This article first appeared in The Edge Malaysia Weekly on January 27, 2025 - February 2, 2025

EMPLOYER groups continue to fully support the government’s push to create higher-paying jobs in Malaysia as well as a gradual rise in minimum wages, but they continue to resist the mandatory Employees Provident Fund (EPF) contribution for foreigners proposed during the tabling of Budget 2025 last October.

This insight was among the feedback given at a recent roundtable on “Expanding EPF coverage to migrant workers in Malaysia” organised by the University Malaya (UM) Social Wellbeing Research Centre (SWRC) and Human Rights Commission of Malaysia (Suhakam) in Kuala Lumpur. It was attended by public and private sector researchers as well as representatives from employer groups, government agencies and observers from the media.

It is understood that employers want the government to only collect the employees’ contribution to EPF from foreigners but hold off expecting employers to contribute to the retirement savings of foreign workers, who are unlikely to retire in Malaysia.

Representatives from employer groups did indicate what could soften their stance on this issue: The additional annual cost of RM3.5 billion to RM4 billion to cover employers’ contribution to EPF for existing foreign workers “can easily be paid for” if the government eliminates third-party agents that charge exorbitant recruitment fees, thereby reducing the “already high cost of hiring foreign workers” in Malaysia.

Contrary to the common belief that hiring foreign workers is cheaper than hiring locals, thus keeping wages for locals artificially low, a representative from an employer group stated at the roundtable that “it is neither easy nor cheap” to hire foreign workers because of the “high third-party agent fees”. He also called for more transparency on requirements, which can differ from state to state.

“Did you know employers are required to provide foreign workers with a mattress that is at least four inches thick? If the mattress is found to be just three inches, remedial action will need to be taken. Is there a similar requirement to provide similar benefits to our Malaysian workers, for instance, our Malaysian gig workers, who may need more human rights protection than foreigners? There is no requirement to provide locals with accommodation,” one participant said.

“And after paying the high third-party agent fees and for annual mandatory medical check-ups, there is no guarantee that the permit can be renewed for at least two years.”

He added that locals were required to undergo only a single medical check-up at the time of hiring, if at all.

“Certainly, locals are free to leave [for another employer] at any time, which is one reason some employers prefer to train foreigners, who usually need to stay with the employer for at least six months [because of the agent fees already incurred by the employer to bring them in],” the participant continued, noting also that “debt bondage” on foreign labour was caused by third-party agents and not Malaysian employers, who go through proper channels to recruit foreign labour.

The participant pointed out that the Singapore government had since April 2024 stopped Central Provident Fund (CPF) contributions from non-citizens and non-permanent residents (PRs) so the CPF can focus on catering for the retirement, housing and healthcare needs of Singaporeans and PRs. The move reportedly affected about 300,000 non-citizens and non-PRs with CPF accounts, two-thirds of whom have “low balances” of less than S$5,000 in their CPF accounts, which ceased to earn interest from April 1, 2024.

Representatives from employer groups thanked Prime Minister Datuk Seri Anwar Ibrahim for saying last February that he wanted the Ministry of Home Affairs to stop using third-party agents to recruit foreign workers in order to reduce leakages. Third-party agents charge RM20,000 to RM25,000 for a foreign worker from Bangladesh and Indonesia, far more than the roughly RM3,700 per worker from Nepal, Anwar had said, reportedly describing exorbitant agent fees as tantamount to “modern-day slavery”.

About a year ago, Malaysian Employers Federation (MEF) president Datuk Syed Hussain Syed Husman had lauded Anwar’s “timely decision” to stop using third-party agents, as it could save up to 80% of the cost of bringing in a foreign worker.

At the time, MEF had recommended government-to-government negotiations to facilitate the recruitment of workers to ensure no “debt bondage” on foreign workers. MEF also suggested the government allow refugees in Malaysia who possess United Nations High Commissioner for Refugees (UNHCR) cards to formally seek employment in Malaysia to help fill any labour shortage.

Owing to the 15% hard cap on foreign labour, Malaysia, which has a workforce of roughly 17 million, can employ only about 2½ million foreign workers.

Independent researchers do not rule out, however, the possibility of a “sizeable” number of undocumented foreign workers, with some estimating the total foreign labour population to be closer to four million, citing anecdotal data from before the Covid-19 pandemic, when many were deported.

During a presentation at the roundtable, UM SWRC senior research fellow Dr Zulkiply Omar said mandatory EPF contributions for foreign workers at current rates could generate annual savings of between RM3.25 billion (11% from employees and RM5 from employers) and RM6.91 billion (11% from employees and 13% employers for wages below RM5,000).

“While Socso covers foreign workers under the Employment Injury Scheme, contributing around half a billion ringgit yearly, they remain excluded from the Invalidity Scheme, leaving gaps in protection,” said Zulkiply, who believes mandatory EPF contributions for foreign workers could help reduce the country’s dependence on unskilled labour.

From the perspective of local policymakers, requiring employers to make EPF contributions for foreign workers as well is meant to “level the playing field for locals”, as employers are required by law to contribute EPF savings for citizens.

