By Ashutosh Agarwal, Manager, Global Benefits, GoGlobal
Recent economic data suggests that Malaysia’s economy is growing at a faster pace than previously expected, as reported by Reuters. However, this growth is met with a tight labor shortage, particularly in skilled talent. Aggravating the problem is rising dissatisfaction among employees. Over half (52%) of the workforce is actively seeking new job opportunities due to inadequate compensation.
As employers grapple with retaining and engaging staff, benefits have become a critical element of total compensation strategies.
In this two-part blog series, we explore the importance of benefits in the Malaysian workforce. In the first installment, we focus on the statutory benefits employers are required to provide and why compliance is crucial.
Statutory benefits in Malaysia
In Malaysia, statutory benefits are regulated by several schemes that apply to both Employees Act (EA) and non-EA employees. These benefits, which include contributions to social security and employee development funds, are integral to employee well-being and job satisfaction.
Failing to comply with these legal obligations can not only result in legal penalties but also deter talent from coming onboard.
Here’s an overview of the key statutory benefits employers must provide:
Employees Provident Fund
The Employees Provident Fund (EPF) is a social security institution designed to provide Malaysian workers with retirement benefits. Over time, it has evolved to allow employees to withdraw savings for specific purposes like home ownership and medical expenses.
Employers are required to contribute 12% to 13% of an employee’s monthly wages (capped at MYR 5,000) to the EPF, while employees contribute 11%.
Foreign workers with an Employment or Visit Pass earning over MYR 2,500 are exempt from mandatory contributions. However, they may opt in voluntarily. For all others, the EPF is a crucial financial safety net.
Why It Matters: Retirement security is an important issue for employees. Offering a reliable retirement fund not only complies with legal mandates but also improves employee satisfaction. Malaysian workers value the long-term financial stability the EPF provides.
Social Security Organization
The Social Security Organization (SOCSO), also known as PERKESO, is another social insurance scheme in Malaysia. It offers protection to Malaysian citizens and permanent residents against workplace accidents, occupational diseases and invalidity. It also provides compensation in the event of death.
For employees under age 60 (Category I), employers contribute 1.75% of the employee’s monthly wage while employees contribute 0.50%. Both contributions are capped at MYR 5,000. Foreign workers are covered under the Employment Injury Scheme, for which employers contribute 1.25%.
Why It Matters: Accidents and injuries can significantly impact employee morale and productivity. By offering SOCSO coverage, employers not only comply with statutory requirements but can also help their workforce feel protected. This sense of security can enhance loyalty and engagement, mitigating the risk of turnover due to workplace risks.
Employment Insurance System
Managed by SOCSO, the Employment Insurance System (EIS) provides temporary financial assistance to employees who lose their jobs. This scheme, implemented in 2018, helps retrenched workers by offering income replacement, reemployment programs and training to increase employability.
Both employers and employees contribute 0.2% of the employee’s monthly wage (capped at MYR 5,000) to the EIS. Contributions are compulsory for local employees between the ages of 18 and 60. There are a few exceptions, notably government workers and domestic helpers.
Why It Matters: Job security is a major concern for employees, especially in uncertain economic times. EIS contributions assure employees they will receive support if they are unexpectedly laid off. For employers, maintaining compliance with EIS reduces the risk of workforce anxiety and promotes a stable working environment.
Human Resources Development Fund
The Human Resources Development Fund (HRDF) is aimed at promoting employee training and development. Employers with 10 or more local employees are required to contribute 1% of their monthly wage bill to this fund. Employers with five to nine local employees can opt to contribute at a rate of 0.5%.
This fund finances upskilling programs, helping to keep the Malaysian workforce competitive in a rapidly evolving global job market.
Why It Matters: In a world where skill sets are continually changing, opportunities for growth and development are key drivers of employee retention. By contributing to the HRDF, employers not only comply with legal requirements but also show a commitment to employee development. This can foster a culture of continuous learning and professional growth.
Benefits compliance is key
Maintaining compliance with Malaysia’s statutory benefit schemes is about more than avoiding penalties. Non-compliance can result in hefty fines and legal action, which can damage a company’s reputation and affect its bottom line.
However, the bigger picture is that these statutory benefits play a critical role in talent retention. When employees feel their welfare is being taken seriously—whether through contributions to retirement funds, health coverage or development opportunities—they are more likely to stay with a company long term.
Up next: supplementary benefits in Malaysia
In the next installment of this series, we will dive into supplementary benefits that can further enhance employee satisfaction. A well-designed benefits package can help businesses stay competitive in Malaysia’s dynamic, fast-paced job market.
Stay tuned for more insights on how to refine your benefits strategy in Malaysia.
Learn more about regulations and hiring in Malaysia here: Hire in Malaysia | GoGlobal
Contact us today to discover how the GoGlobal Global Benefits Team can help you design benefits that fuel business expansion and hiring in Malaysia.