Mandatory EPF contributions for foreign workers may pressure margins, says CIMB
KUALA LUMPUR: The upcoming implementation of mandatory Employees Provident Fund (EPF) contributions for foreign workers starting October 2025 is expected to have a mildly negative impact on corporate earnings, particularly in labour-intensive sectors such as plantation, manufacturing, construction, and property, according to CIMB Securities Sdn Bhd.
"We view the mandatory 2 per cent EPF contribution for foreign workers by employers as mildly negative for corporate earnings. This could weigh on profit margins, particularly for companies that are highly dependent on foreign labour and operate in price-sensitive markets where cost pass-through is limited.
"The initial EPF contribution rate is relatively low, and, based on our preliminary estimates, should have a moderate impact on near-term profitability," the firm said.
CIMB anticipates that the impact of higher labour costs, coupled with the recent Sales and Service Tax expansion, will begin to reflect in second-half 2025 (2H25) financial results, with a full-year impact becoming clearer in 2026.
In response, affected companies are expected to pursue productivity improvements and automation to reduce reliance on manual labour.
The EPF has confirmed that, from October 2025 onwards, both employers and their foreign employees will be required to contribute 2 per cent each of monthly wages to the EPF. This measure, announced during Budget 2025, applies to all foreign workers with valid passports and work permits, excluding domestic helpers. Previously, contributions were voluntary.
Under the new policy, foreign workers may withdraw their savings upon the expiry of their work permits and employment. The EPF is also working on an integrated registration mechanism with federal agencies, including the Immigration Department, to automate worker enrolment and verify non-citizen bank accounts.
The move is intended to bridge the social protection gap between local and foreign workers, improve labour standards, and promote fairer employment practices.
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