporean Employment Act?

Key Steps for Preparing Employee Income Tax

If you’re still uncertain about taxation in Singapore, let’s get straight to the point and provide you with the steps for preparing employee income tax, Singapore edition.

1. Understanding your responsibilities as an employer

Understanding your responsibilities as an employer makes Taxation in Singapore straightforward. You must file employee earnings, submit specific tax forms, and ensure accurate application of the correct Singapore tax rates.

2. Determine tax withholding for your employees

Now is the time to calculate the amount you should withhold for SG taxes, including contributions, deductions, and levies on behalf of your employees. Unless the Singapore tax rate is fixed, you’ll need specific data, such as employee age or qualifications, to determine the IRAS rate. 

3. Stay updated with tax regulations

Tax regulations get updated regularly, and their complexity and the pace by which they change has increased. Staying up to date with taxation in Singapore enables you to file the correct documents and pay the correct Singapore tax rate.

You can check the IRAS Overview of Tax Changes for the financial year 2024, which includes changes to tax incentive schemes, tax deductions, and the Singapore tax rate.

4. Utilize payroll software

As you may have discovered, payroll software simplifies the management of taxation in Singapore. With payroll software, you can calculate the income tax Singapore regulations require you to pay, subtract deductions, calculate benefits, bonuses, and paid leave, generate payslips, and easily store, access, and manage payroll and employee data. 

Additionally, it automates various payroll processes, ensuring accuracy and compliance, and saving you time and money on SG tax management.

5. Prepare for reporting deadlines

Preparing for reporting deadlines for taxation in Singapore requires careful planning and organization.

It is essential to keep accurate records of income, expenses, and other financial transactions throughout the year. Employers should ensure that they have the necessary information and forms ready for reporting deadlines, such as Form IR8A for employee income. 

Understanding the specific deadlines set by IRAS is crucial to avoid late filing penalties.

Ensuring Compliance with Singaporean Tax

The primary objective of understanding taxation in Singapore and abiding by SG taxes is to avoid penalties, fines, and legal action. Here are some ways on how you can ensure compliance:

Stay updated with regulations

Staying updated with regulations is crucial for managing taxation in Singapore.

Fortunately, certain payroll providers stay abreast of regulatory changes to income tax Singapore and notify you about every update. What’s more, some all-in-one HR systems offer real-time compliance updates. 

Register with IRAS

Taxation in Singapore starts with registering your business. The Accounting and Corporate Regulatory Authority (ACRA) enables you to register your business online in one to two days. The process looks like this:

• Getting the business name approved
• Preparing the needed documents
• Submitting the application to ACRA

Note that you’ll have to register for the GST Singapore tax rate. This process is composed of the following steps:

• Choosing the GST registration type
• Completing the e-learning course
• Submitting the GST tax application

Maintain accurate records

You’re aware of the need to maintain records of your income/sales, claims/expenses, income tax Singapore forms, and employee information (including source documents and bank statements) for five years. However, managing every Singapore tax rate manually without encountering false, missing, or outdated data can be difficult. 

Fortunately, the IRAS provides a checklist for record keeping. Also, payroll software solutions help ensure error-free records by creating digital copies of employee payslips, assisting with timesheet management, and calculating your employees’ time off and attendance.

Identify applicable taxes

Identifying the SG taxes that apply to your business and employees is crucial to ensuring that you pay the correct amount. It is also important to identify any tax breaks, deductions, and grants that apply when calculating each Singapore tax rate. For instance, you must pay the Foreign Worker Levy for your foreign employees.

File returns and pay taxes on time

To manage taxation in Singapore, you must make tax payments and file returns on time, which is one month after you receive the Notice of Assessment (Tax Bill). If you don’t make the deadline the income tax Singapore requires, you may be subjected to a 5% penalty and enforcement action, such as a travel restriction order or legal action.

Train your employees

It is crucial to train your employees to ensure compliance with SG tax regulations. Proper training can help them understand their roles and responsibilities regarding tax reporting and payment, reducing the risk of errors or non-compliance. 