While the implantation date for the mandatory EPF contribution for non-citizen employees remains unclear, the government has, through Budget 2025, indicated that new non-citizen hires will need to comply with the same EPF contribution rates of Malaysian employees whereas a phased six-year approach will be taken for existing foreign workers.

As the minimum wage hike to RM1,700 per month, from RM1,500 per month, takes effect from Feb 1 this year (Aug 1 for employers with fewer than five workers), it is understood that the plan is to start mandatory EPF contribution for foreigners only from January 2027 at 2% (for both employee and employer), rising to 4% in 2028, 6% in 2029, 8% in 2030, 10% in 2031 and thereafter matching the prevailing 11% contribution from Malaysian wage earners and 12% (monthly wage above RM5,000) or 13% (monthly wage below RM5,000) contribution from employers in 2032. 

Yet, World Bank researchers say “recent analy­sis finds no evidence of an adverse impact of immigration on labour market outcomes for Malaysians”, even though it is true that the wages of low-skilled migrant workers are generally lower than those of Malaysians.

In a November 2024 paper titled “Migration, Automation and the Malaysian Labour Market”, the World Bank Group says: “Econometric analysis using data for the period 2010 to 2021 finds that one additional migrant is associated with more employed Malaysians in a given state and sector, particularly among those who are aged 30 and older and those with a secondary education. Immigration was also found to significantly decrease the unemployment rate of Malaysians. Further, the analysis finds no significant relationship between the employment of migrant workers and the wages of Malaysians.

“Indeed, concerns about the adverse effects of low-skilled migration on Malaysian workers are not supported by the evidence presented in this study. Such concerns are often driven by the lump of labour fallacy, or the false belief that there is a fixed number of jobs in the economy, meaning that the employment of migrants decreases the employment of Malaysians. This belief has been found to be untrue in practice and thus is referred to as a fallacy.”

The researchers emphasise that the number of jobs in an economy is not fixed, and that higher demand for labour increases aggregate demand in an economy through an increase in consumption by these workers, further increasing the demand for labour.

“In other words, a growing economy with an increasing demand for migrant labour can increase demand for other workers, including Malaysian workers. Moreover, migrant workers are not necessarily substitutes for Malaysian workers, given different skill sets, roles and tasks performed. In fact, past analysis has found migrant workers to complement rather than substitute Malaysian workers,” the report says.

The researchers also reckon that migrant workers “are more likely to perform jobs with tasks that are more likely to be automated, even when compared with Malaysians with lower levels of education attainment … This suggests a preference for Malaysians in jobs involving more complex and less routine tasks. That said, in an economy with 1.9 million migrant workers and 14.2 million Malaysian workers, the adoption of automation technologies will likely affect more Malaysians than migrant workers.”

Still, the World Bank researchers reckon that migration and automation “can occur hand in hand”.

“For example, in the context of rapid ageing, South Korea is among the most automated economies globally, with its manufacturing industry having the highest robot density in the manufacturing sector in the world in 2022. In parallel, it has been implementing reforms to attract more migrants across sectors. Given that investments in automation technologies are unlikely to eliminate the demand for migrant workers (although it may change the type of migrant workers required), a future with both migration and automation is likely,” the researchers write of South Korea, which became a “super aged” society — where 20% of its population of 51 million are aged at least 65 — in 2024, while also having the world’s lowest birth rate of just 0.72 per women of reproductive age in 2023 (far below the replacement rate of 2.1), despite having spent more than US$200 billion trying to boost birth rates over 1½ decades.

Meanwhile, Malaysia has been an “ageing society” since 2020 (more than 7% of the population aged at least 65) and is projected to become an “aged society” (more than 14% of the population aged at least 65) by 2040.

“The rise in the ageing population means a decline in the working-age population, crea­ting the need to utilise all possible sources of labour to sustain the economy, including women, youth and migrant workers,” the World Bank report reads, noting that migrant domestic workers “have also arguably had a role to play in supporting female labour force participation in Malaysia”.

Still, they think there is room for Malaysia to strengthen the foreign worker management system to ensure admittance of the right number of migrant workers with the appropriate skill sets to meet its economic needs, via the implementation of a multi-tier levy system that is transparent, evidence-based and frequently reviewed.

Some analysts and economists have noted the potential boost of between RM1 billion and RM2 billion to the Malaysian stock market annually from the additional funds, but it is understood that the EPF Act 1991 needs to be amended to allow the implementation of the mandatory EPF contributions for foreign workers.

Other participants at the roundtable also cited practical concerns and implementation challenges, noting that EPF, which should be focused on growing retirement savings and bolstering retirement adequacy for Malaysians, could instead be burdened with additional administrative work, as foreign workers are expected to withdraw their EPF savings when they leave the country.

An observer noted that the higher cost of foreign labour wages — assuming third-party agent fees remain unchanged — could have unintended consequences, such as an increase in food prices, as a significant portion of foreign labour is employed in the plantation and agriculture sectors. He added that it might be a challenge to take on “deep vested interests” in the labour market, “which may well go beyond just third-party agents”, despite the Anwar administration’s stated intent to eliminate leakages.

It is evident that further industry engagement is necessary to ensure the best outcome for the country and its people. 

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