The COVID-19 pandemic has been a game-changer for digital transformation in Malaysia. A small business survey by global professional accounting organisation CPA Australia found that 40% of surveyed small businesses in Malaysia increased their focus to online sales in 2020. Of those small businesses that invested in technology in 2020, 42.4% of them said it made their business more profitable.

For global companies, the digital transformation has happened in the space of just months during the pandemic. According to Twilio CEO, Jeff Lawson, some large multinational corporations have fast-tracked their digital transformation by an average of six years.

The increased speed of digital transformation has meant that more companies have been able to appreciate the benefits of outsourcing. This has been particularly important for maintaining business continuity during the pandemic.

 For example, pre-COVID, some companies had payroll systems requiring on-site staff to process payroll. However, when the Movement Control Order (MCO) was in place, payroll staff couldn’t get to their offices to perform their duties. The solution for many of these companies was to outsource payroll to an expert service provider that uses a cloud-based HRMS solution to process employees salary payment offsite, even in the middle of a pandemic. One of the added benefits of outsourcing payroll is that businesses can remain compliant with rapidly changing payroll regulations in Malaysia.

While the pandemic has fast-tracked digital transformation, it will remain an important driver of business growth for the foreseeable future. SMEs may find it difficult to keep up with the rapid pace of technological change, but this is where outsourcing can be truly valuable. By outsourcing their non-core business functions to a specialist outsourcing company, SMEs can:

• save money from not having to implement and maintain expensive technology;
• have greater business continuity when the unexpected happens; and
• increase operational efficiency by allowing staff to focus on core strategic business drivers.

Here are the top three ways your company could benefit from outsourcing:

As Malaysia’s economy gradually recovers from the impacts of COVID-19, businesses need to focus on strategic planning to stay competitive. A good place to start is understanding the current financial health of your company.

Outsourcing your accounting function can help to clarify your company’s financial health status. A complete picture of your company’s finances enables you to make more informed decisions as the economy begins to recover.

 Our team of professional chartered accountants at BoardRoom can help by painting a clearer picture of your company’s current cash flow and seasonality. They have the expertise to critically analyse your receivables and collections, so you can more effectively assess organisational performance. With this information, you can then make the best strategic decisions to stay competitive and position your business to thrive in ‘the next normal’.

Looking ahead, futureproofing your business is paramount. Outsourcing services can help your company stay resilient in the face of uncertain and challenging market conditions.

As one of the leading professional services outsourcing companies in the Asia Pacific region, BoardRoom offers a variety of comprehensive and value-added corporate services, including:

• payroll services – we make payroll management faster and simpler, and help your stay compliant with all the payroll regulations and requirements in Malaysia
• accounting and bookkeeping – our team of certified chartered accountants and finance professionals ensure your company maintains accurate financial records and in full accordance with the relevant regulations
• corporate secretarial – you will be assigned a dedicated corporate secretary that helps your business to meet all corporate regulatory requirements in Malaysia and across APAC, and minimize administrative burdens from corporate compliance tasks
• tax advisory and filing – leverage our tax-planning expertise maximise your return, and mitigate the potential financial penalties
• share registry – we take a customised approach to support your specific needs, including conducting shareholder meetings and ensuring proper maintenance of shareholder records in accordance with local statutory obligations
• IPO share issuing and registration house – as one of only two licensed share issuing houses in Malaysia, we have decades of experience to guide you through your Initial Public Offering (IPO) process
• employee stock options plans – we offer a comprehensive platform that streamlines all your ESOP processes that benefits both your employees and the organisation

By consolidating all your back-office functions into one vendor, you gain greater efficiencies and business productivity.

Speak to our team of experts today about how we can help to futureproof your business and help your business embrace the opportunities presented by “the next normal.” In this ever-changing business landscape, embracing the advantages of outsourcing and digital transformation becomes not just a strategic choice but a necessity for success.

Before we examine some common payroll compliance challenges in Malaysia, it’s useful to understand the essentials of the payroll process and the main compliance considerations. Let’s start with a primer on the fundamentals of payroll.