Additionally, training can help employees stay updated with changes in Singapore tax laws and regulations, ensuring that your business remains compliant. By investing in training, you can help your employees perform their tax-related duties accurately and efficiently, ultimately avoiding penalties and legal issues. 

Conduct regular reviews

Tax reviews are routine assessments that encompass all facets of taxation in Singapore. They enable you to verify compliance with obligations, identify opportunities for tax savings, reduce the tax burden, and manage risks effectively.

Utilize payroll software

Streamline the process of taxation in Singapore with payroll software services. These services automate numerous payroll processes such as calculating SG taxes, deductions, bonuses, benefits, and hours worked, issuing payslips, generating the necessary forms for income tax Singapore demands, and storing data securely.

This approach helps reduce errors, ensures data security, promotes compliance with tax regulations, and facilitates effective filing of SG taxes. 

Automating Singapore Tax Compliance with Omni

Managing taxation in Singapore is a complex and detail-oriented task that demands a deep understanding of the region’s unique legal requirements and a commitment to accuracy and compliance. That’s why it’s important to have the right technology on your side.

Omni offers a comprehensive payroll solution tailored to Singapore’s specific requirements. With features like support for SGD, automated tax calculations, and managed CPF contributions, Omni can help HR teams simplify their payroll processing and ensure compliance with ease. 

Omni’s suite of features makes the requirements for running a compliant and efficient payroll system in Singapore easy. With secure and centralized employee records, HR teams can swiftly access employment contracts and essential documents that support payroll practices.

Our time and attendance features empower teams to automate data and produce accurate reports in minutes, making payroll calculations seamless and accurate. And with payroll solutions that support SGD and pay schedules, Omni offers an entire suite of solutions to make your payroll system Singapore seamless. 

If you’re ready to take your payroll Singapore management to the next level, book a demo with us today. We’ll walk you through the platform’s capabilities and demonstrate how Omni can transform your payroll processing, saving you time, reducing administrative burdens, and enhancing overall efficiency.

Tax season can be stressful for employers anywhere, and this is no different in Hong Kong. With a plethora of specific forms, changing submission deadlines and frequently updated tax laws, staying on top of your Hong Kong tax return can be tricky—and the penalties for non-compliance steep.

But not to fear— we will be taking a look at everything you need to know about filing taxes in Hong Kong, including the relevant authorities, deadlines for tax submissions, forms you’ll need to fill out, penalties you want to avoid and tips for making the process as smooth as possible.

The Hong Kong Tax Governing Authority

In Hong Kong, the Inland Revenue Department (IRD) is the governing authority responsible for administering and enforcing tax laws. The IRD operates under the Financial Services and the Treasury Bureau and is tasked with overseeing all things tax related, including income tax, property tax, profits tax, and salaries tax.

The primary role of the IRD is to ensure compliance with tax regulations, collect taxes owed to the government, and provide guidance and assistance to taxpayers looking to better understand their tax obligations. This includes for employers who are responsible for withholding and remitting taxes on behalf of their employees. So, if you’re an employer in Hong Kong, keep an eye out for releases from the IRD as they may contain pertinent info to make your tax time easier.

The IRD also plays an important role in the development and implementation of new tax policies, including updates to tax laws and regulations. Employers in Hong Kong must closely follow the guidelines and regulations created by the IRD when preparing and filing tax returns for their employees, and stay up to date with any changes that occur, in case of accidental non-compliance based on new, or changed tax law.

When to File Hong Kong Tax Return?

The deadlines for Hong Kong tax return are determined based on the taxpayer’s role and status, as well as the type of income they’re reporting. For employees paying their salary tax, the filing deadline is typically on or before April 30th of the year following the relevant tax year. For example, the tax return for the year 2023 should be filed on or before April 30th, 2024.

Employers on the other hand are required to report how much they paid to their employees through employer’s returns, which are usually due on or before the 10th day of April following the end of the tax year. Employers must also issue tax returns, commonly known as Forms IR56 series, to their employees by the end of February each year.

