Employee Provident Fund (EPF) is a retirement savings plan that helps employees in Malaysia secure their financial future. It is a mandatory scheme for all employees who earn a basic salary in the specific region or above. In this scheme, both the employee and the employer contribute a portion of the employee’s salary towards the EPF account.
In this article, we will discuss what an EPF is, the contribution rates in Malaysia, and how to calculate the EPF balance.
What is an Employee Provident Fund?
The Employee Provident Fund (EPF) is a mandatory savings scheme for all employees in Malaysia who earn a basic salary of RM 1,000 and above. The purpose of the EPF is to provide financial security for employees during their retirement years. The EPF is governed by the Employees Provident Fund Act 1991 and managed by the Employees Provident Fund Board.
Under this scheme, both the employee and the employer make contributions towards the employee’s EPF account. Both employees and employers must contribute several percent of the employee’s basic salary. The contributions are invested, and the returns are credited to the employee’s EPF account. The EPF account serves as a savings account for the employee, and the funds can be accessed when the employee retires or reaches the age of 55.
In addition to providing financial security during retirement, the EPF also offers several other benefits to employees. For example, EPF members can use their EPF savings to purchase a home, pay for their children’s education, or pay for medical expenses. Additionally, the EPF offers members the option to withdraw their savings for specific purposes, such as to purchase a home, start a business, or pay for medical expenses. The EPF also provides members with an annual statement of their accounts, which helps them keep track of their savings and plan for their future.
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How Much is EPF Contribution in Malaysia?
The EPF contribution rate in Malaysia is set at a minimum of several percent of the employee’s basic salary, for both employees and employers. However, the contribution rate may be higher based on the agreement between the employee and the employer.
Employee Contribution
The employee is required to contribute 11% of their basic salary towards the EPF account. This contribution is also tax-deductible, and the employee can claim a tax deduction for the amount contributed to the EPF. The employee’s contribution to the EPF account is automatically deducted from their salary, and the employer is responsible for making the contribution on behalf of the employee.
Employer Contribution
The employer is required to contribute a minimum of 12% (for monthly salaries of more than RM 5,000) and 13% (for monthly salaries of RM 5,000 & below) of the employee’s basic salary towards the EPF account. This contribution is tax-deductible, and the employer can claim a tax deduction for the amount contributed to the EPF.
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How to Calculate Employee Provident Fund
Calculating the EPF balance is an important step in planning for retirement and ensuring financial security. The EPF balance is calculated by adding the contributions made by both the employee and the employer, along with the returns earned on the investments. Here are the steps to calculate the EPF balance:
1. Determine the Total Contributions Made
The first step in calculating the EPF balance is to determine the total contributions made by the employee and the employer. This can be done by adding up the contributions made to the EPF account in the past 12 months.
For example, if an employee earns a basic salary of RM 4,000 per month and the EPF contribution rate is 11%, the employee’s contribution to the EPF would be RM 4,000 x 11% = RM 440 per month. If the employer also contributes 12% of the employee’s basic salary, the employer’s contribution would be RM 4,000 x 12% = RM 480 per month.
2. Calculate the Returns Earned on the Investments
The next step is to calculate the returns earned on the investments. The EPF board invests the contributions made by the employee and the employer, and the returns earned on these investments are credited to the employee’s EPF account. The returns earned can vary based on the investments made by the EPF board.
For example, if the returns earned on the investments in a particular year are 5%, the returns earned on a balance of RM 50,000 would be RM 50,000 x 5% = RM 2,500.
3. Add the Total Contributions and Returns
Finally, the total contributions and returns are added up to calculate the EPF balance. In this example, the EPF balance would be the sum of the employee’s contributions, the employer’s contributions, and the returns earned on the investments:
EPF balance = RM 440 x 12 months + RM 480 x 12 months + RM 2,500 = RM 11,040 + RM 5,760 + RM 2,500 = RM 19,300
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