The Change Most Payroll Systems Missed
On 1 October 2025, mandatory EPF contributions for non-Malaysian citizen employees took effect. The Employees Provident Fund (Amendment) Bill 2025, passed by Parliament in March 2025, extended EPF coverage to all foreign employees holding valid work passes in Malaysia. The first contribution was due by 15 November 2025.
Before this, EPF for foreign workers was voluntary. Most companies never configured it. The payroll system skipped EPF for any employee flagged as a foreigner, and nobody questioned the output because the law did not require it.
That is no longer the case. Any company employing foreign workers that has not updated its payroll configuration since the mandate took effect has been running non-compliant. Every missed month is a separate liability.
What Actually Changed
The mechanics are straightforward, but the details matter.
Both employer and employee must now contribute 2% of monthly wages each. This is significantly different from the standard Malaysian employee rate of 11% and employer rate of 12-13%. The contribution is calculated based on the Third Schedule Part F, a new schedule introduced specifically for non-Malaysian employees. The amount must be paid in ringgit only, without cents, rounded up to the next whole ringgit.
The coverage applies to all non-Malaysian citizen employees below 75 years of age who hold a valid work pass issued by the Immigration Department. Domestic workers such as maids, cooks, gardeners, cleaners, babysitters, and drivers are excluded.
| Before Oct 2025 | After Oct 2025 | |
|---|---|---|
| Foreign worker EPF | Voluntary | Mandatory |
| Employer rate | RM5/month (if opted in) | 2% of wages |
| Employee rate | 11% (if opted in) | 2% of wages |
| Deadline | N/A | 15th of following month |
| Penalty (first offence) | N/A | Up to RM10,000 per employee |
| Who is covered | Only if opted in | All with valid work pass, below 75, excluding domestic workers |
There is one important edge case. Foreign employees who were already contributing voluntarily before the mandate, many at the standard 11% employee rate, will automatically transition to the new 2% rate unless they apply to EPF through the employer’s i-Akaun portal to maintain their previous higher rate. This means some foreign employees who were saving more will see their contributions drop unless someone intervenes.
Why Payroll Systems Get This Wrong
The problem is not that the change is complicated. The problem is that most payroll systems were configured to treat foreign workers as a category that does not interact with EPF at all.
In a typical setup, when an employee is flagged as a foreigner in the system, the EPF calculation is simply turned off. No employer contribution. No employee deduction. No line item on the payslip. No entry in the statutory submission file. The system was doing exactly what it was configured to do, because the law at the time did not require anything else.
When the mandate took effect, the system did not automatically update itself. Someone had to go into the payroll configuration, enable EPF for foreign employees, set the correct 2% rate for both employer and employee, ensure the Third Schedule Part F calculation is applied instead of the standard Third Schedule, and verify that the statutory file generator includes these employees in the monthly EPF submission.
If nobody did this, the system is still skipping EPF for every foreign worker. The payslips look the same as they did before October 2025. The statutory files go out without the foreign employees included. EPF receives no contribution. And the liability accumulates silently, month after month.
The Penalties Are Per Employee, Per Offence
This is not a blanket fine. Non-compliance penalties under the EPF Act are calculated per affected employee. For a first offence, the fine can be up to RM10,000 per employee. For repeat offences, the fine increases to RM20,000, with the possibility of imprisonment.
A company with 30 foreign workers that has not updated its payroll since October 2025 is not facing one penalty. It is facing 30 separate potential penalties, multiplied by every month of non-compliance.
EPF has also enhanced its enforcement capabilities. The automatic registration process that began in September 2025 means EPF already knows which employers have non-Malaysian employees. If contributions are not appearing in the system, the gap is visible.
What the Payroll System Needs to Do Differently
The fix is a configuration task, not a system replacement. But it has to be done correctly because the EPF rules for foreign workers differ from Malaysian employees in several ways.
TimeTec Payroll supports separate EPF contribution rates based on Employee Residence Status. When an employee is set to “Foreigner” in their profile, the payroll module can apply the 2% employer and 2% employee rate independently from the standard Malaysian rates. The statutory file generator includes these employees in the monthly EPF submission using the Third Schedule Part F format.
This means the configuration update for companies already using TimeTec Payroll is straightforward. Enable EPF calculation for foreign employees, set the contribution rates to 2% each, and verify the next payroll run includes them. The system handles the rounding (up to the next whole ringgit), the payslip line items, and the statutory file output.
For companies not using a payroll system that supports separate foreign worker EPF rates, the process is manual. Someone has to calculate 2% of each foreign employee’s wages, round up, track it separately, and include it in the EPF submission file in the correct format. Every month. For every foreign employee. The likelihood of error is high, and the consequence of error is a per-employee penalty.
The Contract Conversation Nobody Had
Beyond the payroll system, there is a human issue most companies have not addressed.
The 2% employee contribution is deducted from the foreign worker’s salary. For an employee earning RM3,000, that is RM60 per month that was previously in their take-home pay and is now going into an EPF account they can only access when they leave Malaysia permanently.
Most foreign workers were not expecting this deduction. Many have not been told about it. The first sign is a smaller payslip with a new line item they do not understand.
Companies that updated their payroll system without communicating the change to their foreign workforce are creating a different kind of problem. The deduction is legal. The surprise is not. A clear communication explaining what EPF is, why the deduction is happening, that the employer is also contributing 2%, and that the savings can be withdrawn when they leave Malaysia permanently turns a payslip shock into an understood policy.
The Audit That Is Coming
The government’s rationale for the mandate was explicit. The policy was introduced to equalise labour costs between local and foreign workers, reduce capital outflows, and align with international labour standards. These are national policy objectives, not suggestions.
EPF has been preparing for enforcement since well before October 2025. Automatic registration notices were sent to employers starting September 2025. The i-Akaun system has been updated to handle non-Malaysian employee records. The infrastructure is in place to identify non-compliance at scale.
For companies that have already updated their payroll systems, this is not a concern. For companies that have not, every month that passes adds another layer of backdated liability that becomes harder to resolve quietly.
Is Your Payroll System Updated?
The mandate is not new. The question is no longer whether your payroll system needs to change. It is whether it already has.
If your foreign employees’ payslips still show no EPF line item, the system has not been updated. If your monthly EPF submission file does not include non-Malaysian employees, the contributions are not reaching EPF. If your employment contracts for foreign workers have not been updated to reflect the 2% deduction, the first dispute is a matter of time.
The fix is a configuration task. The risk of not doing it is a per-employee penalty that compounds every month. Every month without action is a choice.