If you’re an employer in Hong Kong, it’s essential you meet these deadlines to avoid penalties and stay compliant with Hong Kong’s tax regulations. Because the specific tax deadlines are prone to change, this is an area you should pay extra attention to each year to avoid incurring any late penalties.

Read next: Your Guide to Managing Payroll Hong Kong

Employers’ Checklist for Filing Hong Kong Tax Return

As with tax submissions in many other places in the world, Hong Kong tax returns involve quite a lot of form-filling (which, as of 2023, must be filled and submitted electronically). Here, we’ve created a handy checklist of forms you’re going to need to be aware of for Hong Kong tax return season:

Tax withholding and remittance

• Form BIR60: Employers are responsible for withholding taxes from their employees’ salaries and remitting them to the IRD on their behalf. This process involves completing Form BIR60, which provides details of the tax withheld and remitted for each employee.

Employer’s returns of remuneration and pensions

Employers are required to submit employer’s returns of remuneration and pensions to the IRD annually. These returns include the following forms:

• BIR56A Form: This form provides details of the remuneration paid to each employee during the tax year.
• IR56B Form: This form is used to report the end of employment or departure of an employee from Hong Kong.

For more information: How to File a Hong Kong Employer’s Return: Understanding Forms BIR56A and IR56B

Record Keeping

Employers must maintain accurate records of their employees’ remuneration, including salaries, bonuses, allowances, and other benefits. The IRD requires that these employee records should be retained and accessible for at least seven years for auditing purposes.

Additional Forms and Requirements

In addition to the above forms, there’s a few additional forms to consider, based on the specific nature of an employer’s circumstances:

• BIR56B: This form is used to report the remuneration paid to non-resident employees.
• BIR56C: Employers who provide benefits-in-kind to their employees must complete this form to report the cash value of these benefits.
• BIR11E: Employers who make payments to self-employed individuals or subcontractors must complete this form to report such payments.

When it comes to tax time, make sure to run through this checklist and take note of all the forms relevant to you and your employees, so that you can submit a thorough and accurate Hong Kong tax return.

Penalties for Late Hong Kong Tax Return

Late tax filing is universally frowned upon, and in Hong Kong is no exception. There are a series of penalties and fines for employers who are tardy on their tax submissions. The penalties for late submission or non-compliance may include:

• Late filing penalty: Employers who fail to file their employer’s returns of remuneration and pensions (the BIR56A and IR56B forms we mentioned above) by the deadlines outlined by the IRD will incur late filing penalties. The amount of the penalty varies depending on the duration of the delay. The maximum penalty for late filing is HK$50,000 (depending on the circumstances), but if payment isn’t promptly made an additional fine of HK$1,000 will be imposed every day until the issue has been resolved.
• Late payment penalty: Filing is one thing, but payment is even more important. Employers who fail to remit the taxes withheld from their employees’ salaries by the IRD due date will also incur steep late payment penalties. The penalty is calculated based on the amount of tax outstanding and the duration of the delay. The longer the delay, the steeper the fine. Alternatively, the IRD may reassess the employer and give them a tax assessment much higher than the original amount submitted. 
• Surcharge: In addition to late filing and late payment penalties, employers may be liable for a surcharge on the outstanding tax amount. The surcharge is imposed to deter non-compliance and is calculated as a percentage of the tax outstanding.

The IRD also has a framework under Section 82A of their Penalty Policy to help them analyze how much to penalize employers who submit their Hong Kong tax return late, largely based on attitude, cooperation, and how well informed you are. For instance, people who express genuine surprise or regret for filing late will usually face less steep penalties than employers who are combative or disagreeable. In the event you file late, make sure you are as cooperative and polite as possible with the IRD.

