Statutory Deductions and Employer Contributions List

Statutory employment income refers to the total taxable earnings an employee receives from their employer, as defined by the tax authorities. In Malaysia, this is governed by Section 13 of the Income Tax Act 1967 and enforced by the Inland Revenue Board of Malaysia (LHDN).

This article explains what falls under statutory employment income.

Statutory employment income includes monetary and non-monetary benefits received through employment. Here are the key remunerations:

1. Basic Salary

This is the fixed monthly wage agreed upon in the employment contract, before any deductions or additional payments.

2. Bonuses and Incentives

Any non-recurring performance-based or profit-sharing bonuses fall under taxable income, including:

• Annual bonuses

• Sales incentives

• Productivity rewards

3. Commissions

Sales commissions or referral-based earnings are fully taxable and must be declared as employment income. In Worksy, commissions are marked as Additional Income due to its irregularity.

4. Allowances and Perks

Most allowances that are considered part of wages are subject to statutory deductions, except for travel allowance

5. Benefits-in-Kind (BIK)

Non-cash benefits provided by the employer are considered taxable unless specifically exempted. These may include:

• Use of company car

• Free or subsidised housing

• Medical coverage (depending on the scope and provider)

6. Gratuity and Compensation Payments

Payments made in connection with:

• Termination

• Early retirement

• Retrenchment or severance

are generally taxable unless specifically exempted under the Income Tax Act.

When calculating PCB, income is grouped into either Fixed or Additional income tax base:

Fixed vs Additional Income Tax Base (for PCB/MTD)

Fixed Income Tax Base
This includes regular, recurring earnings processed every month, such as:

• Basic salary

• Fixed allowances

• Monthly fixed incentives

Worksy setup:  Setting > Payroll > Payroll Items. Enable “Include as Fixed Income Tax Base” for applicable income items.

Additional Income Tax Base
This includes non-regular, ad hoc payments such as:

• Bonuses

• Commissions

• One-off allowances or incentives

• Other non-recurring payments

Worksy setup: Setting > Payroll > Payroll Items. Mark these items under Standard Tax Category, and disable “Include in Fixed Income Tax Base”.

Summary

The table below provides a quick summary of how different types of remuneration are treated in relation to statutory contributions and deductions in Malaysia. Refer below:

While this table serves as a general guide, our system is not responsible for any misclassification of income types. 

For accurate tax treatment and compliance, please consult with a certified tax consultant, legal advisor, or refer directly to the relevant authorities such as the Inland Revenue Board of Malaysia (LHDN), EPF, SOCSO, or EIS for official guidance.

We hope this explanation clarifies the matter. If you require further assistance, please don't hesitate to contact our support team.