FMM PRESS STATEMENT: Government's Unanticipated EPF Mandate for Non-Citizens Raises Industry Concerns

Head Office, KL

Kuala Lumpur, October 21, 2024 – The Federation of Malaysian Manufacturers (FMM) was taken by surprise with the Government’s unexpected announcement regarding mandatory contributions to the Employees Provident Fund (EPF) for all non-citizens, a policy shift that had not been anticipated. While the announcement suggests that the implementation will occur in phases, critical details remain unclear. This lack of clarity has caused significant concern within the business community, particularly because no prior stakeholder consultations were held before this major policy shift was revealed. Implementation should be delayed, preferably for another two years, to allow sufficient time for comprehensive stakeholder consultations and for businesses to adjust to the impending financial commitments.

Industry players feel disappointed and sidelined, as they were not given the opportunity to provide input or voice 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 uncertainty within the industry as they await more detailed information on how the policy will be implemented.

The mandatory EPF contributions for non-citizens will undoubtedly exert considerable pressure on businesses, significantly affecting cash flow, operating costs, and overall operations. This new financial burden comes at a challenging time, as the industry already anticipates further cost increases in 2025, with the minimum wage hike set for February 1 and the expected implementation of the multi-tier levy mechanism in early 2025 for which details have yet to be made available but is anticipated to lead to a significant cost increase. Together, these escalating labour and foreign worker-related expenses could place businesses, especially SMEs under severe financial strain, complicating efforts to maintain competitiveness and sustainability in an already challenging economic environment.

FMM believes that the existing social safety net for foreign workers, provided through full SOCSO coverage, already offers sufficient protection, including lifelong invalidity pensions, similar to what local workers receive. The Employees Provident Fund (EPF), by contrast, is intended as a long-term retirement fund for 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%–13%, 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% 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 + 2 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.

It must also be recognised that the EPF contribution by foreign workers who take up the unskilled and low skilled jobs in the country would also significantly reduce their take-home pay. This could be a cause for concern as foreign workers typically send a substantial portion of their earnings back home to support their families. Moreover, although foreign workers will 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, which is negligible.

Clear, transparent details, along with a pre-announced implementation timeline and a well-defined schedule of cost increases, are essential to mitigating the impact on business costs. The lack of clarity surrounding the mandatory EPF contributions for non-citizens has created significant concern and uncertainty within the business community. To alleviate these pressures, the industry urges the Government to delay the implementation of this policy and for EPF to promptly engage with stakeholders. These engagements should clarify critical aspects such as coverage, contribution rates, and phased timelines, allowing businesses ample time to plan and adapt. Early and transparent communication will reduce uncertainty, enabling companies to effectively manage their financial strategies and avoid unforeseen cost burdens. Collaborative discussions will also ensure that the policy is both practical and sustainable, minimising disruptions to business operations and safeguarding industry stability.

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Tan Sri Dato’ Soh Thian Lai

President, Federation of Malaysian Manufacturers

FMM Advocates Transparency, Integrity, Accountability and No Corruption

About FMM

The Federation of Malaysian Manufacturers (FMM) has been the voice of the Malaysian manufacturing sector since 1968. Representing over 12,700 member companies (4,000 direct and 8,700 indirect) from the manufacturing supply chain, FMM is actively engaged with government and its key agencies at Federal, State and local levels. FMM is also well-linked with international organisations, Malaysian businesses and civil society. Apart from benefitting from FMM’s advocacy, FMM members enjoy value-add services, including training, business networking and trade opportunities as well as regular information updates.

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