Tips to Stay Ahead of Hong Kong Tax Return

Now that you’ve got an understanding of the penalties for non-compliance, here’s what you can do to avoid that and to streamline your Hong Kong tax return:

• Stay updated on regulations: Keep up to date with changes in tax laws and regulations issued by the IRD in Hong Kong. Regularly review updates and announcements to make sure you’re staying compliant with the latest requirements.
• Maintain organized records: Maintain accurate and organized records of employee remuneration, tax withholdings, and other relevant financial data (and keep it that way for at least seven years.) Proper record-keeping helps with the preparation and submission of tax returns and minimizes the risk of errors or omissions.
• Utilize HR technology: Leverage HR automation and software solutions to streamline payroll processes, automate tax calculations, and generate required tax forms. Human Resources Information Systems (HRIS) can help simplify payroll management and ensure accuracy in tax reporting.
• Plan and prepare early: Start preparing for tax return filing well in advance of the deadlines. Establish a timeline for completing key tasks, such as gathering financial data, compiling records, and submitting tax returns. Early planning allows for enough time to address any issues or challenges that might come up.
• Communicate with employees: Maintain open communication with your employees regarding tax matters, including deductions from their salaries, tax filing deadlines, and any changes in tax policies or procedures. Clear and transparent communication will help your employees understand their tax obligations and reduce misunderstandings or confusion.

Make Hong Kong Tax Return Easy with Omni

Managing Hong Kong tax returns requires meticulous attention to legal requirements and thorough documentation—especially when the consequences for misfiling can cause significant penalties and troubles for your organization. You should strive to minimize human error by leveraging automation to ensure accuracy and compliance.

Omni’s suite of features makes the requirements for running a compliant and efficient payroll system in Hong Kong easy. With secure and centralized employee records, HR teams can swiftly access employment contracts and essential documents that support payroll practices. 

Our time and attendance features empower teams to automate data and produce accurate reports in minutes, making payroll calculations seamless and accurate. And with payroll solutions that support HKD and pay schedules, Omni offers an entire suite of solutions to make your Hong Kong tax return seamless. 

With Omni, you not only get the convenience of automation but also the peace of mind that comes with a solution designed to meet the specific needs of your business in Hong Kong. Ready to take advantage of the convenience, efficiency and reliability of automated payroll? 

In 2023, the Hong Kong government increased Hong Kong minimum wage, as it is periodically reviewed every two years.

As a business owner or HR personnel, it’s essential to comply with these requirements, as understanding the Hong Kong minimum wage also helps ensure compliance with other labor laws.

Regarding the minimum wage in Hong Kong, how much is it, who does it apply to, and what are the penalties for non compliance? Read on to find out.

The Minimum Wage Ordinance

According to the Labor department of the Hong Kong Special Administrative Region government, the minimum wage ordinance sets the statutory minimum wage in Hong Kong (SMW) and specifies which payments qualify as payable wages. This regulation has been in effect since 1 May 2011, when the SMW was introduced.

So, what criteria does the ordinance use to determine Hong Kong minimum wage? 

It seeks to strike a balance “between forestalling excessively low wages and minimizing the loss of low-paid jobs while sustaining Hong Kong’s economic growth and competitiveness.”

What is counted as wages in Hong Kong?

Payments that qualify as wages cannot fall below the Hong Kong minimum wage standard. So, what falls under the category of wages? According to the the Concise Guide to the Statutory Minimum Wage:

Wages are “all remuneration, earnings, allowances including traveling allowances, attendance allowances, commission, overtime pay, tips and service charges, however designated or calculated, capable of being expressed in terms of money, payable to an employee in respect of work done or to be done, subject to certain exclusions.”

What is Hong Kong minimum wage?

Currently, the Hong Kong minimum wage is HK$40 per hour. This statutory minimum wage took effect on 1 May 2023, and applies to all types of employment contracts, such as full-time, part-time, contractual, casual, daily, and piece-rate work, without regional variations. 

To calculate the total Hong Kong minimum wage, multiply the hourly rate (HK$40) by the total number of hours worked during the wage period.

Aside from this, it is important to keep track of employee work hours for payroll and labor law compliance purposes. Regarding the maximum monthly amount for employers to record the total number of hours worked by employees, this stands at HK$16,300. 

