Manufacturing Sector Seeks One-Year Deferment of EPF Contribution for Foreign Workers
The manufacturing sector in Malaysia is seeking a one-year deferment of the planned two per cent Employees Provident Fund (EPF) contribution for foreign workers, citing multiple cost increases faced by businesses.
FMM President’s Plea for Cooperation
Federation of Malaysian Manufacturers (FMM) president Tan Sri Soh Thian Lai emphasized that manufacturers will also face a 14.2 per cent increase in electricity base tariff rates under Regulatory Period 4 (RP4) from July 2025, further adding to operational cost pressures. "A delayed implementation would offer businesses crucial breathing space to navigate these financial challenges," he told Bernama.
EPF Contribution Rate and Its Impact on Businesses
On February 3, the government announced that foreign workers’ EPF contribution rates would be set at two per cent for both employees and employers — lower than the mandatory rates for Malaysian workers and permanent residents, which stand at 11 per cent for employees and 12-13 per cent for employers. Soh urged the government to consult the private sector before implementing any future policy changes, including potential adjustments to the contribution rate, particularly for industries reliant on foreign labour.
Employers May Pass Higher Costs to Consumers
Associate Professor and Economic Analyst at UniKL Business School, Associate Professor Dr Aimi Zulhazmi Abdul Rashid, emphasized that the burden of additional cost would significantly impact industries that rely heavily on foreign workers, including construction, food and beverage, transportation, logistics, and plantations. With the minimum wage already increased to RM1,700 from RM1,500 in February, businesses are now forced to reassess their costs and may pass these increases on to consumers through higher prices for goods and services.
Small and Medium Enterprises (SMEs) at Risk
He warned that rising costs would affect small and medium enterprises (SMEs) the most, adding to their financial strain. "Their survival is at risk, and they will likely pass the added costs on to consumers through price hikes. This may also result in a rise in illegal workers, as some employers may be unwilling to absorb the increasing financial burden from levies, minimum wages, and EPF contributions," he warned.
No Impact on the Foreign Labour Force
Conversely, economist Dr Geoffrey Williams believes the EPF contribution will not significantly impact local businesses. "While it would generate around RM800 million for the EPF, this amounts to only 0.64 per cent of its total fund size—a relatively small increase compared to overall investments, especially after accounting for management fees," he said. He also stated that the contribution would have a neutral impact on the economy, as it merely involves transferring funds from companies and foreign workers into the EPF, without generating additional money or net returns.
Conclusion
The manufacturing sector’s plea for a one-year deferment of the EPF contribution for foreign workers is a crucial step towards providing businesses with the necessary breathing space to navigate the current financial challenges. The government’s decision to implement the policy change will have a significant impact on industries that rely heavily on foreign workers, with SMEs being the most affected.
Frequently Asked Questions
- What is the proposed EPF contribution rate for foreign workers?
The proposed EPF contribution rate for foreign workers is two per cent for both employees and employers. - What is the impact of the EPF contribution on businesses?
The EPF contribution will result in additional costs for businesses, which may lead to higher prices for goods and services, affecting SMEs the most. - Will the EPF contribution have an impact on the foreign labour force?
No, the EPF contribution will not significantly impact local businesses, as it merely involves transferring funds from companies and foreign workers into the EPF, without generating additional money or net returns. - Will the EPF contribution help narrow the wage gap between local and foreign workers?
No, the EPF contribution will not help narrow the wage gap between local and foreign workers, as it does not address the root causes of the issue.