On February 2025, Malaysia’s government announced a groundbreaking change in its labor policy that directly impacts foreign workers— a move that is both a step towards social protection and a shift in how employers handle contributions to the Employees Provident Fund (EPF). The new regulation mandates that foreign workers in Malaysia contribute 2% of their monthly earnings to the EPF. Employers are also required to match this contribution, which will result in a total of 4% of the worker’s salary being deposited into the EPF account.
This decision, which has garnered attention in both business and human rights circles, represents a significant policy shift in how foreign workers are treated in terms of social security and financial protection. While it aims to provide some financial security for migrant workers, the policy has stirred debate about its adequacy and the implications it holds for Malaysia’s labor market and economy.
In this blog, we will dive into the details of the new policy, explore its potential impacts on foreign workers, employers, and Malaysia’s workforce dynamics, and assess the reactions from various stakeholders.
What Is the Employees Provident Fund (EPF)?
Before delving into the specifics of the new policy, it’s important to understand what the EPF is and its significance to both Malaysian citizens and foreign workers. The Employees Provident Fund (EPF) is a compulsory retirement savings plan that was introduced in Malaysia in 1951. It aims to ensure that employees, particularly citizens, save enough money to support themselves in retirement.
EPF contributions are deducted from an employee’s salary on a monthly basis, and the funds are managed by the EPF Board. The contributions, which are mandatory for Malaysian workers, are matched by the employer at a predetermined rate, currently at 11% for employees and 13% for employers. The accumulated funds in the EPF account are accessible to workers upon retirement or under certain conditions, such as for housing, medical treatment, or education.
For foreign workers, however, EPF contributions have not been mandatory—until now. Foreign workers in Malaysia have typically not been enrolled in the EPF system, despite their significant role in the country’s economy, particularly in sectors like construction, manufacturing, and services.
The 2% EPF Contribution: A New Policy for Foreign Workers
In 2025, Malaysia’s Prime Minister Datuk Seri Anwar Ibrahim announced that foreign workers will now be required to contribute 2% of their monthly salaries to the EPF, with the implementation date yet to be announced. Employers will also be required to match this contribution, which means a total of 4% of a foreign worker’s salary will be deposited into their EPF account.
This announcement follows a series of discussions and consultations between the government and business groups, with the original proposal suggesting a 12% contribution rate. However, after deliberation, it was agreed that 2% was a more practical and manageable contribution for foreign workers and employers alike.
The Rationale Behind the Policy Change
This policy shift is aimed at addressing several key issues:
1. Financial Protection for Foreign Workers
Foreign workers make up a significant portion of Malaysia’s labor force. According to the Ministry of Human Resources, Malaysia is home to approximately 2.5 million foreign workers from various countries, including Indonesia, Nepal, Bangladesh, and the Philippines. These workers contribute to critical sectors, including manufacturing, construction, agriculture, and domestic work.
However, despite their importance, foreign workers have historically been excluded from Malaysia’s social protection programs, including the EPF. Without mandatory EPF contributions, foreign workers often face financial uncertainty after their employment ends, especially if they return to their home countries without sufficient savings. The new EPF requirement aims to provide foreign workers with a basic financial safety net, ensuring that they have some savings accumulated during their time in Malaysia.
2. Encouraging Fairness and Equality in the Workforce
Another rationale behind this policy is to ensure greater fairness between local and foreign workers in terms of social protection. Malaysian citizens have long been entitled to EPF contributions, but foreign workers, who often fill essential roles in the economy, have not had the same financial protections. By mandating EPF contributions for foreign workers, the government aims to close this gap and provide a more equitable treatment for workers across the board.
How Will the 2% EPF Contribution Work?
Under the new regulation, the 2% contribution rate will apply to all foreign workers in Malaysia, regardless of their industry or job role. The contributions will be calculated based on the worker’s gross monthly salary, and the employer will be responsible for ensuring that both the worker’s contribution and their matching contribution are made on time.
