Statutory Employment Income in Malaysia (2025): Definition, Tax Rules & Key Components

For employees and employers in Malaysia, understanding statutory employment income is essential to ensure compliance with tax regulations and labor laws. But what exactly does it mean? In this article, we break down the definition of statutory employment income, its key components, and commonly asked questions to help you gain clarity on this important financial aspect.

 

What is Statutory Employment Income?

Statutory employment income refers to the total taxable earnings an employee receives from their employer, as defined by tax authorities. It includes salaries, wages, bonuses, commissions, and other monetary benefits provided as part of employment.

In Malaysia, the Inland Revenue Board of Malaysia (LHDN) determines taxable income based on Section 13 of the Income Tax Act 1967.

 

Key Components of Statutory Employment Income

Understanding the elements of statutory employment income in Malaysia is important for tax reporting and payroll management. Here are the primary components:

 

1. Basic Salary

This is the fixed monthly income paid to an employee before deductions or allowances.

 

2. Bonuses and Incentives

Any additional payments given for performance, productivity, or company profits are included as part of taxable income.

 

3. Commissions

Sales-based incentives or commissions earned by employees are considered part of employment income.

 

4. Allowances and Perks

Common taxable allowances include:

• Transport allowance

• Meal allowance

• Entertainment allowance

Some allowances, such as travel and per diem, may have tax exemptions under certain conditions.
 

5. Benefits-in-Kind (BIK)

Non-monetary perks such as:

• Company cars

• Housing accommodations

• Medical benefits (depending on the employer's policy)

 

6. Employer Contributions

While EPF (Employees Provident Fund) and SOCSO (Social Security Organization) are part of payroll deductions, certain employer-provided benefits may still be taxable.
​​​​​​​

7. Gratuity and Compensation Payments

Any compensation for termination, early retirement, or severance is considered taxable under employment income.

 

Taxation of Statutory Employment Income in Malaysia

In Malaysia, statutory employment income is subject to Monthly Tax Deductions (MTD/PCB) under the Income Tax Act. Employers are required to deduct taxes based on:

• The employee’s income bracket

• Additional taxable benefits received

• Other relevant deductions and exemptions

To determine the correct taxable amount, employees can refer to LHDN’s official tax calculator or consult a tax professional.

 

Frequently Asked Questions (FAQs)

1. Are all allowances taxable?

Not all allowances are taxable. Some, like travel and meal allowances, may be partially or fully exempt based on government guidelines.

 

2. How is overtime pay treated under statutory employment income?

Overtime pay is considered taxable income, as it is an additional payment received for extra working hours.

 

3. What are tax-deductible expenses for employees?

Certain work-related expenses, such as professional membership fees, self-education costs, and medical expenses, may be tax-deductible under LHDN rules.

 

4. How can employees reduce their taxable income?

Employees can utilize tax reliefs and exemptions, such as contributions to EPF, SOCSO, life insurance, and donations to approved organizations.

 

5. What happens if an employer fails to report statutory employment income correctly?

Employers who fail to comply with tax reporting requirements may face penalties, fines, or legal action under Malaysian tax laws.

 

Understanding statutory employment income in Malaysia helps both employees and employers remain compliant with tax regulations. It encompasses basic salary, bonuses, commissions, allowances, and benefits, all of which may be taxable under local laws. Staying informed about tax exemptions and deductions can help individuals manage their finances more effectively.

For more details, refer to LHDN Malaysia’s official guidelines on employment income taxation.

 

Looking for new career opportunities? Check out our latest job openings here: Job listings

Need hiring support? Connect with Reeracoen Malaysia today!

 

 

Disclaimer:
The information provided in our blog articles is intended for general informational purposes only. It is not a substitute for professional advice and should not be relied upon as such. 
While we strive to provide accurate and up-to-date information, the ever-evolving nature of certain topics may result in content becoming outdated or inaccurate over time. Therefore, we recommend consulting with qualified professionals or experts in the respective fields for specific advice or guidance. Any actions taken based on the information contained in our blog articles are solely at the reader's discretion and risk. We do not assume any responsibility or liability for any loss, damage, or adverse consequences incurred as a result of such actions.
We may occasionally provide links to external websites or resources for further information or reference. These links are provided for convenience and do not imply endorsement or responsibility for the content or accuracy of these external sources. Our blog articles may also include personal opinions, views, or interpretations of the authors, which do not necessarily reflect the views of our organisation as a whole. We encourage readers to verify the accuracy and relevance of information presented in our blog articles and to seek professional advice when needed. 
Your use of this website and its content constitutes acceptance of this disclaimer.

Reference links:
https://www.hasil.gov.my