KUALA LUMPUR: The Federation of Malaysian Manufacturers (FMM) wants the government to delay its plans to implement mandatory Employees Provident Fund (EPF) contributions by foreign workers by two years.

FMM president Tan Sri Soh Thian Lai said the authorities, including the EPF, should first engage with stakeholders and provide clarity on the move.

"These engagements should clarify critical aspects such as coverage, contribution rates, and phased timelines, allowing businesses ample time to plan and adapt.

"Early and transparent communication will reduce uncertainty, enabling companies to effectively manage their financial strategies and avoid unforeseen cost burdens.

"Collaborative discussions will also ensure that the policy is both practical and sustainable, minimising disruptions to business operations and safeguarding industry stability," he said in a statement.

He said FMM, which represents over 12,700 member companies from the manufacturing supply chain, believes that clear, transparent details, a pre-announced implementation timeline and a well-defined schedule of cost increases are essential to mitigating the impact on business costs.

He said the announcement, made during the 2025 Budget tabling by Prime Minister Datuk Seri Anwar Ibrahim, caught the federation by surprise as they were not engaged beforehand.

"Industry players feel disappointed and sidelined, as they were not given the opportunity to provide input or voice their concerns about the potential impact of such a policy on business operations, costs, and workforce management.

"The absence of engagement with businesses before the announcement has left the industry unprepared for this significant change as there has been no information provided about key aspects such as the specific timeline for implementation, who exactly will be covered under this mandate, the contribution rates for both employers and non-citizen employees, or how the phased rollout will be managed.

"This has heightened the uncertainty within the industry as they await more detailed information on how the policy will be implemented," he said.

He said implementation should be delayed for two years to allow enough time for stakeholder consultations and for businesses to adjust to the financial commitments.

Soh cautioned that mandatory EPF contributions for foreign workers would exert pressure on businesses, significantly affecting cash flow, operating costs, and overall operations.

He said it also comes at a challenging time with the impending minimum wage hike and expected implementation of the multi-tier levy mechanism next year.

"These escalating labour and foreign worker-related expenses could place businesses, especially SMEs under severe financial strain, complicating efforts to maintain competitiveness and sustainability in an already challenging economic environment," he said.

He said the current social safety net for foreign workers via SOCSO coverage offers enough protection, and that EPF contributions, meant to be a long-term retirement fund, may not align with the short term tenure of foreign workers.

He said with 2.5 million foreign workers in the country, EPF contributions for them would mean an additional minimum annual payroll cost of RM6.6 billion.

The upcoming minimum wage, he said, can add an additional RM10.8 billion annually to payroll expenses.

When combined, the impact is substantial, namely RM17.4 billion annually, which could significantly threaten business sustainability, especially in industries that heavily depend on foreign labour.

Soh said EPF contribution by foreign workers, who take up unskilled and low skilled jobs in Malaysia, would also significantly reduce their take-home pay.

This, he said, could be a cause for concern as foreign workers typically send a substantial portion of their earnings back home to support their families.

"Although foreign workers will receive a RM200 wage increase with the new minimum wage rate in February 2025, the mandatory EPF contribution would result in a net wage increase of only RM13 per month, which is negligible."

https://www.nst.com.my/news/nation/2024/10/1123229/manufacturers-want-govt-delay-mandatory-epf-foreign-workers