Welcome to our comprehensive guide on the HRDC Levy, an essential contribution regulated by the Pembangunan Sumber Manusia Berhad (PSMB) under the PSMB Act 2001. This guideline is crucial for employers to ensure accurate levy payments for human resource development in Malaysia. This guide is divided into detailed sections for clarity and thorough understanding.
Understanding HRDC Levy and Registration Requirements
What is HRDC Levy?
The HRDC Levy is a government-mandated contribution aimed at funding employee training and development initiatives. It applies to certain industries listed in the First Schedule of the PSMB Act 2001 and is crucial for enhancing the nation's human resource capabilities.
Who is Required to Register?
Employers with 10 or more employees must register and pay the HRDC levy. Those with 5 to 9 employees can opt-in voluntarily. Non-compliance can lead to penalties including fines or imprisonment.
Definition of an Employee for HRDC Levy Purposes:
An employee under this act includes:
- Any Malaysian citizen employed under a contract of service, whether on a full-time basis, contract or as permanent staff.
- Company directors receive a salary (not just director fees).
Levy Calculation:
The levy payment is calculated at 1% of the monthly wages for each employee for registered employers. For voluntary registrants, it is calculated at a rate of 0.5% of monthly wages. Wages subject to levy include basic salaries and fixed allowances such as:
- Entertainment allowance
- Long service allowance
- Housing allowance
- Cost of living allowance
- Heat and dust allowance
However, payments like bonuses, commissions, and allowances that vary (such as overtime and meal allowances) are excluded from the levy calculation.
List of Non-Fixed Allowances Excluded from Levy Calculation:
- Overtime payments
- Night and shift allowances
- Attendance incentives
- Production bonuses
- Pension fund contributions
- Retrenchment packages
- Travel allowances
- Payments under apprenticeship contracts
- Bonuses and commissions
Calculating the Levy
The levy is calculated as 1% of the sum of the basic salary and fixed allowances, less any unpaid leave.
Example of Levy Calculation - For an employee with a basic salary of RM2,000 and a fixed allowance of RM300, with no unpaid leave:
Levy = (RM2,000 + RM300) * 1% = RM23.00
Special Considerations
- Employers with fewer than 10 employees but participating voluntarily pay a reduced rate of 0.5%.
- Payments must be made by the 15th day following the salary month to avoid being in arrears.
Compliance and Payment Guidelines
Deadline for Payments - Levy payments must be completed by the 15th day of the month following the payroll month. For instance, the levy for January must be paid by February 15th. Failure to meet this deadline results in the levy being considered in arrears, attracting penalties.
Sample Scenario and Calculation:
For a levy calculation period of January 2024:
- Payment due by February 15, 2024
- Payments after this date will attract a 10% annual interest rate on the overdue amount.
Changes in Employees and Levy Rates for Optional Category Employers
For employers registered as an Optional Category under Class 2, the starting point for contributions is January 2018 with a levy rate of 0.5%. Here’s a simplified explanation of how the levy rate may change based on employee numbers.
Initial Setup:
- Category of Employer: Optional
- Code: Class 2
- Start Date of Contribution: January 2018
- Initial Levy Rate: 0.5%
Changes in Employee Numbers and Levy Rate Adjustments - In April 2018, the employer's workforce grows to 10 employees. According to the PSMB Act 2001 Section 15(5), this increase causes the levy rate to rise to 1% immediately.
This rate of 1% continues through the end of the year, regardless of any fluctuation in employee numbers during this period.
New Year Adjustments - By January 2019, the number of employees drops below 10. Consequently, the levy rate decreases back to 0.5%.
The applicable levy rate is determined by the total number of Malaysian employees reported during the Form 2 submission process.
Note for Compulsory Category Employers
For employers who are in the Compulsory Category, the levy rate is fixed at 1% even if their number of employees falls below 10.
This structure ensures that levy rates are adjusted according to real-time employee counts for Optional employers, providing flexibility and responsiveness to changes within the business. In contrast, Compulsory Category employers benefit from a consistent rate regardless of employee count fluctuations.
Seeking Assistance and Ensuring Compliance
Employers needing further clarification or encountering issues with the levy calculation or payment process are encouraged to contact the PSMB Call Centre. The payroll systems used must be configured to adhere strictly to these guidelines to prevent discrepancies and potential legal issues.
Contact Information
- Call Center: 1 800 88 4800
- Email: financesupport@hrdf.com.my
Also Read: The Ultimate Guide To Building A Culture Of Learning In Your Organisation
TLDR
- HRDC Levy Basics - A mandatory contribution for specified industries that helps fund employee development programs.
- Registration Requirements - Mandatory for employers with 10 or more employees, with optional registration for those with 5 to 9 employees. Non-compliance could lead to severe penalties.
- Employee Eligibility - Includes all Malaysian citizens under a service contract, excluding domestic servants. Notably, company directors receiving a salary are considered employees, whereas those receiving only director fees are not.
- Levy Calculation - Calculated at 1% of the monthly wages (including basic salary and fixed allowances) for registered employers. For those registered voluntarily, the rate is 0.5%.
- Exemptions and Special Considerations - Certain allowances and payments like bonuses, commissions, and various non-fixed allowances are exempt from the levy calculation.
- Payment Guidelines - Payments must be timely, completed by the 15th day following the payroll month to avoid penalties.
Dynamic Levy Rate Adjustments
For optional category employers, the guide highlighted how employee changes affect the levy rate, with increases to 1% when staff numbers reach 10, and reductions when they fall below this threshold. This flexible structure allows employers to respond to internal changes without immediate penalty, contrasting with the fixed rate for compulsory category employers, which remains constant regardless of employee count.
Ensuring Compliance
To prevent discrepancies and potential legal issues, it is vital for employers to ensure their payroll systems are correctly configured to comply with these guidelines. Employers uncertain about their obligations or encountering issues can seek assistance through the PSMB Call Centre.
For Further Assistance
- Call Center: 1 800 88 4800
- Email: financesupport@hrdf.com.my
By understanding and implementing these guidelines correctly, employers can contribute effectively to Malaysia's workforce development while ensuring compliance with legal requirements. This not only avoids penalties but also supports the broader goal of enhancing the nation's human resource capabilities.
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