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.

If you search for the minimum wage in most countries, you typically find a straightforward answer — a single number set by the federal government. Certain states or provinces may opt to set their own minimum wage, but it can’t be any lower than the federal minimum. However, the Philippines minimum wage is quite different.

Due to the significantly different economic conditions across various regions, the minimum wage varies in nearly every part of the country, set by regional authorities. Not only that, different minimum wages are established based on the type of employment. This specific and flexible system makes the Philippines minimum wage quite susceptible to change. 

Suffice to say, for companies planning to set up shop in the Philippines, there is much to understand about the Philippines minimum wage to ensure compliance with global labor laws. Here’s what you need to know:

Types of Employment in Philippines

The Philippines is a country with a particularly wide array of employment sectors, each with their own specific employment regulations you need to be aware of. Whether it’s in the agricultural sector or the diverse array of non-agricultural industries, different categories of employment have specific rights, responsibilities, and regulatory considerations. 

Agriculture

• Plantation: This type of employment involves work in agricultural settings where crops such as sugarcane, rice, corn, and other plantation crops are cultivated. Employees working in plantation agriculture perform the work of planting, harvesting, and maintaining crops.
• Non-plantation: Non-plantation agriculture includes employment in activities related to farming but excludes the plantation crops mentioned above. This includes working on smaller farms, raising livestock, poultry farming, and other agricultural activities that don’t meet the definition of plantation agriculture.

Non-Agriculture

Non-agricultural employment covers a wide range of industries and sectors outside the agricultural domain. This includes work in manufacturing, services, construction, retail, hospitality, information technology, finance, and other sectors. 

There are some key differences between these two sectors which include:

Wage rates: Agricultural workers are subject to different wage rates due to the seasonal and often unpredictable nature of agricultural work. There are also different Philippines minimum wages (which vary by region) for plantation and non-plantation workers.

Working hours: There are differences in the maximum allowable working hours for agricultural and non-agricultural workers. For example, non-agricultural workers typically have standard working hours prescribed by law, while agricultural workers have more flexible and extended working hours to accommodate seasonal demands.

Employment contracts: The terms and conditions of employment contracts will vary considerably between agricultural and non-agricultural workers. An example of this could be agricultural workers will only be hired on a seasonal or temporary basis, while non-agricultural workers will have more stable and long-term employment contracts.

Benefits and protections: Agricultural workers are entitled to specific benefits and protections under the law, like provisions for housing, transportation, and healthcare, to address the unique challenges of agricultural work. 

The Regional Tripartite Wages and Productivity Board

The Regional Tripartite Wages and Productivity Board (RTWPB) are government bodies established to regulate and set Philippines minimum wage rates across its different regions. One of the RTWPBs’ main priorities is conducting regular assessments of economic factors, cost of living, and productivity levels within the specific region the board oversees.

The RTWPBs also recommend adjustments to minimum wage rates based on their assessments. These adjustments are necessary to make sure that workers receive fair wages that reflect changes in economic conditions and the cost of living in their specific region. If housing prices spike in one area of the Philippines, the RTWPB may recommend a minimum wage increase to prevent workers being priced out.

The RTWPBs also play a vital role in resolving disputes related to wage and labor issues. They serve as venues for tripartite (meaning involving three different parties) consultations and negotiations between employers and workers’ representatives to hear grievances and make sure that labor standards are upheld. Also, these boards conduct education and information campaigns to raise awareness about labor rights and regulations among employers and workers, promoting self-advocacy and up-to-standard work environments.

What is the Philippines Minimum Wage?

In the Philippines, the minimum wage varies depending on the region and the type of employment. The minimum wage rates are determined by the RTWPBs and are frequently reviewed and updated based on the current economic situation of the region in question.

Payroll cycle

The payroll cycle refers to how often employees get paid their wages. In the Philippines, it’s common to pay employees on a monthly basis. That said, a monthly cycle isn’t mandatory and some employers prefer a bi-monthly or semi-monthly payroll cycle.