• Paid public holidays: Employees are entitled to be paid for 11 gazetted public holidays per year. Of these 11 days, five must be:

1. Hari Kebangsaan or National Day;
2. Birthday of Yang di-Pertuan Agong;
3. Birthday of the Ruler or Yang di-Pertua Negeri or Federal Territory day (varies per state);
4. Labour Day; and
5. Malaysia Day (16 September).

The remaining six paid public holidays are chosen at the discretion of the employer from the following list, and these must be communicated to employees either via written notice or as stated in their employment contracts:

• Birthday of the Prophet Muhammad (s.a.w);
• Chinese New Year (2 days, except 1 day in the states of Terengganu and Kelantan);
• Vesak Day;
• Hari Raya Puasa (2 days);
• Hari Raya Haji (1 day, except 2 days in the states of Terengganu and Kelantan);
• Deepavali;
• Christmas Day; and
• Awal Muharam.

However, the government can declare additional ad hoc, paid public holidays throughout the year. If these days are declared at short notice, employers can nominate a replacement day during the payroll process.

In addition, there are a number of state-based holidays observed around the country. However, employers are not required to pay employees for these holidays unless they have selected them to be included in their list of paid public holidays for their employees.

• Compulsory annual leave entitlements: Employees are typically entitled to between 8-16 days of paid annual leave, depending on their length of service with the company.
• Compulsory sick leave entitlements: Employees are entitled to between 14-22 days of paid sick leave, depending on their length of service with the company.
• Compulsory maternity leave entitlements: New mothers are entitled to 60 consecutive days of paid leave for each of their first five children.
• Optional leave entitlements: Employees can also apply for the following optional leave types, which are typically unpaid and subject to employer approval:
  • compassionate/bereavement leave;
  • marriage leave; and
  • study leave.
• Paternity leave: Most employers also offer 1-3 days of paid paternity leave, but this is not a statutory requirement.

• Employees’ Provident Fund (EPF): Employers and most employees (Malaysian citizens or permanent residents only) must contribute to the EPF retirement benefits scheme. The EPF contribution rate for employees varies depending on their monthly salary, whereas the employer contribution is 12%.
• Social Security Organisation (SOCSO): Employers must contribute to Malaysia’s mandatory social insurance schemes, which are administered by SOCSO. There are two schemes:
  • The Employment Injury Insurance Scheme (EIIS) provides cover for employees who experience work-related injuries or diseases. The EIIS applies to all Malaysian citizens, permanent residents, and foreign workers (excluding domestic servants).
  • The Invalidity Pension Schemes (IPS) provide coverage for employees who experience invalidity or die from causes unrelated to their work.

Employers must make a monthly contribution to SOCSO on behalf of each eligible employee.

• Employment Insurance Scheme (EIS): Employers are required to make monthly contributions for each employee. The EIS provides financial assistance to workers who have lost their job while they seek new employment.
• Human Resources Development Fund (HRDF) Levy: This is a compulsory levy paid by employers with 10 or more employees (Malaysian citizens only) working in the manufacturing, services, mining and quarrying sectors. The levy rate is 1% of each eligible employee’s monthly wage. It allows companies registered with the HRDF to receive financial assistance when they participate in specific training and upskilling programs delivered by HRDF training providers.
• Other contributions>: Some employees may also be required to make student loan repayments to the National Higher Education Fund Corporation, or make donations known as Zakat to fulfil their religious obligations.

When processing payroll for foreign employees in Malaysia, companies must pay close attention to specific regulatory requirements that differ from those for local employees. Although many payroll processes are the same, key differences include:

• SOCSO Registration: Foreign workers must be registered under the Employment Injury Insurance Scheme (EIIS) provided by SOCSO, unlike local employees who may also be covered under the Invalidity Pension Scheme (IPS).
• Documentation: Employers must integrate foreign employees’ passport and work permit details into the payroll system for accurate record-keeping.
• Tax Rates: Foreign employees (non-residents) may be subject to different income tax rates compared to Malaysian citizens or permanent residents. Non-residents working for 60-182 days in Malaysia are taxed at a higher rate.

