As an employer, you sometimes need to convert a salary to an hourly rate. The basic calculation of an hourly rate for a salaried worker isn't tricky, but there are two ways to do it. Be careful to select the right method, or you may end up paying someone more or less than you should.
Hourly vs. salaried employees
Workers in Malaysia are compensated as either hourly or salaried workers.
Hourly employee: Receives a specified sum for each hour worked.
Salaried employee: Receives a predetermined amount, such as a monthly rate paid out in equal portions each pay period.
What the law says
Section 60A(1) of the Employment Act 1955 says a worker shall not be required under their contract of service to work:
(a) more than five consecutive hours without a period of leisure of not less than 30 minutes duration;
(b) more than 8 hours in 1 day;
(c) in excess of a spread over 10 hours in 1 day;
(d) more than 48 hours in 1 week.
This provision was drafted when most workers in Malaysia are required to work six days a week; therefore, they are required to work only for a maximum of 8 hours per day.
A new amendment allows an agreement between employers and employees, where the number of working hours on one or more days of the week is less than 8 hours. The limit of 8 hours may be exceeded on the remaining days of the week, so long as the worker is not required to work over 9 hours in 1 day or 48 hours in 1 week.
The usual working hours per week is 40 hours.
Determining an hourly rate for salaried employees
1. Check the monthly income
One can refer to the employee's latest salary slip. Use the gross pay, which is the amount before taxes and deductions. If the employee is paid every two weeks, multiply their salary by two. Be sure not to include overtime pay as it is separate from their regular working wage.
2. Calculate how many days worked
Only count the days your employees are working. Don't forget to consider public holidays too.
For example, if your employees work five days a week, the total should be 22 days of work.
3. Divide gross pay by total days worked
Divide the worker's gross pay by total working days, and the sum will be their hourly rate.
Gross pay ÷ Total Days Worked = Hourly salary
For example: 2000 ÷ 22 = RM90.90
Contributions for employee
There are three contributions employers and employees should pay for: EPF, SOCSO, and SIP.
Under EPF, employers have to contribute:
- 13% of the employee's basic salary (if the monthly salary is RM5,000 and below).
- 12% if the monthly salary is more than RM5,000.
For employees, they will need to contribute 7% of their salary. (Before April 1, 2020, the minimum employee contribution rate was 11%)
13% x basic salary
13% x 2000 = RM260 (Employer contribution)
7% x 2000 = RM140 (Employee contribution)
You can refer to SOCSO's contribution rate here.
Under the First Category (Employment Injury Scheme and Invalidity Scheme):
For instance, the employee wage is RM2,000.
The employer will need to contribute RM34.15.
The employee will need to contribute RM9.75.
Read : The Complete Guide to SOCSO
Under the Employment Insurance System (EIS), the contribution rate is 0.2% for the employer and 0.2% for the employee. You can refer to the schedule here.
For instance, the employee monthly wage is RM2,000. Therefore, the employer and employee will need to contribute RM3.90 each.
If you are sceptical of using manual calculation, you can always use local payroll software to ease the process.
Preparing the salary for employee
Employers will need to include their EPF, SOCSO, and SIP contribution to the employee's salary. For example:
2,000 + 260 + 34.15 + 3.90 = RM 2,298.05
This is the amount the employer needs to prepare for the employee.
For employees, this is the calculation:
Basic Salary - EPF - SOCSO - SIP = Monthly Salary (not including overtime, allowance, commission, and claim)
2,000 - 140 - 9.75 - 3.90 = RM 2,153.65
Disclaimer: This article serves as a guide to calculate an employee's hourly rate as well as employer and worker contributions. Please consult SOCSO and EPF for further information.
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Sources: SOCSO, EIS, EPF
The Complete Guide to SOCSO
HR Guide: The Basics of Employment Contract
What You Need to Know About Employee Benefits in Malaysia