The choice of payroll cycle will depend on factors such as company policy, industry standards, and the nature of the business. Companies with foreign offices or ownership are more likely to adopt a different cycle, as monthly payment is less common in regions like North America. Ensuring a suitable payroll cycle can also contribute to employee engagement and satisfaction

Read next: HR’s Guide to Payroll Taxes in the Philippines

Pay date

As the term suggests, the pay date is the specific day on which employees receive their salaries. Employers typically establish a pay date based on their payroll schedule and the frequency of payroll cycles. Employers need to communicate the pay date clearly to employees to ensure transparency and avoid any confusion regarding when they receive their payment.

Working hours

Working hours in the Philippines are regulated by law to protect the rights and well-being of employees. The standard work week consists of 40 hours, with employees entitled to additional compensation for any work exceeding these hours. Employers must adhere to these regulations to prevent employee burnout and ensure fair compensation for overtime work, as laid out by the Philippine labor laws. 

Night shift differential

Employees who work during the night shift, defined as hours between 10 PM and 6 AM, are entitled to receive a night shift differential. This is an additional compensation typically set at 110% of the employee’s regular wage rate. 

The night shift differential compensates employees for working during non-standard hours and makes it so employers have to provide fair compensation for working overnight. This additional pay recognizes the challenges and potential impacts on health and well-being that working during these hours can have. 

Overtime compensation

As we mentioned in our discussion of working hours, overtime compensation is provided to employees who work beyond the standard work hours or on rest days and holidays. Overtime pay rates typically range from 125% to 200% of the employee’s regular wage rate, with higher rates applying to work performed on rest days and holidays. 

Employers have to accurately calculate and offer overtime compensation to employees who work more than their standard hours to remain compliant with labor regulations and give their workers fair treatment.

The Provincial Philippines Minimum Wage

The provincial Philippines minimum wage is determined by a number of different factors, including economic conditions and the cost of living in different regions of the country. The Wage Rationalization Act (also known as RA 6727) lays out the framework for how and why to set minimum wage rates, taking into account the needs of workers and the current economic conditions in each province.

One of the key reasons for the variation in minimum wage rates is the differing cost of living and economic development levels in different regions. For example, provinces with higher living costs or more robust economies may have higher minimum wage rates compared to those in less well-off regions.

For example, Metro Manila, which is one of the most developed and expensive regions in the country, the Philippines minimum wage for non-agricultural workers is much higher compared to other provinces. As of 2024, the minimum wage in Metro Manila for non-agricultural workers is ₱570 per day. Compare that to the Caraga Region in Mindanao, where the cost of living is generally lower compared to urban areas, the minimum wage for non-agricultural workers is set at ₱385 per day.

By tailoring Philippines minimum wage rates to the specific needs of workers and the economic realities of each province, the government sets the standard to promote fair compensation and economic development across the country.

Changes in the Philippines Minimum Wage

As mentioned above, the Philippine minimum wage across regions is much more fluid and prone to change than elsewhere, shifting to meet the needs of workers. Here are some of the changes that have happened over the last three years:

2022

National Capital Region

• For agriculture (non-plantation) the minimum wage increased from ₱500 to ₱533
• For agriculture (plantation) the minimum wage increased from ₱500 to ₱533
• For non-agriculture, the minimum wage increased from ₱537 to ₱570

Western Visayas

• For agriculture (non-plantation) the minimum wage increased from ₱315 to ₱430
• For agriculture (plantation) the minimum wage increased from ₱315 to ₱420
• For non-agriculture, the minimum wage increased from ₱395 to ₱450

2023

National Capital Region

• For agriculture (non-plantation) the minimum wage increased from ₱533 to ₱573
• For agriculture (plantation) the minimum wage increased from ₱533 to ₱573
• For non-agriculture, the minimum wage increased from ₱570 to ₱610

2024

Davao Region

As of 13 February 2024, the RTWPB for the Davao region has issued a wage increase of ₱19 to take effect on 1 September 2024. When in effect the change will look like:

• For agriculture (non-plantation) the minimum wage increased from ₱438 to ₱457
• For agriculture (plantation) the minimum wage increased from ₱438 to ₱457
• For non-agriculture, the minimum wage increased from ₱443 to ₱462

Navigating Philippines Minimum Wage with Omni

Understanding and managing the diverse Philippines minimum wage rates require careful attention to regional and industry specific variations. 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 modules simplifies the task of managing the dynamic Philippines minimum wage. Through secure and centralized employee records, HR teams can quickly access accurate employment contracts and necessary documents for calculating minimum wage adjustments. 

