In a major policy update affecting employers nationwide, the Human Resource Development Corporation (HRD Corp) has announced an increase in the mandatory levy contribution rate. Effective from the August 2025 salary (for the September 2025 contribution month), the mandatory levy rate will be raised from the current 1.0% to 1.5% of the employee’s monthly salary.

This change was announced as part of a government initiative to enhance the quality of employee upskilling programs and to fund higher-impact training in line with Malaysia’s economic development goals. For employers, this means an imminent increase in operational costs and an urgent need to update payroll systems.

Key Details of the New HRDC Levy Rate

Here is a breakdown of what you need to know about this significant change:

• New Mandatory Rate: 1.5% of the monthly salary of each Malaysian employee.
• Previous Rate: 1.0%
• Effective Date: The new rate applies starting from the salary paid for August 2025.
• Salary Calculation Base: The levy is calculated based on the employee’s basic salary plus any fixed allowances.

Who is Affected by This Change?

This policy adjustment primarily concerns employers registered under the HRD Corp scheme. It’s a good time to refresh our memory on who is required to contribute:

• Mandatory Registration: All employers in Malaysia with 10 or more Malaysian employees are required to register with HRD Corp and contribute the levy every month.
• Voluntary Registration: Employers with 5 to 9 Malaysian employees have the option to register voluntarily. If they do, they will also be subject to the new 1.5% rate.

What Employers Must Do Now: An Action Plan

With the effective date just over a month away, businesses must act promptly to ensure a smooth transition and continued compliance.

1. Update Your Budget: Immediately review your company’s operational budget for the second half of 2025 and for 2026 to account for this 0.5% increase in payroll-related costs.
2. Adjust Your Payroll System: This is the most critical action. Your payroll software or calculation method must be updated to use the new 1.5% rate for the August 2025 salary cycle. Incorrect calculations can lead to arrears and potential penalties.
3. Maximize Your Levy Utilization: With higher contributions, it is more important than ever to fully utilize your HRDC funds. Proactively plan for employee training and upskilling programs to claim back your contributions and enhance your team’s capabilities.

How SMONE Can Help You Stay Compliant

Ensuring your payroll system is updated to reflect these regulatory changes is crucial. An incorrect levy calculation, even if unintentional, can lead to compliance issues down the line.

SMONE’s Payroll & HR Compliance service ensures that your company always adheres to the latest regulations from HRDC, EPF, SOCSO, and LHDN. We can help you adjust your payroll process seamlessly to accommodate this new rate, giving you peace of mind.

Contact us today for a review of your payroll compliance and let us handle the complexities, so you can focus on leading your team.

(Disclaimer)

This article is for general informational purposes and is based on recent announcements. It does not constitute legal or financial advice. Please refer to official circulars from HRD Corp or consult with a professional for advice on your specific situation.