Lower EPF Contribution For Foreign Workers Reduces Overall Wage Expenditure

By Nurunnasihah Ahmad Rashid

KUALA LUMPUR, Feb 5 (Bernama) -- The government’s decision to set the Employees Provident Fund (EPF) contribution rate for foreign workers at two per cent — lower than the initially proposed 12 per cent — helps employers reduce overall wage expenditure.

Prof Dr Yeah Kim Leng, a senior fellow and director of the Economic Studies Programme at the Jeffrey Cheah Institute on Southeast Asia at Sunway University said this move makes hiring foreign workers more attractive for industries as their take‐home pay increases and employers can reduce overall wage expenditure,” he told Bernama.

On Monday, Prime Minister Datuk Seri Anwar Ibrahim assured that the mandatory EPF contribution for foreign workers will remain at two per cent. Even though there were proposals for 12 per cent, the Cabinet has decided to go with a lower rate, he said.

However, while the larger take-home pay could boost domestic private consumption if spent locally, it may also add to remittance outflow when funds are sent home, he cautioned.

Yeah who is currently president of the Malaysian Economic Association (MEA) said the disparity in EPF contributions will give rise to wage differentials between local and foreign workers in the low-skilled segment, despite levies, recruitment charges and other fees partially offsetting the advantage.

He opined that reliance on low-skilled foreign workers might discourage industries from adopting labour-saving technologies, thereby affecting long-term productivity.

Looking ahead, Yeah stressed that as Malaysia aspires to move towards a more advanced and industrialised economy, industries will need to reduce their reliance on unskilled labour by embracing automation and shifting to higher value activities.

“For the country to attract high-quality foreign investments and build a competitive workforce, it is crucial that we focus on upskilling the local workforce and attracting skilled foreign talents,” he said.

He suggested that a phased approach to harmonising EPF contribution rates could mitigate disruptions on industries and help achieve wage parity between local and foreign workers.

He also called for stricter enforcement of foreign workers’ rights and adequate employer-provided amenities such as proper housing and safe working conditions.

“The policy decision, while aimed at boosting disposable incomes and lowering operational costs, may have far-reaching implications for Malaysia’s labour market dynamics and long-term industrial competitiveness,” he said.

The Cabinet will discuss the mandatory EPF contribution for foreign workers in its meeting this week, with the Human Resources Ministry expected to make an official announcement.

During the tabling of Budget 2025 in October last year, Anwar announced the government's plan to make EPF contributions compulsory for all non-citizen workers.

He said the move aligns with Malaysia's commitment to fair treatment for all workers, regardless of nationality, in accordance with international standards.

In November 2024, Finance Minister II Datuk Seri Amir Hamzah Azizan said the policy aims to improve wage equity and ensure local workers are not disadvantaged, as part of efforts to close the wage gap between local and foreign workers.

-- BERNAMA