Muted impact on firms

The Star

7 days ago

PETALING JAYA: The mandatory Employees Provident Fund (EPF) contribution for foreign workers will have little impact on most businesses for now, except for those with heavy reliance on foreign labour.
The impact will be greater if such companies also operate in price-sensitive markets where cost pass-through is limited.
Sectors that would be most affected are plantation, gloves, technology and construction, according to CIMB Securities Research.
'Overall, we view the mandatory 2% EPF contribution as mildly negative for corporate earnings.
'We expect the earnings impact from higher labour costs – alongside the recent expansion of the sales and service tax – to be reflected progressively in the results for the second half of 2025, with a more pronounced full-year effect in 2026,' stated the research house.
Starting with October's wage, foreign workers and their employers must each contribute 2% of the monthly pay to the EPF. CIMB Research foresees the initial cost impact to likely be manageable.
'However, pressure may build if the contribution rate for foreign workers is gradually increased in line with that of Malaysian workers,' it said in a note.
The advantage of this EPF plan, according to economist Geoffrey Williams, is that it is being rolled out at a 'very low rate and very low cost'.
This avoids imposing substantial additional cost pressures on businesses, at a time when many industry players are complaining about margin compressions.
On the flip side, however, the 2% EPF contribution will hardly benefit the foreign workers, said Williams. 'The employees will save virtually nothing, the EPF will have millions of extra members but most will have virtually no savings and employers will have minimal extra costs.
'For example, for a foreign worker on a minimum wage of RM1,700, the new scheme will cost RM34 per month (employer's portion). For employers complaining of higher costs due to this, they need a reality check. If they cannot afford RM34 per month, they do not have a viable business model.'
As for those with large numbers of foreign workers, Williams urged them to reduce dependency on low-wage workers if such employers feel that the cumulative cost of 2% contribution is too high. 'Employ Malaysians or invest in technology,' he said.
The EPF announced that this mandatory contribution will apply to all foreign workers in Malaysia – excluding domestic helpers – who possess valid passports and work permits issued by the Immigration Department.
Previously, the EPF contributions for foreign workers were voluntary. This policy change should not come as a surprise to the market, as it was first announced in Budget 2025.
Under the revised framework, foreign workers will be allowed to withdraw their EPF savings upon returning to their home countries, provided their work permits have expired and there is evidence that their permanent employment has ended.
With the new mandatory policy, CIMB Research said the EPF stands to benefit from higher annual contributions.
'Based on an estimated 2.5 million foreign workers earning an average monthly salary of RM2,000, the combined 4% contribution from employers and employees could generate approximately RM2.4bil in additional annual contributions to the EPF.'
Meanwhile, the Small and Medium Enterprises Association of Malaysia (Samenta) national president Datuk William Ng described a 2% contribution as 'reasonable' and not something that Samenta would object to.
He also told StarBiz that most SMEs which engaged foreign workers did not have a large number of such workers.
'In fact, we are more concerned over the availability of these funds to the workers upon them ceasing to work in Malaysia.
'Ideally, they should be able to withdraw the fund in its entirety upon termination of their employment and such funds allowed to be repatriated to their home country to repay loans, build houses and any other uses they may deem fit,' he said.