Read next: Understanding The Payroll System Hong Kong Runs On

What happens if an employee’s wage is less than Hong Kong minimum wage?

The Employment Ordinance classifies this as a breach of wage provisions. 

If an employer intentionally fails, without a valid reason, to pay their employees at least the minimum wage in Hong Kong, they may face prosecution. 

In cases where a conviction is reached, you could be subject to a fine or imprisonment for failing to comply with the Hong Kong minimum wage requirements.

Penalties for Paying Below Hong Kong Minimum Wage

Those convicted of paying below the Hong Kong minimum wage could face a fine of up to HK$350,000 and imprisonment for a term of up to three years. 

This penalty applies not only to employers but also to any managers, directors, secretaries, or other individuals in similar decision-making roles who are complicit, contribute, or neglect to ensure that employees are paid at least the Hong Kong minimum wage.

This penalty applies to employers and any consenting, contributing, or neglectful managers, directors, secretaries, or similar decision-makers who play a part in issuing salaries below the minimum wage in Hong Kong.

Who is protected under the Statutory Minimum Wage (SMW) Regime?

The Hong Kong minimum wage applies to all employees, employers, and their employment contracts, encompassing both manual and non-manual work, irrespective of age, nationality, and occupation. 

Under employment contracts

The statutory Hong Kong minimum wage is relevant to full-time, part-time, and casual employment, including apprenticeships, unless the apprentices have undergone a productivity assessment that sets a different minimum wage fitting to their productivity level.

People with disabilities are also covered by the Hong Kong minimum wage regulations. However, they have the option to undergo a productivity assessment to determine if they should receive the Hong Kong minimum wage or a lower rate commensurate with their productivity. 

Student interns and work experience students

Regarding student interns and work experience students, the Hong Kong minimum wage ordinance generally applies to them. However, there are exceptions for certain student interns and work experience students during an exempt student employment period.

To qualify for exemptions, students must be enrolled in specific education programs specified under the Minimum Wage Ordinance. They must be student employees registered in full-time education programs for non-local academic qualifications at degree level or higher, or in full-time accredited programs provided by local education institutions, as listed in the Ordinance. 

Moving on to interns, they’re exempt from the Hong Kong minimum wage requirements if their education institutions have arranged or endorsed their internships and if these internships are a compulsory or elective part of their programs. It is important to note that age and the duration of the internship are not relevant in this context. 

Similarly, work experience students are not required to be paid the Hong Kong minimum wage under certain conditions. They must be enrolled in the same education programs as student interns (as mentioned above). Their internships do not have to be curriculum-related or arranged or endorsed by the education institutions. 

Unlike student interns, age and work experience duration of work experience matter for work experience students. They must be under the age of 26 at the start of their employment.

Employers can mutually agree with a student employee to designate 59 consecutive days as an exempt student employment period. In such cases, the student employee must make a statutory declaration confirming this agreement and provide the original form or a copy of it to the employer.

It’s important to note that a student employee can only commence one exempt student employment period per year, even if they work for different employers. 

Self-employed individuals, volunteers and others

When it comes to exemptions, self-employed individuals and volunteers are not covered by the Hong Kong minimum wage regulations.

If you operate a family business and employ a relative, you are allowed to pay them below the Hong Kong minimum wage. This also applies to live-in domestic workers. Additionally, specific jobs, such as those of seafarers, aviation workers, and public officers, are subject to unique regulations concerning the minimum wage in Hong Kong. 

Learn more: Your Guide to Managing Payroll Hong Kong

Factors Affecting the Statutory Hong Kong Minimum Wage

Understanding the factors that influence the government’s decision on the Hong Kong minimum wage transforms it from a random number to a well-considered and computed rate. This understanding is crucial, especially when managing the cost of recruitment and processing payroll.

General Economic Factors

Consider the needed resources for economic growth, productivity levels, employment demand, prices, cost of living, investment, and competitiveness. But how do these economic factors play into the Hong Kong minimum wage?

