Business News

Saturday, 6 February 2016

Manufacturers to be badly affected

THE hike in the levy on foreign workers will bite hard into manufacturing companies, as 33% of their workforce comprise foreign workers.

The 100% increase in the levy to RM2,500 per worker will be an extra burden, especially on companies that pay for the levies and have to face an increase in the minimum wage to RM1,000 a month from July this year.

The Federation of Malaysian Manufacturers (FMM) in a statement says the segment of the manufacturing sector that is most vulnerable to the levy hike would be companies which are labour intensive and rely on large numbers of foreign workers.

FMM says it has received feedback from its members that some are facing difficulties in recruiting foreign workers due to the weakened ringgit.

“The levy increase would aggravate the manpower supply situation,” it says.

“Segments which are most vulnerable would be companies which are labour intensive and use large numbers of foreign workers.”

When the levy burden is shifted back to the employers, foreign workers may continue to work in Malaysia, as it would be akin to receiving an RM2,500 increase per annum in wages, in addition to the increase in the minimum wage.

Who will be the most affected?

Employers who pay the levy for their foreign workers in full will be the most affected. However, there are also companies which share the levy cost with the foreign workers, paying a portion of it.

“Employers who currently do not pay the levy could be faced with foreign workers asking for higher pay or running away to companies with better remuneration terms, including working in other countries, given that the weaker ringgit has also effectively reduced foreign workers’ take-home pay,” says FMM.

The other problem from acceding to demands for higher wages by foreign workers is the knock-on effect from the locals requesting for higher pay if employers increase foreign workers’ pay due to the new levy burden.

“Labour contractors may also charge higher fees for outsourced services and suppliers may raise prices to pass on the levy hike rates to their customers (manufacturers),” says FMM.

However, with the implementation of the minimum wage of RM1,000, employers will be allowed to deduct the levy payment from their workers’ wages.

For the services sector, the increase in the levy to RM2,500 a month, also a 100% hike, would depend on the number of foreign workers employed by a business.

Public-listed companies that are involved in the services sector do not seem to be significantly affected by the levy hike.

For example, Berjaya Food Bhd (BFood), which operates food and beverage brands like Starbucks Coffee and Kenny Rogers Roasters, does not have any foreign workers in its workforce. Therefore, the foreign worker levy hike will not affect its earnings.

BFood chief executive officer Datuk Francis Lee says the group will continue hiring locals for its workforce.

As for the Sunway Group, foreign workers make up a small percentage of the group’s retail arm workforce.

“For the services sector, the only foreign workers Sunway Group hires are security guards, which make up a small percentage of the overall workforce.

“Thus, the foreign worker levy hike is of a negligible amount to the group’s earnings.

“Most of Sunway Group’s employees are locals,” said Sunway Bhd chief financial officer Chong Chang Choong.

Privately-held businesses that are service-centric are facing the brunt of the levy hike.

This is because they are operating on thin margins and a lower capital base as compared to public-listed companies.

Security guard services provider Sasa Security Services Sdn Bhd has a foreign workforce of 350 security guards from Nepal.

Its CFO Muhammad Azfar Abdul Razak says that the foreign worker levy hike will largely impact the company’s earnings, as it will fully absorb the cost of the levies.

Tags / Keywords: Foreign worker levy hike , services , manufacturing , fmm

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