The 2025 Budget of Malaysia has several policies directed towards the practices of hiring foreign workers. It seeks to balance labor demand, control excessive remuneration, and help foreign workers better save for retirement. Some of the policy developments include a multi-duration tax system (or levy), a minimum wage policy, and a compulsory employee membership of the labor provident fund for international workers.
These measures are anticipated to have an effect on the costs incurred by employers and the hiring patterns across sectors that are foreign labor intensive. This article focuses on the implications of such changes in costs for employers and the strategies that can be employed for their efficient management.
Major Policy Changes for Foreign Workers in Malaysia’s 2025 Budget
Multi-Tiered Foreign Worker Levy
Among the most transformative elements of Malaysia’s 2025 budgeting is the multi-tiered levy system introduced. As part of this system, employers pay different fees depending on the sector, demand and skill level of the foreign workers which motivates the employers to cut down the in-flow of foreign workforce. The objective is to encourage hiring of local employees and improve competition within the labor market.
Minimum Wage Requirement
To guard against exploitation of foreign workers, there are also minimum wage requirements in place. This requirement elevates the wage floor benefiting majority of the low income migrant workers but it raises the burden of the employers, more so those in industries like manufacturing, agriculture, or construction, which usually rely heavily on foreign workers.
Compulsory EPF Contributions for Foreign Members
Another major revision in the budget for the year 2025 is the imposition of employees provident fund (EPF) contributions for foreign workers employed by a company. This was a policy which the employers could opt out of previously, and it has been implemented in a bid to ensure that, foreign workers have some provisions for their old age. However, it imposes an extra cost on the employers hence increasing the total cost of hiring.
How These Policies Impact Employers of Foreign Workers
An Increase in the Cost of Labor
- Higher Levy: Due to the multi-tiered levy, employers under certain sectors will be required to pay enhanced levies this will affect sectors that heavily rely on cheap foreign labor.
- Minimum Wage: The wage increase affects the employer’s budgets therefore, there is a need for the companies to make adjustments to its salary and budget forecasts.
- EPF Contributions: Employers will face additional monthly costs per employee due to compulsory EPF contributions, which will increase the cost of employing expatriates.
Administrative Burden
This will mean that the employers will have extra payroll documentation and reporting, in particular, for EPF contributions. This may enhance HR functionalities and the costs of operations.
Change in Hiring Patterns
Such companies may also look for other means for instance machines to do the work, hiring more locals, or cutting back on the number of foreign laborers, or in some cases, all these changes could force restructuring and rethinking strategies with respect to managing the available human resource.
Solutions for Employers to Minimize Costs Related to Foreign Workers
In order to meet the budget requirements which is based on the fact that the economic growth of Malaysia is expected to reach 5.4% and not go beyond 5.7% by 2025, they may implement the following measures:
Make a forecast of employee use
– Assessing labor demands helps companies to find which country can do without foreign workers and in which zones there is still potential increase in labor capacity without loss in productivity.
– Flexible Staffing: Hiring temporally or seasonally foreign workers can be useful whenever there is specific need at certain times and for certain operations regarding the use of workforce.
Automation and Technological Investment
– Mechanization: In such sectors, particularly those where adaptabilities of the workforce cannot be applied, mechanization serves not only to decrease productivity floors but also to reduce the increased reliance on foreign labor that attends rising wages and levies.
– Software usage: The use of technology for the effective management of the human resource department for example as the use of ahp in human resource epf management will help cut down the operational cost of managing the effective payroll and epf systems.
A Focus on Local Skilled Manpower
– Provide higher skills trainings for professional human resourcing: Focus on developing and training local workers in order to replace migrant labor occupations, especially in areas where occupational costs are not distinct.
– Government program execution: A number of them exist for enhancing local human resource abilities. Engaging in these initiatives may help lessen the scope of external recruitment.
Reassess MCS Policy Towards Employment and Repatriation of Workers
– Address the Costs: Responsively employing high-skills foreign and low-skills foreign workers mix to the levy management under the four tiered system quite effectively incurring such as high levies incurred by low productivity workers. High skilled workers tend to pay less levies because they are associated with productivity enhancing activities.
In conclusion, the impact on foreign workers must be considered.
The employment of foreign workers in Malaysia is one of the issues tackled by the budget 2025, and this will have implication on cost incurred by an employee as well. For more details on Malaysia’s 2025 Budget, visit the official Malaysia Budget 2025 page.
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