KUALA LUMPUR (March 6): The Dewan Rakyat on Thursday passed amendments to the Employees Provident Fund (EPF) Act 1991, which makes EPF contributions mandatory for foreign workers. The new policy is expected to kick in by the fourth quarter of this year, according to Finance Minister II Datuk Seri Amir Hamzah Azizan.

The proposal, first announced in Budget 2025, was approved by a majority voice vote following debates from eight Members of Parliament (MPs). The amendments involve 11 clauses, including provisions on the liability of foreign employees to contribute, and the applicable contribution rates.

Under the scheme, employers will have to contribute 2% of a foreign worker’s salary, while the employee’s contribution has also been set at 2%. This is lower than the 11% employee contribution and 12%–13% employer contribution required for Malaysian workers.

“This soft approach ensures that cost increases for employers remain manageable while gradually transitioning towards a more balanced labour market,” Amir said in his winding-up speech during the debate on the amendments.

The government has also announced plans to streamline foreign worker EPF registration through automated integration with Immigration Department databases and online platforms to facilitate seamless compliance.

EPF contribution for foreign workers is currently voluntary and has seen a low take-up rate, with only 22,635 workers or 0.9% of the estimated 2.5 million foreign workers in Malaysia actively contributing as of December 2024, said Amir.

In the meantime, the absence of mandatory contributions has made hiring foreign workers more cost-effective than hiring locals, leading to a wage distortion that suppresses salary growth for Malaysians.

“Without compulsory EPF contributions, foreign workers’ employment costs are significantly lower than those of local workers. This [new] policy will correct that imbalance and incentivise employers to hire more Malaysians,” he said, citing a Bank Negara Malaysia study that found heavy reliance on low-skilled foreign labour has been hampering industrial productivity and technological adoption.

The move would also help curb undocumented employment, as only legally registered foreign workers would be eligible to contribute, Amir said.

The minister also pointed out that foreign workers currently enjoy a higher disposable income since they are not required to contribute to EPF, allowing them to remit larger amounts overseas. In 2024 alone, Malaysia recorded RM34.2 billion in official outward remittances from foreign workers.

“With the implementation of this policy, a portion of foreign workers’ earnings will be channeled into EPF savings, which can only be withdrawn upon their return to their home countries. This will reduce capital outflows and support the strength of the ringgit,” Amir said.

EPF’s investment of the collected contributions into domestic economic activities would provide long-term returns to Malaysia, he said.

“This initiative aligns with Malaysia’s aspirations to become a high-income nation by fostering a fair labour market and supporting sustainable wage growth,” he added.

Over 70 countries — including India, Hong Kong, Australia, Indonesia, Thailand, and OECD members such as Germany and the United Kingdom — have similar mandatory retirement savings schemes for foreign workers, he said.

“The implementation of mandatory EPF contributions will benefit both the nation and the workforce, as it will help strengthen wage structures and encourage economic growth through increased household spending,” Amir added.

The bill will now be sent to the Dewan Negara for debate and vote, then to the King for royal assent, before being gazetted into law.

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