Understanding Malaysia’s Foreign Worker Policies: A Guide for Foreign Investors

Malaysia’s economy is heavily reliant on foreign labor, particularly in key sectors such as manufacturing, construction, and services. As of 2024, there are approximately 2.3 million foreign workers in the country, making up 14.6 percent of the total workforce.

The breakdown of foreign workers by sector is as follows:

• Manufacturing: 730,999 workers
• Construction: 646,508 workers
• Services: 394,739 workers
• Plantation: 263,151 workers
• Agriculture: 171,103 workers
• Domestic Work: 100,675 workers
• Mining and Quarrying: 5,711 workers

While exact GDP contribution figures from foreign workers are not readily available, their impact on economic growth, productivity, and sectoral development is substantial. Given the country’s ongoing industrialization, foreign workers remain critical in sustaining Malaysia’s economic trajectory.

Evolution of Malaysia’s foreign worker policies

Malaysia’s approach to foreign worker management has undergone significant transformations. Early labor policies primarily focused on encouraging local employment while balancing the need for foreign workers in labor-intensive industries. Over the years, key policy milestones have shaped the current framework:

• Expansion of Work Quotas: The total cap on foreign workers was set at 2.5 million, with quotas distributed as follows:
  • Manufacturing: 40%
  • Construction: 30%
  • Services: 15%
  • Plantation: 10%
  • Agriculture: 5%
• Employment Act Amendments: The Employment (Amendment) Act 2022, effective January 1, 2023, introduced flexible working arrangements and increased employee protections, including enhanced rights for those earning below RM4,000.
• Streamlined Work Permit Processing: The Expatriate Services Division (ESD) reduced the average processing time for hiring foreign workers from 29 months to 15 months.

Categories of foreign workers and source countries

Malaysia allows foreign workers from approved source countries based on specific sectoral needs. Generally, foreign workers come from Indonesia, Bangladesh, Nepal, India, Myanmar, and the Philippines. The skill levels and restrictions vary across industries:

• Low-skilled workers: Mainly employed in plantations, construction, and domestic work.
• Semi-skilled workers: Common in manufacturing and services.
• Highly skilled expatriates: They typically work in finance, IT, healthcare, and engineering, often under an Employment Pass.

The hiring process for foreign workers

Foreign investors looking to employ foreign workers must follow a structured hiring process:

1. Application for Quota Approval: Employers must submit quota requests to the Ministry of Human Resources.
2. Labor Market Test: Employers must prove they could not fill the position with local workers.
3. Permit Approval: Once approved, the employer can submit applications for work permits through the Immigration Department.
4. Visa Issuance & Medical Check-Up: Workers must undergo a pre-employment medical examination before entering Malaysia.
5. Final Work Permit Issuance: The employer completes the Foreign Worker Insurance Guarantee (FWIG) and other compliance steps before the worker starts employment.

Work permit and visa options for foreign workers

Malaysia offers different types of visas and work permits, depending on the job category:

• Employment Pass (EP): For high-skilled expatriates earning above 5,000 ringgit per month.
• Professional Visit Pass (PVP): For foreign professionals working on short-term contracts.
• Temporary Employment Pass (TEP): For low- and semi-skilled foreign workers.
• Resident Pass-Talent (RP-T): Long-term work visa for highly qualified foreign workers.
• Malaysia My Second Home (MM2H): For foreign retirees or long-term investors.

Compliance and employer obligations

Employers hiring foreign workers must meet several compliance requirements:

• Mandatory Insurance: Employers must provide Foreign Worker Hospitalisation and Surgical Scheme (FWHSS) and Foreign Worker Compensation Scheme (FWCS).
  • FWHSS Premiums: 120 to 150 ringgit per worker per year.
  • FWCS Premiums: 72 ringgit per worker per year.
• Minimum Wage Compliance: As of February 2025, the minimum wage is 1,700 ringgit per month for foreign and local workers in most industries.
• Accommodation Standards: Employers must provide adequate housing in compliance with the Workers’ Minimum Standards of Housing and Amenities Act 1990.

Industry-specific foreign labor regulations

Different industries in Malaysia have tailored regulations for foreign labor, with the manufacturing and construction sectors having the highest reliance on foreign workers due to labor-intensive demands.

The plantation and agriculture industries primarily source workers from Indonesia and Bangladesh, while the services sector imposes language proficiency requirements to ensure smooth interaction with customers. Each industry operates under specific quotas and restrictions to balance economic needs with local employment policies.

Compliance enforcement and penalties

Malaysia has a strict enforcement regime to ensure compliance with foreign worker policies, with labor inspections regularly conducted by the Department of Labor Peninsular Malaysia to identify common compliance issues such as underpayment, lack of insurance, and illegal hiring. Employers who fail to comply with regulations may face severe penalties, including fines, business suspensions, or the deportation of workers.

Additionally, the government maintains a blacklist system, preventing non-compliant employers from hiring foreign workers in the future, thereby ensuring a more regulated and ethical labor market.

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