HRDF Contribution: What is HRDF Levy and How to Calculate?

Last updated on Apr 23, 2023

If you are an employer in Malaysia, it is vital you know what an HRDF contribution is.

If you do not, don't worry. In this article, we look at what is HRDF in Malaysia, HRDF contribution rates for employers and more.

What is HRDF?

HRDF, the Human Resources Development Fund, is a pool of funds collected from companies in the First Schedule of the Pembangunan Sumber Manusia Berhad Act 2001 (PSMB Act 2001). The Act was previously known as the Human Resources Development Act 1992.

In March 2021, HRDF re-branded into HRD Corporation and expanded the coverage of the PSMB Act 2001 to include all industries in Malaysia, including construction, recreation, education, sports and more.

By actively utilising their HRDF contributions, Malaysian employers can:

· Improve the quality and productivity of their employees

· Send their employees to training programmes required by the industry to meet industry-specific requirements and standards

· Establish a systematic and structured training plan (compulsory for ISO-certified organisations) for their employees

What is the HRDF Levy?

HRDF levy is a mandatory payment collected by Pembangunan Sumber Manusia Berhad (PSMB).

It encourages employers in Malaysia to provide vocational training and upgrading to their employees. This is so they can keep up with the ever-evolving business landscape and meet their employer's needs.

All employers in Malaysia, regardless of industry, are required to register with PSMB. If an employer is not registered, they could be fined up to RM10,000 or face imprisonment of up to a year.

What is the HRDF Contribution Rate in Malaysia?

There are two HRDF contribution rates in Malaysia:

1. Companies With 10 or More Malaysian Employees

Employers with ten or more Malaysian employees must register with HRDF. They should register 1% of their Malaysian employees' monthly wages (including fixed allowance and basic salary).

2. Companies With 5 to 9 Malaysian Employees

On the other hand, it is optional for companies with five to nine Malaysian employees to register with HRDF. However, if they choose to register, they should report 0.5 % of the monthly wages of each of their Malaysian employees (including fixed allowance and basic salary).

Calculating HRDF Levy in Malaysia

The formula to calculate the HRDF contribution for each Malaysian employee is:

HRDF Levy% x (Basic Salary + Fixed Allowances)

Here is an example of how an HRDF contribution is calculated. If you are contributing 0.5% and your employee earns RM3,000 plus a fixed allowance of RM300, the calculation for the HRDF contribution for that employee is as follows:

0.5% x (RM3,000 + RM300) = RM16.50

If you are a business owner with ten or more Malaysian employees, it is important to know that you must continue paying at 1% for the whole year, even if your employee headcount falls below ten.

Moreover, HRD Corporation has prepared a guideline for Malaysian employers to refer to when calculating their HRDF payment.

To learn more about HRDF contribution in Malaysia, you can visit our main blog, contact us at 012 4666321 or email us at [email protected].