Quick answer: An employer payroll tax audit checks whether remuneration, benefits, PCB deductions, annual reporting and employee notifications are complete and accurate. Employers should reconcile payroll to the general ledger, bank payments, Form E/CP8D, employee statements and PCB submissions before LHDN requests the records.
Payroll tax-audit checklist
| Area | Records to verify |
|---|---|
| Employee master data | Name, identification, tax number, employment dates and residency information |
| Cash remuneration | Salary, bonus, commission, allowances, overtime and director fees |
| Benefits and perquisites | Motor vehicles, accommodation, insurance, share benefits, reimbursements and staff discounts |
| PCB | Monthly calculations, deductions, payments, adjustments and acknowledgements |
| Annual reporting | Form E, CP8D and EA/EC statements reconciled to payroll and ledger totals |
| Employee movements | CP22, CP22A/CP22B and CP21 notifications and supporting dates |
| Tax clearance | Amounts withheld and release instructions for cessation or departure cases |
| Payments outside payroll | Claims, corporate cards, expense reimbursements and direct vendor payments benefiting employees |
Key employer notification duties
HASiL’s Responsibility of Employer guidance includes these important duties:
- CP22: notify a new employee who is or is likely to be chargeable to tax within 30 days after employment begins. Submission through e-CP22 in MyTax has been mandatory since 1 September 2024.
- CP22A/CP22B: for a chargeable or potentially chargeable employee’s cessation, submit through e-SPC at least 30 days before cessation, or within 30 days after the employer is informed of the employee’s death. HASiL states an exemption may apply where the employee’s income has been subject to monthly tax deduction or the remuneration is below the minimum amount subject to MTD; the current HASiL decision guide should be checked.
- CP21: for a chargeable employee expected to leave Malaysia for more than three months, submit through e-SPC at least 30 days before departure. HASiL provides an exception for employees required to leave Malaysia frequently in the course of employment.
- Money withholding: retain money payable in relevant cessation or departure cases for up to 90 days, or until HASiL permits release or issues the tax-clearance letter.
Annual payroll reconciliation
Reconcile gross remuneration in the payroll system to the general ledger, bank payments, Form E/CP8D and the total employee statements. Explain differences caused by accruals, reversals, expatriate shadow payroll, directors’ fees or off-cycle payments.
For remuneration year 2025, the official Form E materials state that EA/EC statements were due by 28 February 2026 and Form E with CP8D by 31 March 2026. Employers should confirm the current year’s filing programme rather than reuse an old calendar.
Common audit gaps
- Benefits or allowances omitted from payroll reporting;
- Bonuses recorded in the ledger but not reconciled to employee statements;
- Incorrect PCB treatment for irregular remuneration;
- Late employee commencement, cessation or departure notifications;
- Expense claims without business-purpose support; and
- Records spread across HR, finance and external payroll providers.
How long should payroll records be kept?
Employers should retain relevant records for seven years. Keep payroll reports, contracts, benefit calculations, claims, PCB evidence, filed forms and correspondence in a format that remains readable after system changes.
Use HTL’s pre-audit tax health check to test payroll alongside corporate tax, or its LHDN tax-audit support for an active employer review.
This article provides general information. Employer obligations depend on the employee’s facts and the applicable year’s filing programme.
Last updated: 4 Aug 2026
Official references: HASiL — New Employee and HASiL — Termination and Departure