Omni provides a comprehensive payroll solution tailored to Philippines specific requirements. With features like support for Philippine peso, automated tax calculations, and managed SSS, PhilHealth and PAG-IBIG contributions, Omni enables HR teams to streamline their payroll processing and ensure compliance with changing minimum wage requirements across the region.

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. 

The Philippines is quickly cementing itself as a leading commercial hub in Asia, thanks to its business-friendly laws and large English-speaking workforce. While it is undoubtedly a great country to have a business in or hire remotely from, you need to consider the relatively intricate payroll taxes system in the Philippines.

From social security contributions, to housing subsidies, there are many different taxes employers need to consider, with more than a few exemptions on top. Remaining compliant to these regulations needs to be top priority, so that legal challenges and fines don’t eat into your bottom line.

Here’s everything you need to know to navigate the intricacies of payroll taxes in the Philippines:

How is Payroll Calculated in the Philippines

In the Philippines, calculating payroll is a fairly meticulous process. Many factors are considered, reflecting the country’s specific regulations and requirements. Payroll calculation encompasses not only the basic salary but also allowances, deductions, and statutory contributions. The simplest way to express this calculation is take your employees’ gross pay, and add to it the entirety of the payroll taxes you must contribute on top (which we’ll get into further down). 

Understanding the local tax landscape is necessary as it directly impacts an employee’s take-home pay and your company’s compliance with the law. From the intricacies of income tax to the nuances of mandatory deductions, a comprehensive grasp of how payroll is calculated will give you the tools and confidence you need to manage it successfully.

What are the Payroll Taxes in the Philippines

Payroll taxes in the Philippines are a primary source of revenue for the government, and are taken seriously due to the value they bring to the country and its people. These taxes are levied on employees’ income and play a fundamental role in funding public services and initiatives. 

Like most places, the Philippine government operates with a tiered tax system, where the rate of taxation increases with income. This helps distribute the tax burden fairly, helping to create a fair and sustainable method.

In the Philippines, employers are responsible for deducting payroll taxes from their employees’ salaries, reflecting the goal for a collective contribution to national development. Payroll taxes in the Philippines serve as a financial foundation for essential government functions, and employers play a major role in helping that revenue stream flow smoothly.

Key Components of Payroll Taxes

As mentioned above, the payroll taxes in the Philippines encompasses a few key components. This will help you and your employees know why money is being deducted, where it’s going, and ensure everything is paid in full.

Taxable Income and Exemptions

In the Philippines, determining taxable income requires a thorough and nuanced assessment of an employee’s earnings, considering things like basic salary, allowances, bonuses, and benefits. Basically, employers need to consider their workforce’s entire earnings, not just the recurring salary they make.

There are several exemptions, including for dependents, certain allowances (such as the 13th Month Pay which serves as a form of recognition for employees’ contributions throughout the year is often untaxed up to a certain amount), and specific benefits (like small-value uniform or rice allowances, called De Minimis Benefits). Just like employers need to ensure they are deducting enough tax, they also have to make sure not to miss income or allowances that are exempt.

Social Security System (SSS) Contributions

The Social Security System in the Philippines is a comprehensive program designed to provide financial protection to employees and their beneficiaries. It encompasses contributions for retirement, disability, sickness, maternity, and even death benefits. Employers and employees contribute specific percentages of the employees’ monthly salary to the SSS fund. Understanding the intricacies of these contributions is vital for both employers and employees, ensuring comprehensive social security coverage.