The International Labor Organization (ILO) captured it succinctly when it stated, “If the minimum wage is set too high or increased too much, this may have unexpectedly large impacts on the labor costs that employers must pay. This, in turn, could trigger price inflation, hurt exports, and reduce the level of employment.”

Conversely, if wages are too low, many households in Hong Kong may struggle to sustain themselves.

Labor Market Conditions

To determine the minimum wage, decision-makers must evaluate labor market conditions, such as the cost, demand, and supply of employment. They key question is: Is the labor market competitive?

In a competitive market, offering wages that are competitive (according to the market standards) is essential to retaining a strong workforce. If wages are too low, employees may be disengaged and leading to high attrition rates, while paying excessively high wages can lead to revenue loss and potential market exit.

Therefore, policymakers must be careful when considering an increase in the Hong Kong minimum wage, as it could result in loss of employment. Employers may struggle to meet the increased wage demands, leading to reduced demand for labor and a surplus of willing workers. 

Conversely, in a non-competitive labor market, wage adjustments can be made more flexibly without the risk of job losses or business closures. This allows governments to raise the Hong Kong minimum wage without adversely affecting employment levels.

Social Inclusion

The Hong Kong minimum wage should help contain issues of labor market inequality and poverty and empower you to abide by social employment policies.

With a set hourly rate that businesses can’t go below, decision-makers provide vulnerable workers with a degree of protection against exploitation, including women, immigrants, youth, and people of color (regardless of their employment agreement).

Read next: How to Eliminate Gender Discrimination in the Workplace

Additionally, exemptions from the minimum wage in Hong Kong contribute to social inclusion. Consider this: individuals with disabilities, depending on the nature of their disability, may face challenges in being as productive as necessary for a business to profit from their employment. This situation can make them particularly vulnerable to being replaced and experiencing hiring biases.

However, a lower Hong Kong minimum wage would enable these individuals to find employment suitable for their productivity levels, while also enabling businesses to safeguard their revenue and promote workforce diversity. The same principle applies to other groups with limited availability for work, such as student interns mentioned above.

Public and Stakeholder Views

Stakeholder and public opinions matter in determining Hong Kong minimum wage, which explains why many individuals choose to voice their opinions on the matter. Their livelihoods are directly impacted by it. 

For shareholders, investors, and suppliers, the Hong Kong minimum wage represents a compulsory expense that reduces business revenue. They expect a certain return on their investment. Otherwise, many may opt to leave the market, reallocating their funds elsewhere and potentially harming the Hong Kong economy.

However, decision-makers must also consider employee perspectives since the minimum wage issue in Hong Kong directly affects employees, influencing their quality of life. 

Additionally, customers rely on services and goods that are within their purchasing power. If salaries are excessively high or low, it could price them out of the market entirely. Furthermore, human rights organizations and social services advocate for improved living conditions.

Many activists and community workers expressed outrage over the modest 32-cent increase in the Hong Kong minimum wage in 2023. They viewed it as insufficient for one of the most expensive cities in the world. Does this mean we can anticipate a significantly higher minimum wage in Hong Kong next year? Only time will tell. 

Leveraging Omni to Ensure Compliance with Hong Kong Minimum Wage

Understanding and managing Hong Kong minimum wage requires careful attention and accuracy to ensure compliance. That’s why it’s important to pick the right HR tool and strategy to make the whole process less overwhelming. 

Omni’s suite of features makes the requirements for running a compliant and efficient payroll system in Hong Kong easy. With secure and centralized employee records, HR teams can swiftly access employment contracts and essential documents that support payroll practices. Our time and attendance features empower teams to automate data and produce accurate reports in minutes. And with payroll solutions that support Hong Kong currency and pay schedules, Omni offers an entire suite of solutions to make your payroll system Hong Kong seamless. 

Manage more than one company? Omni helps you establish a dedicated payroll admin for each company, who have the power to enroll employees, manage company settings and easily process your payroll.

Book a demo with our team, or try out Omni for a free 14-day trial to learn how our automation can help you remain compliant and reduce your administrative workload for all of your People management needs.