To ensure smooth payroll processing and compliance with Malaysian regulations, businesses can refer to official resources provided by key government bodies:

• Inland Revenue Board of Malaysia (IRBM): The IRBM offers comprehensive guidelines on the Monthly Tax Deduction (MTD) system and employee income tax requirements, available on their official website. These guidelines help employers stay up-to-date on tax obligations and payroll procedures.
• Employees’ Provident Fund (EPF): The EPF website outlines the mandatory contribution rates for both employers and employees, helping businesses make accurate contributions towards retirement benefits.

To attract and retain top talent, employers should consider implementing competitive compensation packages and benefits in line with local practices:

• Allowances: Providing allowances for housing, transportation, or meals is common in Malaysia, and can significantly enhance the overall compensation package.
• Incentives: Offering performance-based incentives, such as bonuses or employee stock ownership plans (ESOPs), can motivate employees to perform at their best.
• Health and Retirement Plans: Regularly reviewing benefits to include comprehensive health insurance, retirement savings plans (such as EPF contributions), and flexible work arrangements will improve employee satisfaction and loyalty.

Our team of payroll experts can guide you through the complexities of the payroll process in Malaysia to help make your business expansion more successful. We can set up your company’s payroll so that you get it right the first time, every time.

It doesn’t matter whether you are a large multinational corporation or a fast-growing SME. From managing complex payroll in the manufacturing industry to supporting SMEs, outsourcing to an global payroll processing company like BoardRoom ensures your company benefits from an efficient, accurate, and compliant payroll process right from the start.

Speak to our team of payroll specialists in Malaysia today about how outsourcing payroll can free up your time to focus on what really matters: your company’s growth and profitability.

Outsourcing payroll is the low-hanging fruit for increasing company efficiency. Instead of spending hours every pay cycle on payroll processing, an administratively heavy task, HR teams can focus on achieving more strategic objectives, like increasing employee engagement to boost organisational productivity.

Regulatory changes that affect payroll happen at break-neck speeds, which can make staying compliant a challenging, time-consuming process. In Malaysia, four regulatory bodies develop payroll processing rules. They each issue notifications when a change to the law is made and your company needs to ensure that these changes are accurately translated into payroll formulas.

It is easy to make mistakes when updating payroll formulas, especially if they involve IF, AND, OR logical functions. If the formula is wrong, payroll is calculated incorrectly which can cause problems like under or over paying wages and tax. Chances are, you may not even realise that an error has occurred until after receiving an expensive non-compliance fine.

Outsourcing your payroll to a specialist service provider, like our team of experts here at BoardRoom, can minimise your exposure to these compliance and regulatory risks because we take care of it all for you, including updating payroll formulas correctly. We also ensure a quick, timely turnaround that meets all the statutory requirements of employee payment, further helping you avoid risk.

Having a dedicated team of professionals with local knowledge of Malaysia’s labour laws is essential for your company. It means your business can take advantage of the team’s years of payroll experience without being exposed to the strict protocols and multi-level cross-checking that they’re subject to.

BoardRoom can deliver payroll outsourcing services across 19 countries and regions in APAC, with the option to coordinate your administration via BoardRoom Malaysia or decentralise coordination across all our local business sites. This is especially beneficial for companies that operate in different states or across multiple countries because our dedicated team will work with you to ensure compliance in each area, freeing up your in-house HR team.

Some companies operate payroll systems that require staff to be on-site in order to process payroll. If the unexpected happens, as an example; your payroll staff can’t get to the office to perform their duties, or a key member of your team responsible for payroll approval resigns, how will your employees get paid? Payroll that is outsourced to an expert provider guarantees payroll continuity so that your employees are paid on time, every time.

Getting your employees paid accurately and on time is critical to the success of your company. And as every HR professional knows, there is no room for error when it comes to payroll. However, managing payroll effectively can be challenging for in-house teams when they are trying to keep up with local regulatory compliance while simultaneously managing the needs of a growing workforce. This is especially true if your company operates in multiple countries across the APAC Region.