PhilHealth Contributions

PhilHealth, the national health insurance program, mandates contributions from both employers and employees to maintain national health-related benefits. The contributions are calculated based on a percentage of an employees’ monthly salary, with a set income ceiling. 

These funds are a major pillar of support for the healthcare needs of employees and their dependents, which is why accurate and timely PhilHealth contributions are so important.

Home Development Mutual Fund (Pag-IBIG) Contributions

The Pag-IBIG Fund, managed by the Home Development Mutual Fund, focuses on providing housing loans and financial assistance to its members. Both employers and employees contribute to this fund, which for many, plays a major role in helping them afford adequate housing. 

It is a good idea to take the time and help your employees understand how they can access housing-related benefits, which can be a major contribution to their well-being and appreciate the taxes they pay.

Challenges in Complying with Payroll Taxes in the Philippines

It’s clear that payroll taxes in the Philippines aren’t exactly simple to understand, with many different kinds of deductions and exemptions.  Here are some key challenges you can expect to face, and how to overcome them:

Changing Payroll Taxes Regulations

Like elsewhere, the tax rules in the Philippines is an ever-evolving system. Frequent changes in tax laws, amendments, and updates require an agile and consistent approach to ensure you remain compliant. 

Staying up to date with these changes requires dedicated efforts to interpret and implement new regulations accurately. You should establish a process, or dedicated personnel for monitoring updates and have plans in place to swiftly automate and adapt your payroll processes to remain compliant, and avoid any legal complications or fines.

Complex Payroll Taxes Calculations

The complexity of calculating payroll taxes, considering various components such as taxable income, exemptions, and contributions to SSS, PhilHealth, and Pag-IBIG, adds another layer of intricacy to the compliance process. 

Manual calculations are prone to errors, and the risk increases with the complexity of the tax structure. Investing in advanced payroll software and ensuring that your employees who are responsible for tax computations are well-trained can help to mitigate this challenge.

Read next: Your Guide to Successfully Pitching HR Software to Leadership

Implementing Robust Record-Keeping Systems

Robust record-keeping systems are essential for ensuring accurate payroll tax compliance. Employers should invest in digital record-keeping solutions that efficiently capture and organize relevant payroll data. These systems should enable easy retrieval of records, regardless of age, ensuring that your organization can provide the necessary documentation if you ever face an audit or inquiry.

Regular internal audits of record-keeping practices help identify discrepancies or gaps in data, allowing you to address issues proactively. Consider cloud-based storage solutions that offer accessibility and security, making sure that records are not only comprehensive but also protected from potential data loss.

Regular Audits and Internal Controls

Conducting regular internal audits is an important proactive step you can take to identify and fix potential issues in payroll tax compliance. Internal controls should be established to monitor the accuracy of your  payroll calculations and tax deductions. These controls should include periodic reviews by designated employees.

Internal audits provide an opportunity to take a look at the effectiveness of your payroll procedures, identify areas for improvement, and confirm that you remain compliant with tax regulations. By establishing a culture of continuous improvement through regular audits, your organization can fortify their payroll tax compliance framework, and stay resilient to change or challenges that might come down the road.

While these steps cannot account for every single challenge that could arise from administering payroll taxes, each one is a major step towards streamlining your process and reducing errors. This isn’t just useful from an efficiency standpoint—following these steps should reduce overall workload, avoid fines, and ultimately benefit your business’ bottom line.

Payroll Taxes in the Philippines Made Simple

Managing payroll taxes in the Philippines 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 Philippines specific requirements. With features like support for Philippine peso, automated tax calculations, and managed SSS, PhilHealth and PAG-IBIG 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 and taxes in the Philippines 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 Philippine peso and pay schedules, Omni offers an entire suite of solutions to make your payroll taxes in the Philippines seamless. 

If you’re ready to take your payroll taxes management to the next level,

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.

