Should I Take 7% or 11% EPF Contribution?

EPF Contribution
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The COVID-19 pandemic has affected many nations across the world economically.

With the Movement Control Order in place, businesses are forced to close or function at an all-time low.

Malaysia’s national domestic income has dropped drastically.

In light of the pandemic, the Malaysia government has introduced an Economic Stimulus Package to help households in coping with the current financial climate. 

Before the pandemic, the regular EPF contribution rate of an employee was 11%. The contribution rate has now dropped to 7% to provide more flexibility for employees in managing their expenses.

The stimulus package is open for employees to change their EPF contribution rate from 1st April to December 2020.

This Economic Stimulus Package has left many Malaysians wondering whether or not to apply for a reduction on their EPF contribution rate. 

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What Should You Do as an Employee?

Firstly, you need to observe the financial situations at home.

Are you the only one working and making financial contributions? Are you noticing an increase in your family’s expenditures? If so, can you afford the increment in expenses?

For those who are not in financial crisis, we highly recommend you continue contributing 11% of your income to EPF. 

Otherwise, if you find yourself struggling to pay the bills and afford essential living expenditures, reduce your EPF contribution rate to 7% and manage your household expenditures wisely.

However, we need to point out that although you will receive more of your monthly salary, the increment is only by a small margin.

For example, your salary amounts to RM4, 000 a month before any EPF contribution. With an 11% contribution rate, your income would equate to RM 3, 560 a month. If you reduce the contribution rate to 7%, your income will be RM3, 720 a month. 

Reducing the contribution means that you’re getting an additional RM160 a month. Realistically, RM160 is not a significant sum of money.

However, it could help alleviate the burden for some households that are having financial difficulties.

On the other hand, in the long run, you’ll be missing out on quite a bit of savings. The lowest annual EPF dividend has been about 6% of your total EPF savings.

That means that if you contribute the RM160 to your EPF accounts, you will benefit from significant returns in the future.

In other words, you need to thoroughly assess your household expenditure before deciding to change your EPF contribution rates.

Run a detailed check on your expenses and evaluate if you can continue living off your regular wages during the pandemic.

If you find yourself needing more money for day-to-day expenditures, by all means, fill out the Borang KWSP17A (Khas 2020) and submit it to your employer.

If you’re managing well financially and are looking for financial security in the long run, keep contributing the 11% of your salary to EPF.

What Should You Do as an Employer?

While employees contemplate about EPF contributions, employers take different factors into account.

During this financial turmoil, many businesses are suffering financially and are forced to conduct cuts on the budget.

To aid business owners during the pandemic, PERKESO has come out with a few outlines for the Wage Subsidy Programme.

Depending on the size of your operation, you can claim up to RM1,200 monthly for each employee.

However, there are certain terms and conditions that apply to this subsidy: 

  • Your company has experienced a drop of more than 50% in revenue since the start of the year.
  • Each employee in your company earns less than RM4,000 a month. 
  • Your company has been contributing to SOCSO before 1st April 2020. 
  • Your company should have begun its operation before 1st January 2020. 
  • Once you sign up for the Wage Subsidy, you will be subjected to retain your employees for six months. On that note, you can neither reduce your employees’ salaries nor terminate your employees within the six months. 

More information about the Wage Subsidy Programme is available on the official PERKESO site.

If you’re looking to sustain your business amidst this financial crisis, we highly recommend you apply for the wage subsidy. 

We hope this article helped you in deciding what to do with your EPF claims.

As we’ve mentioned, always conduct a thorough assessment of your financial situations before making any decision.

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