HRDF in Malaysia: Purpose, Benefits, and Compliance Guide

What is HRDF in Malaysia?

The HRDF (Human Resources Development Fund) in Malaysia is a specialized fund committed to fostering and advancing human resource development nationwide. Operated by HRD Corp under the Malaysian Ministry of Human Resources, its core objective is to furnish financial aid to employers, facilitating training and skill development initiatives for their workforce, thereby effectively addressing performance gaps among employees.

Benefits of HRDF

For Businesses:

• Empowering Business Growth and Development: The HRDF plays a pivotal role in empowering businesses through the enhancement of their workforce's skills and knowledge. This directly contributes to organizational growth and development, as a well-trained workforce is better equipped to navigate challenges and accomplish strategic objectives.
• Financial Incentives and Grants for Registered Employers: Registered businesses with the HRDF gain access to valuable financial incentives and grants designed to alleviate the costs associated with training and development initiatives. These incentives serve to ease the financial burden of upskilling employees, thereby fostering a culture of continuous learning within the organization.
• Ensuring Compliance with the Employment Act 1955: Adhering to HRDF requirements ensures that businesses fulfill their obligations under the Employment Act 1955. This legislation mandates that employers provide opportunities for employee training and development, underscoring the importance of HRDF compliance in promoting a supportive and conducive working environment.

For HR Leaders:

• Opportunities for Professional Development and Upskilling: HR professionals, especially those overseeing talent development, find valuable opportunities for their own growth and upskilling through the HRDF. This supports their expertise in various Human Resource management areas.
• Enhancing HR Practices and Capabilities: Access to the HRDF enables HR leaders to enhance their department's practices and capabilities, aligning them with global standards. This strengthens the organization's overall Human Resource management effectiveness.
• Promoting a Culture of Continuous Learning Within the Organization: HR leaders leverage the HRDF to instill a culture of continuous learning within their organization. This fosters an environment where employees are encouraged to constantly acquire new skills and knowledge, ultimately boosting workforce productivity.

For Employees:

• Career Development and Enhanced Employability: Participation in HRDF-sponsored training programs propels employees towards personal career advancement and increased employability. Through acquiring new skills and knowledge, they augment their value both to their employers and the broader job market.
• Improved Work Satisfaction: Access to learning and growth opportunities fosters higher levels of job satisfaction among employees. Feeling valued by their employers and empowered to shape their career trajectories contributes to a more fulfilling work experience.
• Enhanced Job Security: Engagement in HRDF programs for learning and upskilling bolsters job security by equipping employees to adapt to evolving job market demands. This adaptability makes them more resilient and valuable assets within their organizations.

The Rate of the Human Resources Development Fund (HRDF) Levy

The Human Resources Development Fund (HRDF) levy is mandatory for Employers with 10 or more Malaysian employees. It is levied at a rate of 1 percent of the monthly wages (inclusive of total wages or basic salaries + fixed allowances) for each Malaysian employee.

Employers with 5 to 9 Malaysian employees have the option to register with HRDF to access its programs, and they are subject to a levy of 0.5 percent of the monthly wages (inclusive of total wages or basic salaries + fixed allowances) for each Malaysian employee.

Human Resources Development Fund (HRDF) Levy Calculation

The HRDF Levy is calculated as follows: HRDF Levy % x (Basic Salary + Fixed Allowances)

The calculation of the HRDF levy is based on the Basic Salary and Fixed Allowances of Malaysian employees, excluding the following:

• Overtime
• Variable Allowances, Traveling/Mileage Allowance, Transport Allowance, Parking Allowance, Petrol Allowance
• Bonus
• Commission
• Incentive

For Basic Salary calculation, deductions are made for Unpaid Leave, Absences, and Lateness. Additionally, Arrears Increment, Arrears, Backpay Salary, Paid Leave/Add Pay, and Leave Encashment (if any) are included in the calculation.

Who Is Eligible To Register With HRDF?

As of 1 March 2021, HRDF has been expanded to include ALL INDUSTIRES. It is compulsory for businesses with 10 or more Malaysian employees to register, whereas registration is optional for companies with five to nine Malaysian employees.

However, there are several organizations exempted from HRDF registration, including:

• Federal statutory bodies
• Local councils
• NGOs associated with welfare activities
• State Government

Consequences Of Failing to Complete the HRDF Registration Process

According to Section 13(1) of the PSMB Act 2001, every Malaysian employer falling under the Act's jurisdiction must register with HRD Corporation. Failure to comply may result in the following penalties:

• A fine of up to RM10,000
• Imprisonment for a maximum period of 1 year
• Both of the aforementioned penalties

Additionally, HRDF payments are due by the 15th of the month. Failure to submit payment by this deadline may result in:

• A fine (not exceeding RM20,000), imprisonment (not exceeding two years), or both
• A yearly interest of 10% for each day the payment is delayed

How To Make HRDF Levy Payment?

After obtaining your User ID and password for the eTris system, you will also receive an email stating your liability date for the levy payment. Payment is made on the eTris website and the payment methods available are FPX and JomPay.

The HRDF Registration Process in Malaysia

Step 1:
Register on the HRD website.

Step 2:
Make sure that you have scanned all the related documents. You can download the checklist.

Step 3:
Fill in the employer integrity pledge.

Step 4:
Once you have prepared all the supporting documents. Submit the Form 1 on the HRD website. The approval process will take 7 working days. The approval letter will be sent via email along with the user ID and password to login into the E-Tris system.

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