Did you know that there is a salary where staff will lose money?
There is a range of salary in Malaysia that will make the staff lose money. This is due to the way Malaysian income tax is calculated. Staff with a lower salary will earn more than the one with higher salary. Read below to understand why this happens and take precautions to avoid this error.
To simplify explanation we will be using Net Pay after EPF and SOCSO to illustrate the issue. The following calculations a based on staff with Single marital status with EPF and SOCSO.
For Salary RM4,000, Net Salary is RM3515.65 with Zero PCB.
For Salary RM4,001, Net Salary is RM3479.55 with PCB = RM50.10
Loss in income = RM3515.65 – RM3479.55 = RM36.10
This works out to a net loss or RM36.10 x 12 = RM433.20 per annum in PCB payments.
RM4,001 is the salary with the highest loss. But there is a range of salary that has no net benefit for the staff. They will earn the same or more with a lower salary, making it a loss for both the employer and the employee.
Following is a table showing PCB and net salary for salary ranging from RM3,940 to RM 4,050.
| SALARY | PCB | NET SALARY |
| 3,940.00 | 14.90 | 3,463.45 |
| 3,960.00 | 15.50 | 3,480.85 |
| 3,980.00 | 16.10 | 3,498.25 |
| 4,000.00 | 16.70 | 3,515.65 |
| 4,000.00 | 16.70 | 3,515.65 |
| 4,001.00 | 50.10 | 3,479.55 |
| 4,010.00 | 50.60 | 3,488.05 |
| 4,020.00 | 51.20 | 3,497.45 |
| 4,030.00 | 51.80 | 3,504.85 |
| 4,040.00 | 52.40 | 3,514.25 |
| 4,043.00 | 52.60 | 3,515.05 |
| 4,044.00 | 52.65 | 3,516.00 |
| 4,050.00 | 53 | 3,521.65 |
Based on the table you can draw the following conclusions.
- There is a big increase in PCB when salary reaches RM4,001.
- The biggest loss in income is for a salary of RM4,001.
- Salary from RM4,001 to RM 4,043 with generate a net pay less than for a net income for RM4,000.
- Salary of RM3,960 will have a higher net income than RM4,001 for a difference of RM41.
One can conclude that nobody should be paid any salary between RM4,001 and RM4,043.
Notes : The above is based on fixed salary over one year. PCB calculations are based on annual gross income including allowances and overtime. When income is in this range one should be aware that an increment of RM50 or RM100 can lead to a loss in income.
The above is based on staff that are single. The loss is more pronounced where PCB is based on employer who is “Married and Spouse not working”.
PCB for employee under category “Married and Spouse not working”.
Following is a detailed calculation to see the range of salaries where a loss of income occurs. The following is based on “Married and Spouse not working” without children. The range in which there is a loss would be the same for those with children although the starting point will differ.
| SALARY | PCB | NET SALARY |
| 4,270.00 | – | 3,769.25 |
| 4,280.00 | – | 3,779.25 |
| 4,290.00 | – | 3,787.25 |
| 4,300.00 | – | 3,797.25 |
| 4,310.00 | – | 3,803.55 |
| 4,320.00 | – | 3,813.55 |
| 4,333.00 | – | 3,824.55 |
| 4,333.00 | – | 3,824.55 |
| 4,334.00 | 50.05 | 3,775.50 |
| 4,350.00 | 51.00 | 3,788.55 |
| 4,360.00 | 51.60 | 3,797.95 |
| 4,370.00 | 52.20 | 3,805.35 |
| 4,380.00 | 52.80 | 3,814.75 |
| 4,390.00 | 53.40 | 3,822.15 |
| 4,400.00 | 54.00 | 3,831.55 |
Based on the table you can draw the following conclusions.
- The biggest loss in income is for a salary of RM4,334.
- Salary from RM4,334 to RM 4,390 with generate an income less that RM4,333
- Salary of RM4,280 will generate a higher wage than RM4,334 a difference of RM54.
- The total annual loss in PCB is RM50.05 x 12 = RM600.60.
One can conclude that nobody should be paid any salary between RM4,334 and RM4,390. This is a range of approximately RM60. There will be a similar range for married couples with children.
The following table shows the wage at which losses start based on number of children.
Analysis of the following 4 scenarios.
- Married and Spouse not working
- Married and Spouse not working with one child.
- Married and Spouse not working with two children.
- Married and Spouse not working with three children
| No. of Children | SALARY | PCB | NET SALARY | DIFFERENCE |
| 1. Married and Spouse not working without children | 4,333.00 | – | 3,824.55 | |
| 4,334.00 | 50.05 | 3,775.50 | 49.05 | |
| 2. Married and Spouse not working with 1 child | 4,500.00 | – | 3,973.85 | |
| 4,501.00 | 50.10 | 3,921.05 | 52.80 | |
| 3. Married and Spouse not working with 2 children | 4,666.00 | – | 4,118.45 | |
| 4,667.00 | 50.05 | 4,069.40 | 49.05 | |
| 4. Married and Spouse not working with 3 children | 4,833.00 | – | 4,266.05 | |
| 4,834.00 | 50.05 | 4,217.00 | 49.05 |
Remarks
The salaries in red are where the loss occurs. The PCB loss of RM50.05 for “Married and Spouse not working” is higher compared to RM36.10 for single staff. The total annual loss in PCB for married staff with or without children is up to RM50.05 x 12 = RM600.60.
The above calculations are based on fixed salary, but they indicate that if gross salary is close to these figures, be aware of the potential loss of income. A slightly lower salary will in fact benefit the employee.