Effective payroll in human resource management is fundamental for legal compliance, employee satisfaction, and operational efficiency. In Malaysia’s evolving employment environment, especially with hybrid work models gaining traction, accurate payroll processing is critical to avoid costly penalties and reputational damage. Yet for many Malaysian SMEs or remote teams, it’s still done on spreadsheets, by overworked staff juggling compliance rules, public holidays, and ever-changing employee schedules.”
This article highlights five common payroll mistakes, referencing relevant labour laws, and explains how INFINITY8’s affordable payroll solution for SMEs in Malaysia helps companies avoid these pitfalls with reliable automation and compliance.
1. Misclassification of Employees and Independent Contractors
The issue:
Misclassifying employees as independent contractors is a common mistake that contravenes Malaysia’s Employment Act 1955 and the Employees Provident Fund Act 1991.
Legal reference:
Under the Employment Act 1955 (Sections 2 and 60B), employees must be correctly classified to ensure proper benefits and statutory deductions, such as EPF and SOCSO, are made. Misclassification results in employers failing to contribute mandatory EPF or SOCSO payments.
Repercussions:
The EPF Act mandates penalties, including fines up to RM10,000 and imprisonment of up to 3 years for failure to make contributions. The Social Security Organisation (SOCSO) similarly imposes fines and demands back payments, which can accumulate quickly.
How INFINITY8 solves it:
INFINITY8’s HRM payroll system automates worker classification based on employment terms, preventing under-contribution and non-compliance. Its compliance engine alerts HR teams to potential misclassifications, reducing legal exposure.
2. Inaccurate Overtime, Leave, and Benefit Calculations
The issue:
Manual calculation of overtime and leave entitlements often results in underpayment or overpayment, breaching the Employment Act 1955 and Industrial Relations Act 1967.
Legal reference:
Section 60A of the Employment Act requires overtime to be paid at 1.5 times the hourly rate on normal days and double on rest days or public holidays. Leave entitlements, as stipulated under the Act, must be tracked accurately.
Repercussions:
Non-compliance can lead to complaints filed with the Labour Department, resulting in investigations and financial penalties. In some cases, failure to pay correct overtime has led to tribunal rulings ordering compensation to employees.
INFINITY8’s response:
INFINITY8’s payroll software automates OT calculations per statutory rates and tracks leave balances accurately, supporting transparent payroll processing that complies with Malaysia’s payroll best practices to avoid errors.
3. Late or Inaccurate Statutory Contributions
The issue:
Late submission of EPF, SOCSO, and PCB (Income Tax) contributions is a frequent compliance failure. Nearly 20% of Malaysian SMEs faced penalties of up to RM10,000 due to errors in PCB (Monthly Tax Deduction) submission. Furthermore, the Social Security Organisation (SOCSO) identified three sectors—construction, agriculture, and food services—as having the highest rates of non-compliance.
Legal reference:
Under the EPF Act and SOCSO Act, employers must remit monthly contributions by the 15th of each month. The Inland Revenue Board requires PCB submissions by the 15th of the following month.
Repercussions:
Late payments incur fines of RM50 per day (EPF) and penalties of up to 10% of the amount due (SOCSO). The Inland Revenue Board can impose penalties and interest on late PCB payments. Repeat offences risk triggering audits.
How INFINITY8 prevents this:
INFINITY8’s system includes automated reminders and direct electronic filing to statutory bodies, ensuring all contributions are submitted timely and accurately, mitigating the risk of fines and penalties.
4. Overreliance on Manual Payroll Processing
The issue:
Manual payroll management using spreadsheets or outdated systems increases error risk and compromises compliance.
Comparison:
Comparing manual vs automated payroll for error reduction, studies show automation reduces errors by over 80%, accelerates processing time, and provides audit trails crucial for regulatory inspections.
Legal implication:
Without proper documentation and accuracy, companies may fail audits under the Employment Act and the Income Tax Act, leading to disputes and penalties.
INFINITY8’s solution:
INFINITY8 delivers an end-to-end payroll management including platform that automates payroll processing, maintains secure digital records, and enhances reporting accuracy, enabling HR and finance teams to meet their hr responsibilities efficiently.
✅ Mini Payroll Compliance Checklist:
▢ Are employees correctly classified?
▢ Are EPF/SOCSO payments automated?
▢ Are OT and leave rules based on the Employment Act?
5. Incomplete or Non-Compliant Payslips
The issue:
Failure to provide detailed payslips is a breach of Malaysia’s Employment Act 1955 (Section 24) which mandates employers to furnish employees with payslips detailing gross wages, deductions, and net pay.
Repercussions:
Non-compliance may result in labour complaints and fines, as well as increased employee dissatisfaction.
INFINITY8’s approach:
INFINITY8 automatically generates payslips compliant with Malaysian labour laws, offering employees secure access to itemised payslips, thus supporting transparency and trust in payroll operations.
Pro Tip for HR: Always reconcile EPF payments with payslips monthly to avoid under-contribution flags.
The Strategic Importance of Payroll Accuracy for Malaysian Businesses
Payroll accuracy directly affects compliance with statutes such as the Employment Act 1955, the EPF Act 1991, the SOCSO Act 1969, and the Income Tax Act 1967. Mistakes not only incur financial penalties but also risk labour disputes and loss of employee goodwill, which is especially critical as Malaysia embraces hybrid work models and flexible employment arrangements.
HR teams and hiring managers increasingly recognise that payroll is integral to broader talent acquisition and retention strategies. Leveraging an automated payroll solution that aligns with statutory requirements is fundamental to sustaining workforce morale and organisational reputation.
How Can INFINITY8 Prevent Common Malaysian Payroll Mistakes?
INFINITY8 offers a comprehensive payroll platform tailored to Malaysia’s regulatory framework. Its key features include:
- Automated statutory deductions compliant with EPF, SOCSO, and PCB guidelines
- Timely submission and filing with authorities
- Precise overtime and leave calculations per Employment Act provisions
- Detailed, compliant payslip generation
- Secure, cloud-based access supporting payroll & HR management
- Localised expertise embedded in the system to address Malaysia-specific nuances
These capabilities enable companies to follow payroll best practices to avoid errors, ensuring business continuity and compliance in a complex labour environment.
Engage INFINITY8 Today for Professional Payroll Management
Payroll errors are costly and avoidable. With escalating regulatory scrutiny in Malaysia, businesses — especially SMEs — must adopt reliable payroll systems immediately.
INFINITY8 combines advanced technology with local expertise to deliver an affordable payroll solution for SMEs Malaysia can trust. To safeguard your business from penalties and improve operational efficiency, visit INFINITY8 and schedule a consultation with our experts.
Future-proof your payroll management with INFINITY8 — the strategic partner Malaysian businesses need to navigate evolving labour laws and workforce expectations.
