In Malaysia, the Employees Provident Fund (EPF), known as Kumpulan Wang Simpanan Pekerja (KWSP), is one of the most fundamental pillars of employee protection. Every month, millions of workers see deductions from their payslips and matching contributions from their employers, all of which go into their EPF accounts. This savings scheme is designed to ensure financial security for retirement, medical emergencies, and even during housing or education needs.

Yet, in some companies—especially smaller businesses facing cash flow issues—employees may hear an unsettling statement: “The company cannot afford to pay EPF.” This remark raises serious questions. Is it legal for an employer to refuse? Can an employer simply suspend contributions during hard times? And what recourse do employees have?

Understanding the Legal Framework

The answer begins with the Employees Provident Fund Act 1991 (Act 452). This Act is very clear and leaves little room for interpretation.

1. Compulsory Registration
Section 43(1) requires every employer to register with EPF within 7 days of employing their first worker. Section 43(2) requires every employee to be registered. This shows that the obligation is not conditional on company size, financial strength, or industry—it applies to all.

2. Mandatory Contributions
Section 44 of the Act requires both employer and employee to contribute monthly to the fund at prescribed rates. Currently, the standard contribution rates are:

• Employer: 13% of wages (12% if wages exceed RM5,000 per month).
• Employee: 11% of wages, deducted from salary.

These contributions are due by the 15th of the following month. Failure to remit them on time is not just poor practice—it is a violation of law.

3. Employer’s Contribution Cannot Be Shifted
Section 47 makes it clear that an employer’s contribution is irrecoverable from the employee. In other words, an employer cannot ask the employee to cover the employer’s share or to accept a higher take-home salary “in exchange” for no EPF. Any such agreement is void.

4. Penalties for Non-Compliance
Sections 48 and 59 provide for severe penalties:

• Employers who fail to pay EPF can be fined up to RM10,000, imprisoned up to 3 years, or both.
• Interest and dividends may also be charged on arrears.
• Directors, partners, and officers in charge of the company can be held personally liable.

The message of the law is clear: EPF is not optional.

Common Excuses and Why They Don’t Stand

Employers who say “we cannot afford EPF” often justify it with excuses:

• “We are a small business.”
  → The law makes no distinction between a two-person company and a multinational. Both must comply.
• “We are making losses.”
  → Financial performance does not exempt obligations. Salary and EPF are part of the cost of doing business.
• “Employees agreed to waive EPF in exchange for higher salary.”
  → Such agreements are invalid under Section 47. Employees cannot waive statutory rights.
• “We will pay later when cash flow improves.”
  → Contributions must be remitted monthly. Late payment still constitutes an offence and attracts penalties.

Thus, every excuse collapses when weighed against the clear statutory duty.

Lessons for Employees

Employees must understand that EPF is their right, not a privilege. If an employer refuses to contribute, the employee suffers in multiple ways:

1. Loss of retirement savings: The employee misses out on contributions that grow with compounding dividends.
2. Loss of benefits: EPF savings can be withdrawn for housing, education, and medical emergencies. Without contributions, these options shrink.
3. Legal vulnerability: If contributions are deducted from the employee’s salary but not remitted to EPF, this amounts to misappropriation.

Employees should take proactive steps:

• Check EPF statements regularly using i-Akaun or the KWSP app.
• Keep payslips as evidence of deductions.
• Lodge a complaint with EPF if contributions are missing. KWSP has enforcement powers to investigate and prosecute employers.

Most importantly, employees should not agree to “waive” EPF. Even if an employer offers a slightly higher salary, the long-term security of EPF savings outweighs any short-term gain.

Lessons for Employers

For employers, the lesson is straightforward: compliance is non-negotiable. The risk of ignoring EPF is not just legal but also reputational and operational.

• Legal risk: Directors may be fined or imprisoned. The company may face legal action, and recovery of arrears is enforceable.
• Financial risk: Non-compliance leads to penalties, interest charges, and potential lawsuits from employees.
• Reputational risk: News spreads quickly. Employers who cheat employees of their EPF are likely to lose talent, credibility, and business opportunities.
• Moral duty: EPF is not a tax. It is money meant for employees’ future. Employers who deny it are not cutting costs—they are taking away their workers’ retirement security.

Smart employers view EPF not as a burden, but as part of the employment package that builds trust and loyalty. By paying EPF, companies demonstrate that they respect their employees’ rights and future.

The Bigger Picture

EPF is one of Malaysia’s most successful social security schemes. It ensures that employees have savings for retirement, reducing dependence on government support. For this reason, the law treats EPF as a statutory guarantee, not a negotiable benefit.

The broader principle is that workers must not be made to bear the cost of business struggles. If a company faces financial hardship, it can negotiate salaries, restructure operations, or seek government aid. But it cannot strip employees of statutory protections.

Conclusion

So, can a boss refuse to pay EPF because the company “cannot afford it”? The law provides a simple, firm answer: No.

The Employees Provident Fund Act 1991 imposes a mandatory obligation on every employer, regardless of size or profitability. Non-compliance is a criminal offence punishable by fines, imprisonment, and personal liability for directors.

For employees, the lesson is to remain vigilant, check their EPF accounts, and assert their rights if contributions are missing. For employers, the lesson is to treat EPF as an essential part of payroll, not an optional extra.

In the end, EPF is not just about compliance—it is about fairness, dignity, and the promise that after years of service, employees will have the security they deserve. Employers who respect this obligation not only stay within the law but also honour the trust their workers place in them.