Our team of payroll experts here at BoardRoom will take care of payroll management for you, ensuring that pay runs are efficient, accurate, and compliant at your office in Malaysia and any other branches you may have in the region. Our team has worked across multiple industries, countries, and situations, so you can rest assured knowing that your payroll is in the best of hands. Ultimately, this means less stress for your HR teams.

Another advantage of outsourcing payroll services is that you can stay flexible in rapidly changing business environments. Outsourcing allows you to quickly scale your payroll service requirements as needed, instead of having to recruit, onboard, train and retain additional in-house staff.

As the saying goes, ‘two heads are better than one’. When you outsource payroll, your company gains access to a pool of payroll knowledge specialists without the expense of retaining them in-house. Our team of experienced payroll experts have managed payroll for businesses of all sizes, types, and industries across the APAC Region, making sure you meet legal requirements and stay compliant in multiple localities. Take advantage of their vast experience and knowledge to really build your business so you can take it to the next level.

The best payroll outsourcing vendors are not only experts in all things payroll, but also offer a variety of integrated, value-add corporate services, including:

• human resources;
• accounting and financial;
• corporate secretarial;
• tax advisory;
• share registry;
• share issuing; and
• employee stock options plans.

By consolidating all your back office functions into one vendor you stand to gain greater efficiencies and business productivity.

Spend less time sorting out pay runs and more time on your company’s growth and profitability by outsourcing your payroll function to our team of experts at BoardRoom.

Whether you are a large multinational corporation or a fast-growing SME, our team makes processing your payroll in Malaysia and across the APAC region easy.

Our comprehensive payroll outsourcing services include:

• Determining gross to net salary
• Producing variance reports, payroll journals, and payroll details
• Transferring net salary into bank accounts and providing pay slips securely (soft or hard copy)
• Preparation of year-end reporting forms and appendices (soft or hard copy)
• Digital management of staff leave entitlements and expense claims
• Regional payroll administration across 19 countries in APAC
• Streamlined support by Ignite payroll software, our cloud-based HRMS solution

So if you want efficient, accurate, compliant payroll processing that saves costs and alleviates stress from your team, speak to our specialists today about how our outsourced payroll services can best benefit your company.

Outsourcing your payroll processing to a service provider can significantly boost your team’s efficiency almost immediately. Payroll is filled with administrative burden, requires a high level of attention to detail and is realistically only a sub-function of your HR department. By outsourcing this function, you allow your teams to focus on strategic business drivers that grow your company. As with all business decisions it’s critical to evaluate the advantages against your desired outcomes. Whilst there is a wealth of benefits associated with outsourcing your payroll, the top three would have to be: specialised/localised knowledge; reduced cost/timesaving and; data security.

Specialised/Localised Knowledge

One of the greatest benefits associated with payroll outsourcing is having a dedicated team of professionals, with local knowledge of Malaysia’s labour laws, running this important function for you. This means your business can benefit from years of experience as well as the strict protocols and multi-level cross-checking payroll vendors are subject to. This can be of particular benefit for companies that operate in different states or multiple countries, where the labour laws can vary. Having a group of specialised regional payroll experts ensures that your company can operate safely across borders and the burden is not placed on your in-house HR teams.

Reduced Cost & Timesaving

Payroll processing can be a resource drain when not managed carefully. Calculating payroll taxes and statutory filings, like Social Security Organisation (“SOCSO”) in Malaysia, handling payroll enquiries and disbursement; whilst being simple administrative tasks can be extremely time consuming. Add to this, factors such as rapid expansion and your HR teams can be put under immense pressure which can result in an increased propensity for error and a diversion away from strategic activities that enhance business performance. Payroll outsourcing passes the time-cost saving down to the bottom line.

In addition to this significant saving, there can also be visible savings to your business from not needing to maintain payroll software, manage paperwork and tax liabilities.

Data Security

A key concern in today’s highly digitalised world, HR departments are expected to adhere to local laws such as the Personal Data Protection Act 2010 (“PDPA”) in Malaysia. Payroll and employee personnel details are incredibly sensitive information that HR handles on a regular basis.

A good understanding of the personal data life cycle management process will enable proper protocols that comply with local laws. This can be especially complicated to implement for multi-national companies. Having an experienced regional payroll outsourcing vendor can help mitigate risk for your in-house HR team.

