Payroll Processing: The Essentials of Compliance
When your global PEO or your multinational clients enter Cambodia, the employment lifecycle begins and ends with payroll. Accurate payroll is not merely an accounting function; it is the legal declaration of employment to the Cambodian authorities, including the General Department of Taxation (GDT) and the National Social Security Fund (NSSF).
Complexity arises from Cambodia's dual-currency system, progressive tax structure, and highly regulated labor entitlements. Mismanagement in any single area, from currency conversion to classifying a benefit, can trigger audits, penalties (which are borne by the employer), and severe reputational risk.
Successful payroll outsourcing in Cambodia requires a local partner who manages these specific legal and financial details. Here is a deep dive into the technical requirements our local PEO entity in Cambodia handles.
Technical Breakdown of Compliant Cambodian Payroll
1. Currency Conversion: The KHR & USD Exchange Rate Rule
Cambodia operates using both the US Dollar (USD) and the Khmer Riel (KHR). While salaries are often quoted and paid in USD, all official tax and NSSF contributions must be filed and remitted in the local currency, the KHR.
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The Mandate: Compliant payroll must use the official monthly exchange rate stipulated by the General Department of Taxation (GDT) or the National Bank of Cambodia (NBC) for calculating tax liabilities. Using an arbitrary bank or market rate constitutes non-compliance.
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The Process: We use the legally mandated rate for the specific month to convert the USD salary base into KHR for all statutory deductions and Tax on Salary (ToS) calculations, ensuring every filing is audit-proof.
2. Tax on Salary (ToS) & Fringe Benefit Tax (FBT)
Employment income is primarily subject to two types of taxes:
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Tax on Salary (ToS): This is applied to all cash remuneration (basic salary, bonuses, overtime, etc.). For tax residents, ToS is calculated using a progressive rate scale (0% to 20%) based on monthly income in KHR. Non-residents are subject to a flat 20% withholding tax on their Cambodian-sourced income.
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Fringe Benefit Tax (FBT): Certain non-cash benefits provided to employees are subject to a flat 20% FBT, which the employer bears and remits. This includes items like the private use of a company vehicle, accommodation, or travel expenses.
3. Allowances, Deductions, and Expense Reimbursement
Correct classification of payments is key to minimizing tax burden legally:
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Tax-Exempt Allowances: Certain allowances, such as transportation allowances, meal allowances, and health insurance premiums paid for all employees are exempt from ToS and FBT, provided they adhere to defined limits and are consistently applied.
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Deductions: Mandatory employee deductions include their portion of NSSF contributions and the progressive Tax on Salary withheld by the employer.
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Expense Reimbursement: Legitimate business expense reimbursements (e.g., client entertainment, necessary supplies) are generally non-taxable, provided they are supported by valid, tax invoices with the company name.
4. Overtime (OT) and Attendance / Leave Tracking
The Cambodian Labor Law strictly governs extra hours and leave:
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Overtime Pay: Work exceeding the legal limit (8 hours / day, 48 hours / week) must be voluntary and paid at mandatory premium rates of 150% and 200% for OT performed, based on the circumstances. Prior approval from the Ministry of Labor is technically required for systematic overtime.
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Tracking: Accurate, documented attendance and leave tracking (annual leave, sick leave, maternity leave, etc.) is essential not only for calculating correct monthly pay but also for ensuring compliance with employee entitlements, such as statutory seniority pay.
5. National Social Security Fund (NSSF)
All employers with at least eight employees must register with the NSSF and contribute to three schemes: Occupational Risk, Health Care, and Pension.
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Employer Contribution: Currently, the employer contributes a majority of the total contribution amount.
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Employee Contribution: Employees are subject to a minimal contribution amount from their wages.
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Cap: There are maximum caps applied to the monthly salary base for NSSF contributions, which must be tracked accurately.
6. Payslips and Payroll Frequency
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Payslips: Every employee must receive a detailed payslip documenting gross salary, all statutory deductions (ToS, NSSF), allowances, and the final net pay. Payslips serve as the essential proof of payment and tax withholding.
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Frequency: Payroll in Cambodia is typically run on a monthly basis, often on the last working day, though payment frequency for some categories of workers (like laborers) may be shorter, being paid twice monthly.
Partnership for Payroll Certainty: Your Call to Action
Navigating Tax on Salary, dual currency conversions, and NSSF compliance simultaneously is a full time job that demands specialist expertise. For global PEOs, attempting to manage these unique Cambodian payroll elements remotely introduces unnecessary liability and administrative burden.
Premium Human Resources is your dedicated local PEO provider in Cambodia, specializing in seamless, 100% compliant payroll outsourcing. We handle the technical detail, file on time, and absorb the local risk, allowing your firm to deliver unified, world-class HR service to your clients expanding into the Kingdom.
Ready to guarantee compliance and accuracy for your clients' payroll in Cambodia?
Partner with the local experts who understand every Riel, deduction, and labor law nuance.
Contact today to schedule a confidential discussion with our Partnership Team.
