Budget 2025: Key Updates for Employers and HR Leaders
Malaysia’s Prime Minister, Datuk Seri Anwar Ibrahim, unveiled the 2025 Budget with numerous changes directly impacting HR, payroll, and taxation systems. Here’s a breakdown of the most relevant updates for employers and HR professionals, focusing on social security, wages, employee welfare, tax incentives, and training programs.
1. Social Security Organisation (SOCSO) Updates
The Self-Employment Social Security Scheme will continue covering 70% of gig workers’ contributions, with an allocation of RM100 million to support this initiative. This will prepare for mandatory contributions from 2025, particularly for renewing vocational licenses of self-employed individuals. HR leaders managing gig workers or contractors should prepare for this transition and ensure contributions are correctly accounted for in payroll systems.
Employers will also receive a monthly incentive of up to RM600 for three months when hiring Persons with Disabilities (PWDs) and ex-convicts under SOCSO’s employment schemes. This initiative promotes diversity and inclusivity in the workforce.
2. Employees Provident Fund (EPF) Updates
The 2025 Budget mandates that non-citizen workers contribute to the EPF, with phased implementation. HR teams managing foreign workers must ensure compliance by adjusting payroll systems accordingly.
Other EPF changes include:
- i-Saraan matching incentive has increased from 15% to 20%, with an annual limit of RM500 and a lifetime cap of RM5,000.
- The i-Suri program will continue with matching incentives through government contributions for housewives, supported by active contributors.
- EPF is reviewing its inter-generational transfer policies, which would allow members to transfer part of their savings to family members’ EPF accounts. This could impact family financial planning and retirement strategies, providing additional flexibility for members.
3. Wage Increases and Income Growth
In an effort to boost income levels, the minimum wage will increase from RM1,500 to RM1,700 effective 1 February 2025. Businesses with fewer than five employees have a grace period until 1 August 2025. HR leaders should ensure salary adjustments are made accordingly and that all employees meet the new wage requirements.
The Ministry of Human Resources will issue starting salary guidelines for various sectors. For example, the starting salary for:
- Industrial and production technicians is RM2,290,
- Mechanical engineers is RM3,380, and
- Professional creative content designers is RM2,985.
Additionally, the Progressive Wage Policy (PWP) will be fully enforced in 2025 with a RM200 million allocation, benefiting 50,000 workers. HR leaders should stay informed of the PWP requirements to ensure compliance and support income growth for employees.
4. Training Opportunities for Workforce Development
HRD Corp will manage a RM3 billion fund to provide 3 million training opportunities. A special fund amounting to 15% of total levy collection will be reallocated to implement the MADANI training program, aimed at supporting vulnerable groups. HR teams should leverage these opportunities to enhance employee skills, especially for employees in high-growth industries.
5. Tax Relief for Elderly, Caregivers, and Childcare
To support employees with caregiving responsibilities, several tax relief measures have been introduced:
- Tax relief on medical examinations for parents has been extended to cover vaccination costs.
- Tax exemptions on equipment and sports activity expenses have been extended to parents.
- Tax relief for medical expenses now covers grandparents.
- The tax exemption on childcare allowances has been expanded to cover care for the elderly (parents and grandparents).
Employers providing childcare allowances will also benefit from additional tax deductions, which now extend to care for the elderly. This presents an opportunity for HR teams to consider introducing or enhancing caregiving support programs, which would not only benefit employees but also reduce taxable income for the company.
Additionally, the following tax reliefs for vulnerable groups have been introduced:
- Relief for disabled taxpayers increased to RM7,000,
- Relief for disabled spouses increased to RM6,000,
- Relief for disabled children who are not married increased to RM8,000.
6. Tax Relief for Flexible Working Arrangements and Untapped Talent Pools
To encourage flexible working, the government has introduced a 50% tax deduction for employers implementing such arrangements. This deduction applies to capacity building and software procurement costs. HR leaders should consider adopting flexible work policies to benefit from these incentives.
Furthermore, employers hiring women returning to the workforce will receive an additional tax deduction of 50% for 12 months of employment. Employers providing up to 12 months of paid care leave for employees caring for sick or disabled family members will also benefit from 50% tax deductions. This is a strong incentive for HR teams to build policies that support caregiving employees.
Additionally, SOCSO will invest RM600 million in a new rehabilitation center on the East Coast, offering comprehensive rehabilitation services until affected employees return to work. This will benefit companies in need of advanced recovery services for their employees.
7. Individual Income Tax Updates
Key changes in individual income tax include:
- Foreign Source Income (FSI) tax exemption extended until 31 December 2036.
- Tax exemptions on medical expenses (up to RM10,000) will apply under medical and health insurance products with co-payment features.
- Tax exemption on education and medical insurance premiums has been increased to RM4,000.
- A tax relief of up to RM7,000 is available for housing loan interest for agreements completed between 1 January 2025 and 31 December 2027.
Conclusion
The 2025 Budget introduces substantial changes impacting payroll, employee welfare, and workforce management. HR leaders need to stay proactive in aligning organizational policies with new tax incentives, social security requirements, and wage increases. By leveraging government-backed programs and ensuring compliance with updated regulations, HR leaders can foster a supportive and thriving workplace while benefiting from the financial incentives outlined in the budget.
This article outlines the critical updates for HR, tax, and payroll management, ensuring a smooth transition into 2025 while maximizing benefits for both employees and employers.