Another concern is the back-up of data; if there are any lapses in security or a hardware malfunction, this can paralyse key business functions. Most reliable payroll outsourcing service providers store their data on highly secure cloud-based servers. Backed up across multiple server locations, the servers are usually protected by high-end encryptions. All of which is managed by the outsourced vendor, taking away compliance risks and mitigating time costs.

Another option, if you wish to keep payroll processing in-house is to adopt an all-in-one HRMS to mitigate administrative burden for your in-house teams.

Below are some of the benefits associated with the implementation of a well-integrated HRMS.

Increased Productivity

By having an integrated HRMS system in place, HR teams can automate a large portion of the payroll workflow from calculating salaries, claims, deductions and leave.

However, selecting the right HR and payroll system is critical to success. For you to achieve the greatest benefits the system should include key modules like Leave, Claims, Time and Attendance, Personnel and Payroll.

An integrated system will also have added benefits like increasing data accuracy of pay runs through the automation of several payroll processes. For example, statutory payment requirements in Malaysia are automated within the HRMS. The system calculates all mandatory payments or tax deductions such as Employee Provident Fund (EPF), Zakat and Employment Insurance Scheme (EIS), which not only alleviates administrative burden it mitigates the risks of human error.

Eliminate Human Errors

When you use an all-in-one system, your risk of human error is significantly reduced. Much of the manual work is automated, from data entry to calculations. You can also ensure that there’s no important data missing and ensure uniformity by setting mandatory or restricted fields within the system.

Possibly the greatest benefit of an interconnected and automated HRMS is the decreased risk of important payroll calculations such as hours worked or tax deductions. This not only saves time but also ensures accurate disbursements to your staff every time.

HRMS simplifies employee service

A vital function of HR is employee servicing. The number of administrative tasks can be overwhelming for an in-house HR team especially those from larger businesses.

Self-service functions empower both the HR team and employees: staff can obtain basic payroll information such as payslips or leave balances without having to add to the HR team’s workload. Employee’s feel empowered as they’re able to access the information they need when they need it.

Reputable providers will also offer a mobile application, so employees have the convenience of accessing all their HR information as their fingertips, anytime, anywhere.

Ultimately, there are many solutions available to boost the efficiency of your HR team. In Malaysia, the two most common and effective are outsourcing payroll and adopting an integrated cloud based HRMS.

As with all change, success is dependent on your change management process. In the current Malaysian climate where people are worried for their jobs, it’s important that your change management processes are robust, and all designed with employee welfare in mind.

Efficiency does not always mean downsizing staff, instead, existing resources can be redirected to other roles such as data analysis, facilitation of outsourcing or integration.

What solution works best for your organisation will depend mostly on your current processes and the needs of the company, but it is always best practice to regularly monitor and review HR processes.

Interested to find out more about increasing the efficiency of your HR team in Malaysia? Speak to our payroll experts today.

With a cloud-based SaaS model, the payroll software is hosted offsite and HR managers gain access to the software via a network. With such a model, the SaaS service provider undertakes maintenance of the software and server, technical support, and data backup of the software system for a subscription fee. As such, HR managers do not have to pay a hefty price tag for owning the software. This is not only cost-saving for the business but takes away the burden of maintaining a proprietary system, consequently allowing HR managers to spend more time on handling employee requests, processing payroll and other primary HR duties.

Comparatively, a full or partial payroll outsourcing service can provide an even higher level of ease to HR managers. Such services take on most, if not all, of the payroll function with little need for HR management intervention. This implies that the HR department can enjoy greater flexibility in deploying its manpower to manage other in-house duties.

Let’s look at a summary of the key tasks and who is responsible in both scenarios.

As a company expands operations to global markets, the complexity of payroll management will multiply because of legislative requirements, market regulations and even differences in cultural practice.  Furthermore, employees’ expatriate terms and tax obligations can make payroll processing increasing tricky especially if HR managers are unfamiliar with local regulations.

Take China as an example, due to the city-tier classification within the country, companies that are expanding their business into this market are faced with complex regulatory requirements because each city-tier has its own set of rules and conditions.  As such, the structure of employee tax, insurance and allowance are also processed very differently across different states.

