Mandatory EPF contributions for non-citizens surprising news for manufacturers’ federation

KUCHING (Oct 22): The Federation of Malaysian Manufacturers (FMM) said it was surprised by the government’s announcement of mandatory contributions to the Employees Provident Fund (EPF) for all non-citizens.

In this regard, FMM president Tan Sri Dato Soh Thian Lai said such policy shift was not anticipated and thus, it raised certain concerns among the industry players.

“While the announcement suggests that the implementation will occur in phases, critical details remain unclear.

“This lack of clarity has caused significant concerns within the business community, particularly because no prior stakeholders’ consultations had been held before this major policy shift was revealed,” said Soh in a press statement yesterday.

“Implementation should have been delayed, preferably for another two years, to allow sufficient time for the comprehensive stakeholders’ consultations and also for businesses to adjust to the impending financial commitments,” he added.

He said many industry players felt disappointed, and somewhat ‘sidelined’, in that they were not given the opportunity to provide any input or voice out their concerns about the potential impact of such a policy on business operations, costs and workforce management.

“The absence of engagement with businesses before the announcement has left the industry unprepared for this significant change as there has been no information provided about key aspects such as the specific timeline for implementation, who exactly will be covered under this mandate, the contribution rates for both employers and non-citizen employees, or how the phased rollout will be managed.

“This has heightened the uncertainties within the industry as they await more detailed information on how the policy will be implemented,” he stressed.

He said with many factors such as the anticipated cost increases in 2025, with the minimum wage hike set for Feb 1 and the implementation of the multi-tier levy mechanism, together with escalating labour and foreign workers-related expenses, could place businesses, especially the small-medium enterprises (SMEs) under severe financial strain, complicating efforts to maintain competitiveness and sustainability in an already-challenging economic environment.

“The FMM believes that the existing social safety net for foreign workers, provided through full Socso (Social Security Organisation) coverage, should already offer sufficient protection, including lifelong invalidity pensions, similar to what the local workers receive,” argued Soh.

“The EPF, by contrast, is intended as a long-term retirement fund for the citizen workers, which may not align with the short-term employment tenure of foreign workers in Malaysia.

“FMM is deeply concerned that imposing EPF contributions at the same rates as for citizens, at 12 to 13 per cent, would place an enormous financial burden on employers.

“With approximately 2.5 million foreign workers in the country, the EPF contribution on non-citizens would translate to an additional minimum annual payroll cost of RM6.6 billion (RM1,700  x 13 per cent x 2.5 million foreign workers x 12 months).

“The upcoming minimum wage increase is projected to add an additional RM10.8 billion annually to payroll expenses (RM200 x 4.5 million workers [2.5 million foreign workers + two million local workers] x 12 months).

“When combined, the impact is substantial; i.e. RM17.4 billion annually, which could significantly threaten business sustainability, especially in industries that heavily depend on foreign labour,” Soh elaborated.

It must also be recognised that the EPF contributions by foreign workers who undertook the unskilled and low-skilled jobs in the country, would significantly reduce their take-home pay, he said.

Adding on, he said that although a foreign worker would receive a RM200 wage increase with the new minimum wage rate in February 2025, the mandatory EPF contribution would result in a net wage increase of only RM13 per month – a negligible growth.

“Clear, transparent details, along with a pre-announced implementation timeline and a well-defined schedule of cost increases, are essential in mitigating the impact on business costs,” he said.

He added that the collaborative discussions would also ensure that the policy would be both practical and sustainable, minimising disruptions to business operations and safeguarding industry stability.