The Malaysian government has proposed making contributions to the Employees Provident Fund or EPF mandatory for foreign workers, a group previously exempt from such requirements.

Prime Minister Datuk Seri Anwar Ibrahim unveiled a revised plan setting the contribution rate at just 2% – a significant reduction from the initial proposal of 12%.

“When things are better, maybe we will increase to 4%, but for now we keep it at 2%,” the prime minister said.

This phased approach reflects the government’s balancing act between social security enhancement and business feasibility.

The initiative is part of Malaysia’s strategy to fortify labour protections and create a more equitable employment landscape.

Budget 2025 outlines a phased implementation to ease businesses into compliance while integrating foreign workers into the national retirement savings framework.

Originally, the Ministry of Finance recommended aligning foreign worker contributions with the standard EPF rates of 11% for employees and 12% to 13% for employers.

However, following industry pushback, the government opted for a more measured approach, starting with the minimal 2% contribution with no immediate plans for increments.

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Business concerns over the EPF contributions

Despite assurances from policymakers, employer groups remain apprehensive about the financial strain this regulation could impose. Many argue that hiring foreign labour is already expensive due to recruitment fees and compliance costs.

Industry leaders, particularly in sectors reliant on migrant workers such as agriculture and construction, warn that additional expenses could push consumer prices higher.

Some businesses propose limiting mandatory contributions to employees only, citing that most foreign workers do not retire in Malaysia.

Conversely, proponents of the policy have tried to allay concerns by highlighting long-term economic benefits.

Also Read: How Malaysia plans to close the pension gap

Balqais Yusoff, head of policy and strategy at EPF, believes the initiative aligns Malaysia with international labour standards and fosters wage growth.

Currently, migrant workers earn a median wage just a little more than the country’s minimum wage of RM1,500 or about US$337. This exacerbates wage stagnation for Malaysian employees.

Another benefit stems from the idea that the EPF policy for foreign workers is expected to inject up to RM1.7 billion annually into Malaysia’s equity market.

With this in mind, the contribution policy will likely bolster domestic investment while aiming to foster financial stability.

Economic growth and labour protections

While the policy promises economic advantages, some challenges remain.

A primary concern is whether EPF can efficiently manage the influx of new contributors, particularly given how most foreign employees can withdraw their savings upon leaving Malaysia.

Compliance enforcement is another hurdle, as some businesses may attempt to bypass the requirement through informal hiring practices.

To address these concerns, the government is streamlining the foreign worker recruitment process by eliminating third-party agents.

The move aims to cut hiring costs and enhance transparency, potentially offsetting the financial impact of mandatory EPF contributions.

Malaysia’s decision to enforce EPF contributions for foreign workers is another sign of its commitment to a more structured labour market.

While challenges persist, this policy could serve as a blueprint for balancing economic growth with social protections. Further refinements may be introduced to ensure smooth implementation amidst discussions in the Cabinet and the Ministry of Human Resources.

As Malaysia moves towards a more inclusive labour policy, businesses can adapt to the evolving regulatory landscape while exploring strategies to mitigate cost implications.

With the right refinements and industry collaboration, the initiative could mark a turning point in Malaysia’s labour and investment ecosystem.