Foreign workers will also be able to access their EPF savings under specific conditions. While EPF savings are primarily intended for retirement, workers can withdraw their funds for other purposes, such as purchasing a home or paying for medical expenses. Upon leaving Malaysia, foreign workers will also be able to withdraw their full EPF balance.
Implications for Employers
For businesses in Malaysia, particularly those with a significant number of foreign workers, this new policy represents a shift in how labor costs are managed. Employers will need to adapt to the new EPF requirements, ensuring compliance with the law by making the necessary deductions from workers’ wages and matching their contributions.
This could mean additional administrative work for employers, particularly small businesses, which may not have systems in place to manage EPF contributions for foreign workers. However, the matching contribution from employers could also have some advantages, as it helps to standardize the social protection system across the workforce.
Additionally, businesses may face increased payroll costs, though the relatively low 2% contribution rate is expected to alleviate some of the financial burden. Employers will also need to communicate the changes clearly to foreign workers to ensure that they understand how the contributions will be made and how it will affect their take-home pay.
The Impact on Foreign Workers
For foreign workers, the mandatory EPF contribution is a mixed blessing. On the one hand, it represents a positive step towards greater financial protection and a safety net for the future. With the ability to save for retirement or emergencies, foreign workers will have some peace of mind during their employment in Malaysia.
On the other hand, the 2% contribution may not be sufficient to build significant savings. Given that many foreign workers send a large portion of their wages home to their families, contributing 2% to the EPF might feel like an additional burden. Human rights organizations have expressed concern that the 2% contribution may not provide enough savings to adequately support foreign workers after their employment ends, especially in comparison to the much higher contribution rates expected for local workers.
Additionally, many foreign workers face challenging working conditions, including low wages and long hours. Given these realities, the 2% contribution might be viewed as insufficient in addressing the broader financial struggles faced by migrant laborers.
Criticisms and Concerns
Despite its positive intentions, the 2% EPF contribution has sparked some criticism from both workers’ rights groups and industry associations. Critics argue that 2% is too low to have a meaningful impact on the financial security of foreign workers, who often face significant economic challenges.
Some activists have called for a tiered contribution system, where higher earners contribute a greater percentage to their EPF, while lower-income workers contribute at a reduced rate. This would help ensure that higher-income foreign workers can build more substantial savings while also acknowledging the reality of lower wages in certain sectors.
Moreover, there is concern that the introduction of EPF contributions could lead to increased exploitation of foreign workers by employers. Some fear that businesses may use the new contribution policy as an excuse to reduce workers’ base salaries or find other ways to circumvent the contribution requirements.
Looking Ahead: What’s Next for Malaysia’s Labor Market?
While the 2% EPF contribution policy is a step forward in terms of providing foreign workers with social protection, it is clear that more work needs to be done to ensure that these workers receive fair treatment and adequate financial security. The Malaysian government has indicated that it will continue to monitor the situation and may review the contribution rate in the future, depending on economic conditions and feedback from stakeholders.
As Malaysia’s labor market continues to evolve, it will be essential for employers, workers, and the government to collaborate in creating policies that balance the needs of businesses with the rights and welfare of foreign workers. A more comprehensive approach, potentially incorporating higher contribution rates or a tiered system, may be needed to provide foreign workers with the financial security they deserve.
Conclusion
The introduction of a 2% EPF contribution for foreign workers in Malaysia is a positive and necessary move towards ensuring that migrant workers have access to some form of social security and financial protection. While the policy is a step in the right direction, its implementation and impact will depend on how it is carried out and whether further adjustments are made to address the concerns of both workers and employers.
For now, employers must ensure that they comply with the new regulations, while workers should be informed of how the contributions will affect their wages and long-term savings. As Malaysia continues to grow as a hub for foreign labor, it will be important to keep refining labor policies to ensure a fair and equitable environment for all workers.