The Malaysia Payroll Process

The Malaysia payroll process is intricate, combining legal regulations, cultural considerations, and economic dynamics. At its heart is balancing factors like minimum wages, working conditions, and employee leave, all governed by a framework set by Malaysia’s Employment Act. Here’s what you need to know to navigate the ins and outs of Malaysia’s payroll process:

Minimum wages and working conditions

Malaysia’s minimum wage has gone through significant development throughout the years. Previously, the minimum wage varied depending on the location of the employer, with different rates for Peninsular Malaysia, Sabah, Sarawak, and the Federal Territory of Labuan. However, as of 1 May 2022, the minimum wage throughout Malaysia has now been aligned from RM1,200 to RM1,500 per month.

Working conditions are governed by Malaysia’s Employment Act, and range from considerations like rest days, to working hours and public holidays. In Malaysia, there are special provisions for women in the industrial or agricultural sector where they are not permitted to work between the hours of 10PM to 5AM.

An amendment to the Employment Act that occurred in 2022 entitles employees to apply for a flexible working arrangement to vary the hours, days, or place of work. The employer has 60 days to approve or refuse the request, and if refused, reasonable grounds for refusal must be provided.

Learn More: Understanding Malaysia’s Employment Act: Updates & FAQs in 2023

Working hours

General: The standard working hours are 48 hours per week, spread over five (or in some cases, six) working days. The typical workday in Malaysia is eight hours.

Overtime: If an employee works beyond the standard hours, they’re entitled to overtime pay. For most of the Malaysia payroll system, overtime rates are 1.5 times the normal hourly rate for work on normal working days and the first eight hours on a rest day or public holiday. For work beyond the eighth hour on a rest day or public holiday, the rate is usually double.

Working Week: In Malaysia, the workweek commonly runs from Monday to Friday. However, some industries or positions might require work on Saturdays. These include industries like retail, hospitality, and other service-based roles.

Employee Leave

Public holidays: Malaysia observes a range of public holidays, including both national and state-specific. The total number of public holidays varies by state. Employees are typically entitled to a day off with full pay on these holidays.

Sick leave: The Employment Act allows for a minimum of 14 days of sick leave with full pay in a calendar year, assuming the employee has been employed for at least four months.

Parental leave

• Maternity: Employed mothers are entitled to a maternity leave of 14 weeks.
• Paternity: Employed fathers are generally entitled to one week of paternity leave.

Payroll frequency

In the Malaysia payroll system, the most common pay structure is monthly (employees receive their salary payment at the end of each month). That said, variations can occur depending on the specific industry.

For instance, certain industries or specific companies might adopt a bi-weekly or even weekly payroll cycle, especially in sectors where contractual or temporary employment is common. These variations are usually outlined clearly in employment contracts or company policies to manage employee expectations.

13th-month salary

The 13th-month salary is a unique aspect of the Malaysia payroll landscape. It represents an additional month’s salary, usually paid out at the end of the calendar year.

It is a customary practice in Malaysia payroll and serves as a form of recognition for employees’ contributions throughout the year. While not mandatory, it has become a standard practice for many organizations, and contributes to the festive spirit of the holiday season, helping motivate employees and boost engagement. The amount may vary based on company policies, industry standards, or individual employment contracts.

Probation period

During the probation period in Malaysia (which typically lasts three to six months) employers take time to see if a new hire is a right fit for their role. The terms and conditions of employment during the probation period are outlined in the employment contract, covering aspects such as notice periods, performance expectations, and potential benefits.

Employees on probation often receive a prorated salary, and the employer has the flexibility to terminate the employment with less red tape than under standard employment.

Social Security and Statutory Contributions

Employer contributions

In the Malaysia payroll system, employers need to make contributions to the Employees’ Provident Fund (EPF) for their employees. The EPF manages employees’ retirement savings and employers are required to contribute a certain percentage of their employees’ monthly salary to the EPF.

Employee contributions

Employees in Malaysia are also obligated to contribute a portion of their monthly salary to the EPF. The employee’s share is deducted from their salary and alongside the employer’s contribution, it is deposited into the employee’s EPF account. The combined contributions form a substantial part of an employee’s retirement savings.

