Malaysia’s EPF Mandate for Foreign Employees: What Investors Must Reassess

Malaysia has officially extended the Employees Provident Fund (EPF) contribution requirement to all foreign employees, effective October 1, 2025. Previously, participation in the EPF scheme was voluntary for expatriates, but under the EPF (Amendment of Third Schedule) Order 2025, both employers and foreign employees are now required to contribute 2 percent of monthly wages to the fund.

For foreign investors, the change affects payroll structure, employment classification, and compliance exposure. Companies paying expatriates through regional headquarters or secondment models must now review whether those arrangements meet Malaysia’s definition of “employment” under the EPF Act.

Cost implications for foreign employers

The financial impact for foreign investors is moderate but meaningful. Employers must now contribute 2 percent of a foreign employee’s monthly salary to the EPF, while employees contribute another 2 percent. For example, a professional earning RM 20,000 (approximately US $4,200) will require an employer contribution of RM 400 (US $85) and an employee contribution of the same amount each month.

Although the employer contribution is tax-deductible, this 4 percent combined statutory cost still affects payroll planning, especially for organizations employing a high number of expatriates. Budgeting models, contract structures, and remuneration frameworks should be reviewed to account for the new contribution requirement.

Mandatory EPF Contribution Rates for Foreign Employees

Employee Category	Employee Contribution	Employer Contribution	Total Contribution	Notes
Non-Malaysian citizens who are permanent residents (PRs) in Malaysia — below 60 years	11 %	13 % (if monthly wage ≤ RM 5,000); 12 % (if > RM 5,000)	24 % / 23 %	Same as Malaysian citizen employees below 60 years; no change under the 2025 Order
Non-Malaysian citizens who are permanent residents (PRs) in Malaysia — aged 60 and above	5.5 %	6.5 %	12 %	Same as Malaysian citizen employees aged 60 and above; no change under the 2025 Order
All other non-Malaysian citizen employees (non-PRs)	2 %	2 %	4 %	Mandatory from October 1, 2025 under the EPF (Amendment of Third Schedule) Order 2025; applies to foreign staff with valid work passes excluding domestic workers
Exemptions	—	—	—	Granted only upon formal application and written approval by the EPF Board under Section 27 of the EPF Act 1991

 

These rates now bring parity between local and foreign employees. Employers must ensure that payroll systems, accounting processes, and employment records reflect the correct contribution structure.

Adjusting employment contracts

The new EPF mandate requires immediate review of employment contracts for foreign employees. Agreements should specify gross salary, employer contribution, and employee deduction amounts to prevent disputes over take-home pay.

Multinational companies that compensate expatriates through global pay scales may need to adjust total remuneration to maintain internal equity while remaining compliant with Malaysian law.

Employers must decide whether to absorb the added cost or adjust remuneration structures to maintain equity while remaining compliant.

Compliance and implementation

Employers are now obligated to register eligible foreign employees with the EPF Board and make monthly contributions by the 15th of the following month. Payroll systems must generate accurate contribution calculations and maintain proper remittance records, while employee payslips should show both employer and employee portions.

Failure to remit contributions on time may result in penalties, interest, and potential investigation by the EPF Board. Foreign investors should also monitor procedural updates, especially regarding foreign staff under short-term or rotational arrangements.

Workforce planning and cost integration

The new EPF contribution requirement is prompting investors to reassess how expatriates are deployed and compensated in Malaysia. Companies that rely heavily on foreign professionals may shift toward a higher share of local hires or use shorter-term assignments to manage statutory costs.

While these adjustments aim to contain expenses, the inclusion of foreign employees in the EPF system also strengthens workforce stability. Extending retirement coverage to expatriate staff enhances retention, improves transparency in payroll management, and aligns with Malaysia’s broader effort to promote equitable employment standards.

To sustain this balance between cost control and compliance, foreign investors should integrate EPF obligations into long-term workforce and financial planning. Contributions must now be treated as a recurring operational expense embedded within project feasibility studies and payroll forecasts. For ongoing operations, recalibrating budgets and aligning HR, tax, and finance functions will be key to preserving margins and ensuring accurate compliance reporting.

At the regional level, Malaysia’s approach is now broadly aligned with the social-security frameworks of Singapore and Thailand, both of which require employer contributions for foreign professionals.

For companies managing cross-border teams, harmonizing payroll policies across ASEAN jurisdictions will reduce administrative complexity, enhance predictability, and support a more coherent long-term regional workforce strategy.

Advisory and regional insight

Malaysia’s extension of mandatory EPF contributions to foreign employees is now a permanent part of the employment landscape. The reform reflects a broader effort to standardize labor compliance and align Malaysia’s workforce policies with regional norms.

For foreign investors, the priority is to integrate these costs efficiently into financial and workforce planning.

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