When an employee takes unpaid leave (Cuti Tanpa Gaji / CTG), it does more than just reduce their take-home pay. Under Malaysian law, all statutory contributions — EPF (KWSP), SOCSO (PERKESO), EIS, and PCB (MTD) — are calculated on the wages actually earned that month. This means unpaid leave has a cascading effect across every statutory deduction on the payslip.

This guide explains exactly how our system handles unpaid leave deductions and what your employees will see on their payslip.

What is Unpaid Leave?

Unpaid leave (also known as Leave Without Pay / LWOP or Cuti Tanpa Gaji / CTG in Malay) is a period of authorised absence from work where the employee receives no wages. Unlike annual leave or sick leave, which are paid entitlements under the Employment Act 1955 (EA 1955), unpaid leave is discretionary — the employer may approve or deny it based on operational requirements and company policy.

Common reasons employees apply for unpaid leave include:

  • Exhausted all paid annual or sick leave entitlement
  • Extended illness or recovery beyond paid sick leave days
  • Personal or family matters requiring extended time off
  • Following a spouse posted overseas
  • Pursuing further studies or professional qualifications

How Our System Calculates the Deduction

Our payroll engine uses the ÷ 26 working-day formula — a widely adopted Malaysian payroll standard — to calculate the daily rate for unpaid leave:

Unpaid Leave Deduction

= (Basic Salary ÷ 26) × Unpaid Days

The resulting deduction is subtracted from the employee's gross salary before any statutory contributions are calculated. This is the critical point: because gross salary drops first, every downstream statutory calculation is automatically reduced.

Note: The Employment Act 1955 Section 18A (amended January 2023) specifies a calendar-day divisor for incomplete month calculations. The ÷ 26 formula is a common industry practice used by many Malaysian payroll providers and accepted by statutory bodies for contribution purposes. Always consult your HR advisor or accountant if you require strict EA 1955 calendar-day compliance.

The Cascade Effect on Statutory Contributions

Here is the exact calculation flow inside our payroll engine when unpaid leave is present:

Step What Happens Effect
1 Basic salary + allowances + OT calculated as normal → Gross Salary Starting point
2 Unpaid Leave Deduction = (Basic ÷ 26) × Days is subtracted from Gross Salary Gross Salary ↓
3 Statutory Wage = Reduced Gross − Expense Claims Statutory base ↓
4 EPF calculated on the reduced Statutory Wage EPF employee & employer ↓
5 SOCSO calculated on the reduced Statutory Wage (capped at RM 5,000) SOCSO employee & employer ↓
6 EIS calculated on the reduced Statutory Wage (capped at RM 6,000) EIS employee & employer ↓
7 PCB / MTD annualised chargeable income uses (Reduced Gross − EPF Employee) as the monthly net PCB ↓
8 Net Salary = Reduced Gross − Total Deductions (EPF + SOCSO + EIS + PCB + Unpaid Leave line) Final take-home

Worked Example

Let's take an employee — Ahmad — with a monthly basic salary of RM 5,000 who took 3 days of approved unpaid leave in June 2026.

Without Unpaid Leave
Basic SalaryRM 5,000.00
Gross SalaryRM 5,000.00
EPF Employee (11%)- RM 550.00
SOCSO Employee- RM 19.75
EIS Employee- RM 9.90
PCB / MTD (est.)- RM 120.00
Net Take-Home≈ RM 4,300.35
With 3 Days Unpaid Leave
Basic SalaryRM 5,000.00
Unpaid Leave (3d ÷ 26)- RM 576.92
Gross Salary (reduced)RM 4,423.08
EPF Employee (11%)- RM 487.00
SOCSO Employee- RM 17.75
EIS Employee- RM 8.85
PCB / MTD (est.)- RM 102.00
Net Take-Home≈ RM 3,806.76

* EPF calculated on bracket-ceiling method per KWSP Third Schedule. SOCSO/EIS from PERKESO contribution tables. PCB is estimated; actual amount depends on annual reliefs, marital status, and accumulated prior MTD.

What Appears on the Payslip

When unpaid leave is deducted, your employees' payslips will clearly show a separate line item under deductions:

DEDUCTIONS
AMOUNT
EPF (Employee)
RM 487.00
SOCSO (Employee)
RM 17.75
EIS (Employee)
RM 8.85
PCB / MTD
RM 102.00
Unpaid Leave (3 days)
RM 576.92
Total Deductions
RM 1,192.52

Employer Contributions Are Also Reduced

It is important to note that employer contributions are also reduced — not just the employee's deductions. Because EPF employer, SOCSO employer, and EIS employer are all calculated on the same reduced statutory wage, the company's cost per employee also decreases proportionally in months where unpaid leave is taken.

Statutory Contribution Employee Share Employer Share Both Reduced by Unpaid Leave?
EPF (KWSP) 11% (or 9%) 12% / 13% Yes ✓
SOCSO (PERKESO) Cat 1 & 2 rates Cat 1 rate Yes ✓
EIS 0.2% 0.2% Yes ✓
PCB / MTD Progressive rate N/A Yes ✓

How to Apply Unpaid Leave in the System

  1. Go to Leave Management from the sidebar.
  2. Click Apply Leave and select the employee.
  3. Choose a leave type marked as Unpaid (e.g., "Unpaid Leave / CTG").
  4. Enter the date range and submit. If the leave type does not require approval, it will auto-approve immediately.
  5. When payroll is run for that month, the system automatically detects all approved unpaid leave for each employee and applies the deduction — no manual entry required.
Fully Automated: Once unpaid leave is approved in Leave Management, payroll will pick it up automatically. HR does not need to manually enter any deductions — the system handles EPF, SOCSO, EIS, and PCB recalculation end-to-end.

Frequently Asked Questions

Generally, unpaid leave does not reduce annual leave entitlement unless specified in the employment contract or company policy. However, extended unpaid leave (e.g., months-long leave) may affect the calculation of service tenure under the Employment Act. Consult your HR policy for your specific rules.

Yes. Unpaid leave is not a statutory entitlement under the Employment Act 1955. Employers may approve or deny requests based on business needs, operational requirements, or company policy. The Leave Management module supports an approval workflow — HR or managers must approve the application before it is reflected in payroll.

The system counts the number of approved unpaid leave days that fall within each payroll month separately. Days in Month A are deducted from Month A's payslip; days in Month B are deducted from Month B's payslip. Each month's EPF/SOCSO/EIS/PCB is independently recalculated based on that month's effective gross.

The unpaid leave deduction formula (Basic ÷ 26 × Days) only applies to monthly salaried employees. For hourly or daily-rated employees, wages are already calculated on actual hours/days worked, so a separate unpaid leave deduction is not applied — the hours simply are not paid.

The approach of deducting unpaid leave before calculating EPF, SOCSO, EIS, and PCB is consistent with Malaysian statutory practice — contributions are based on wages actually received, not the contracted monthly salary. The ÷ 26 daily rate formula is widely used across Malaysian payroll systems and is accepted by KWSP and PERKESO for contribution purposes.
Disclaimer: This article is for general informational purposes only. Statutory regulations and contribution rates may change. We strongly recommend consulting a licensed HR consultant or payroll specialist for advice specific to your company's situation.