For companies venturing into new markets abroad, payroll outsourcing can offer an efficient and effective solution to this problem.  Such service providers are usually well-versed with local policies and are in the best position to respond to dynamic changes that are happening in the global market. Entrusting payroll processing to an experienced service provider can reduce the risk of errors and non-compliance, freeing up local managers to concentrate on the growing business.

While the cloud-based SaaS model can provide software support that is essential for upkeeping payroll processing, HR managers who are unfamiliar with the foreign markets are still faced with tremendous difficulties in managing the payroll and employees’ enquiries.  Unless the in-house HR team has a clear understanding of the foreign regulations, adopting a SaaS solution alone may still present a high degree of challenges for the business.

For larger companies that operate in multiple markets with a fair number of employees (usually more than 100), outsourced payroll can serve as an efficient solution that is both timely and cost-effective. With such services, companies need not invest in costly proprietary payroll software or hire and train an in-house HR team in each market to facilitate payroll processing.

This is especially true for foreign companies that are managing payroll out of a regional headquarter. As per the example on China, illustrated in the above point, it can be a mammoth task for HR managers to keep abreast of regulatory standards and changes across multiple countries/regions when they are not physically based there. At the most basic level every market has its own unique tax rates, standard employee entitlements, currency exchange and employee social security contributions. HR managers will need to spend a significant amount of time to acquire this information and more importantly stay up to date with any changes happening across the individual markets.

Appointing an outsourced payroll service provider that has a deep understanding of the local market can ensure that payroll processing is executed professionally and according to government standards.

Is a cloud-based SaaS model beneficial for companies that operate in multiple markets then? Using SaaS does present its own advantages, especially for companies with smaller headcounts. The subscription-based model is cost-effective and easy to implement across various markets. In addition, many SaaS solutions are robust enough that once the initial setup is complete the remainder is largely automated, simplifying payroll handling. However, for it to be successful HR managers will need to be prepared to spend time on staying up to date with the requirements of each market they operate within and updating the system settings accordingly, which in itself can be a time consuming task.

One of the key concerns of HR managers when selecting between an outsourced payroll service provider and a cloud-based SaaS solution lies in confidentiality and security issues. Payroll processing is an extremely sensitive matter that involves employees’ personal data and compensation details, the risks of such information becoming public knowledge can be detrimental for any organisation.

While it is common knowledge that payroll service or software providers will attest to maintaining the confidentiality of data provided to them, HR managers must still take steps to consider if these partners have legitimate security features and robust processes in place to uphold the claim.

This is especially true for payroll outsourcing service providers that have full access to employees’ records, the risk/cost of a confidentiality breach may far outweigh that of the increased time required to implement a cloud-based SaaS model. The lack of in-house HR personnel involved in the outsourced process can certainly heighten the risk of exposure.

In the case of the cloud-based SaaS model, it is not without its risk too. Fundamentally, the cloud-based system is hosted on a network that has potential for security breaches by external parties.

Every company has its own unique objectives and considerations when selecting a payroll solution. There is no right or wrong option but rather one that fits into the specific HR strategy seamlessly.

Outsourced payroll processing may be the easiest option for most HR managers, however, choosing the cloud-based SaaS model can be just as beneficial if the HR team requires a flexible and cost-effective solution that can simplify a legacy in-house process.

Whatever the choice, selecting a model that aligns with the company’s go-to-market plan can certainly optimise business potential and encourage long-term growth.

At Boardroom, we are experts in helping companies, from corporations to fast-growing SMEs, with their payroll, allowing them to focus on what matters – growth and profitability.

From local payroll services handling to managing substantial payroll obligations for bigger companies spread across Asia-Pacific, we help businesses comply with local statutory regulations while ensuring their most valuable asset, the employees, are paid on time.

Contact us today and empower your organisation with greater freedom through our payroll solutions.

Or you can also learn more about our payroll solutions here.

This article is for informational purposes only and not intended to convey or constitute legal or any other advice. It is not a substitute for advice from a qualified professional.