Employees’ provident fund (EPF)

As noted above, the EPF is a key part of the social security framework in the Malaysia payroll system. The funds accumulated in an employee’s EPF account serve as a financial cushion during retirement. Employees can also use their EPF savings for housing, education, and medical purposes. The EPF is managed by the Employees’ Provident Fund Organization, and its policies and contribution rates are updated occasionally by the government to keep up with economic conditions and retirement needs.

Social Security Organization (SOCSO)

In addition to the Employees’ Provident Fund (EPF), the Malaysia payroll system has a comprehensive social security system managed by the Social Security Organization (SOCSO). SOCSO plays an important role in providing protection to employees in the unfortunate event of work-related injuries, illnesses, or disability. This social safety net has two main components:

1. Employment Injury Insurance Scheme (EIIS):

• The EIIS is designed to provide coverage for employees who experience injuries or illnesses associated with their work. This includes accidents that occur during working hours or diseases contracted due to workplace conditions.
• The scheme is applicable to all Malaysian citizens, permanent residents, and foreign workers, with the exception of domestic servants.
• In the event of a work-related injury or illness, employees can seek compensation and financial support through the EIIS.

2. Invalidity Pension Schemes (IPS):

• The IPS provides financial assistance to employees who become permanently disabled or die due to causes unrelated to their work. This coverage extends beyond work-related scenarios, offering protection for a wide range of life circumstances.
• In the case of permanent disability or death, the scheme provides financial support to the affected employee or their beneficiaries.

Employment Insurance Scheme (EIS)

The Employment Insurance Scheme (EIS) is another key component of the Malaysia payroll system’s social security framework. It focuses on providing financial assistance to employees who have lost their jobs involuntarily. Key features of the EIS include:

Unemployment Benefits: Employees who lose their jobs are eligible to receive financial assistance for a specified period. This support aims to help individuals during the time spent between jobs.

Job Search Allowance: The EIS also offers a job search allowance to assist unemployed people in covering expenses related to finding new employment.

Training Opportunities: The EIS provides opportunities for training to people facing unemployment, to help them develop employable skills and learn new technologies like AI.

Learn More: How to Apply, Claim, and Select Training Programs for HRDF Malaysia

Both SOCSO and the EIS are major parts of a broad safety net for employees, ensuring that they have financial support during challenging times. Employers are responsible for making contributions to these schemes on behalf of their employees, highlighting a shared commitment to employee well-being and social security.

Work Permits

The Malaysia payroll system has established several types of work permits to regulate the occupation of foreign professionals. Here’s what you need to know about the main categories of work permits:

Professional Visit Pass

The professional visit pass is for foreign nationals working in short-term professional activities or assignments in Malaysia. This pass is granted for short durations, often for specific projects or business meetings. It is relevant for employees involved in professional services, including consultancy, auditing, and attending conferences.

Temporary Employment Pass

This pass is geared towards foreign workers taking up temporary employment in Malaysia. It is issued for a set duration, with a possibility of renewal. The Temporary Employment Pass is for employees working in sectors with a temporary labor demand, such as construction and agriculture.

Employment Pass

The Employment Pass is targeted at skilled foreign professionals taking up long-term employment in Malaysia. It is issued for a longer duration (often over a year), and is usually tied to an employment contract. This pass requires employees to meet specific criteria related to qualifications, work experience, and job scope.

Work permits by region

Peninsular Malaysia: This region is the hub of economic activities and business centres in Malaysia, making it a focal point for work opportunities. The region is divided into three distinct zones: the Northern Zone, the Central Zone, and the Southern Zone.

Each zone has its own unique Malaysia payroll characteristics, and different regions within each zone might have specific considerations for work permits based on local demands and regulations. For example, the Northern Zone is known for its agricultural activities (which are usually associated with Temporary Employment Passes), while the Central Zone is home to the capital city of Kuala Lumpur, which is the centre of the country’s financial and commercial activities, and would more commonly have foreign workers seeking an Employment Pass.

East Malaysia (Sabah and Sarawak): These regions, known for their unique cultural and economic characteristics, may have distinct requirements for work permits. Sabah is known for its ecotourism industry, while Sarawak is home to the largest cave chamber in the world and is a major producer of timber, industries where Temporary Work Passes would be more common. Both employers and employees need to be aware of regional differences to make sure they are compliant with the Malaysia payroll law when applying for work permits.

Documentation Requirements:

Securing a work permit in Malaysia comes with its complexities, and requires careful documentation. Both employers and employees must adhere to requirements that are designed to facilitate a smooth application process. Here are the documents you need to be aware of:

• Passport and Visa: A valid passport and visa are the basic requirements for any work permit application.
• Employment Contract: A detailed employment contract specifying terms and conditions of employment.
• Educational and Professional Certificates: Proof of educational qualifications and professional certifications relevant to the job.
• Letter of Offer: A formal letter from the employer offering the job to the foreign national.
• Health Examination: In some cases, a health examination report might be required to make sure the applicant is healthy and fit for work (mainly for jobs with demanding physical labor like construction).

It is important to verify the specific documentation needed for the nature of employment. Working closely with immigration authorities or legal professionals is a good way to help streamline the application process and avoid obstacles.

Tax

Understanding the tax landscape in the Malaysia payroll system is necessary for both employers and employees to have a clear view of total compensation, and maintaining compliance. Here’s a breakdown of the key aspects related to employer and employee taxes:

Employer Tax

Employers in Malaysia are responsible for deducting income tax from their employees’ salaries through the Monthly Tax Deduction (MTD) system. The deducted amount is then transferred to the Inland Revenue Board (IRB).

Employee Tax

For Residents: The Malaysia payroll system employs a progressive tax system for residents, where tax rates increase with higher income brackets. This ensures that those with higher earnings contribute more to the tax revenue based on their means.

For Expatriates: Higher-income expats might benefit from a flat tax rate on their employment income, which is applicable for a specific duration, typically up to five years. This acts as an incentive for skilled professionals to work in Malaysia.

Tax Return Form

Both residents and expatriates are required to file their income tax returns annually. The Malaysian government encourages using the e-Filing system, which is a convenient and efficient way to submit tax returns online. This system makes the tax process easier and more efficient, reducing paperwork, and ensuring accurate reporting.

Severance Pay

In the Malaysia payroll system, severance pay (also known as termination or retrenchment benefits) is another major part of the employment safety net. It serves as financial protection for employees facing involuntary job loss, and protects their well-being after finding themselves unexpectedly unemployed.

Severance pay in the Malaysia payroll system is not mandated for voluntary resignations. But for involuntary terminations, the Employment Act 1955 and the Industrial Relations Act 1967 govern the compensation process. For most employees who lost their jobs, employers are required to offer termination benefits.

Calculating severance pay depends on factors such as length of service, nature of termination, and terms outlined in an employment contract. Most often, employees with longer service are entitled to more substantial severance packages than employees who worked for shorter stints.

Streamline Your Payroll Services with Omni

Navigating the ever-evolving regulations of Malaysia payroll can be challenging, and staying up to date with the latest mandates is crucial for HR teams to remain compliant.

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 their payroll processing while ensuring compliance.

Omni handles more than just payroll, with our dynamic time off management feature, managers and HR teams can swiftly navigate employee leave management. Our employee self-service portal allows employees to submit their time off requests directly to HR without any intervention and with automated calculations and real-time leave balance tracking, HR teams can effortlessly calculate paid time off and hours worked for payroll purposes.

For organizations with global teams, Omni’s comprehensive employee database facilitates easy tracking of immigration details, visa status, and ensures compliance with local minimum wage requirements. Our automated localized calendars further guarantee that you honor local holidays, no matter where your teams are based.

Start your free trial today and see how Omni can simplify the intricacies and complexities of Malaysia payroll processes and minimize the costs associated with common errors.