HRDF Funding of training – the Malaysian employees’ perspective

Posted on: June 20, 2014, by :
Commentary Employee's Benefits, HRDF, PSMB, Training

This is the unedited version of an article published as “Fairer disbursement of HRDF grant sorely needed” in Focus Malaysia on July 06, 2013, written by Dr. YN Chow under his moniker of Plantcloner. He  thinks that a boss who says, “our people is our greatest asset” or words to that effect must be prepared to put his/her  money where his/her mouths is and invest accordingly and do so on a regular basis.


Up-skilling, re-skilling, cross-skilling are the buzzwords these days in the corporate learning and training circle.

To ensure that Malaysia’s goal of attaining developed nation status is achieved by 2020, the Perbadanan Sumber Manusia Berhad Act (PSMB Act) was enacted in 1993 and revised in 2001. Thus PSMB, a corporatized government agency was formed.

PSMB Act enactment was followed by the formation of Human Resource Development Fund (HRDF) where manufacturing and service industries in Malaysia were mandated to contribute 1% of their payroll per month into the HRDF.  The idea was for HRDF to provide training grants from the levy for the purpose to training of employees of contributors.

The collection of levy by HRDF has been very successful, it has been reported in December 2012 that RM3.96 billions had been collected with RM3.21 billions disbursed since HRDF’s inception where utilization of the fund was at 80%.

One should ask how effective has the distribution of HRDF grant in improving the human capital of Malaysia been? Who actually calls the shots when it comes to the spending of the grant: the employer or the employees?

In fact there are more to those statistics published by PSMB in its annual reports that meet the eyes.

For starters, if the objective of HRDF is to ensure that Malaysians are continuously up-skilling, cross-skilling and re-skilling themselves, why would there be no provision for employees having any say in the utilization of HRDF grant?

A case in point, in 2009 when I was serving in a corporatized-state-owned entity, a conference on entrepreneurship in institutions of higher learning attracted my attention. The conference fees was only RM900 for this 2 days event. It was an event that would be attended by the “Who’s Who” of industries, higher learning institutions and regulatory bodies. The networking and learning potential of this event were great, especially for a practitioner in the higher education sector. My superior, instead of attending this event with me, went on to disallow the use of HRDF grant to pay for my conference fees. By then, the HRDF levy paid by my company and attributable to me was more than RM1,500. Later from the grapevine I heard that my superior went for a RM19,000-per-person, one week “senior management residential course” by an Ivy League university’s professors paid for by the company. Of course not privy to the company’s HRDF account I was in no position to say if any HRDF grant was given for this event.  A quick calculation would reveal that for an employee to have RM19,000 attributed to his/her payroll contribution to HRDF’s levy, he/she would have to be paid RM1.9 million in annual salary. In my case, I had the last laugh as I was invited by the organizers of the conference to deliver a paper and was given a complimentary ticket. However, not many employees had means and ways like me to find “alternative funding” to attend training or conferences to improve on our knowledge and skills, as was intended by the HRDF grant.

There were many cases of abnormal use of HRDF grant that have been uncovered, but it is beyond the scope of this article.

The crux of the matter is, both the administrator and the employers seem to view the HRDF levy and grant as “belonging” to the employers. It seems that the objective of the PSMB Act for employees to get their training (and hence up-skill, re-skill and cross-skill themselves) is incidental in this context. In fact, the “spending” of HRDF grant is fully decided by the employers. Employers also have the sole discretion on who among their staff is to benefit from the HRDF grant.

Thus for the benefits of the employees, in whose names that annual RM360 million or so contributions to HRDF is made, some changes to the status quo must be seriously considered by the power-that-be.

I have two suggestions that are complementary in their effects in fulfilling the objective of HRDF.

Firstly, it would be easy for PSMB to implement an audit whereby all Malaysian employees of HRDF levy contributing employers shall get at least 1 training spent on them every 24 months. This will mandate employers to plan the spending of the grant to fulfil this obligation. Thus posh retreats and Ivy League universities’ “senior executive programmes” will not be easily charged to the grant. PSMB should also put an upper limit to what employers could claim for an individual employee and take away all those luxurious programmes from their approved list. Implementation of this suggestion will require only minor tweaks to the existing PSMB system.

My second and most equitable suggestion, as far as the employees are concerned, is in splitting the disbursement of HRDF grant into two equal portions. The “Employer’s Portion” should be used for training and related programmes at the sole discretion of the employer. PSMB can also make it compulsory for employers to use this portion for mandatory certification and licensing programmes for their employees. The “Employee’s Portion” should be used for training at the sole discretion of the employee. This means that, like the Employee Provident Fund (EPF), all Malaysian employees should have individual “PSMB Accounts”. Levy/grant contributed to the employee’s account shall stay with the person if he/she  changes job. PSMB has already a good selection of approved programmes which could easily be made more “affordable” to employees. With the larger number of learners, PSMB can even organise these training programmes or seek volume discount from providers to reduce the course fees to further benefit employees. One of the main disadvantages of this suggestion is the extra administrative work involved, but since the current HRDF system already entailed having the individual employee’s name in the accompanied document when HRDF grant is disbursed, apportioning this levy to the respective “PSMB Accounts” is just a matter of a few extra clicks at the computer keyboard. A quick calculation tells me that if this system were to be in place for employees earning RM5,000 per month, in 10 years, their “PSMB Accounts” will each have a balance of RM3,000.

PSMB reported having over 13,300 contributing employers in 2012, and out of about RM360 million levy collected, RM288 million was disbursed as grants to employers. Each year about 20% of the levy collected, or about RM72 million remained “unspent”. I suggest that the “unspent” levy should be disbursed to all the employees’ “PSMB Accounts”.

To realize our nation’s quest for developed nationhood, we need more than just 13,300 business establishments to contribute to the HRDF. SME Corp’s 2011 economic census showed that there were 645,000 SMEs, 94% of which were in the manufacturing and service sector, and SME accounted for 97.3% of all business establishments in Malaysia. By a simple calculation, we can see that out of about 663,000 business establishments in Malaysia PSMB has only recruited just about 2% of them to contribute to HRDF. This  is not an achievement to brag about!

PSMB Act defines an employee as, any citizen of Malaysia who is employed for wages under a contract of service with an employer, irrespective of whether they are permanent, part-time or on contract, but does not include any domestic servant“. This definition  means that if you have less than 10 Malaysians supervising 100 foreign workers in your factory or your service business, you are not obliged to contribute to HRDF. Could this be the reason for the low registration of business establishments with PSMB? If each of these 650,000 “escapees” of the HRDF levy has only 2 Malaysian employees, we are seeing over  1.3  million workers not receiving the benefits of the PSMB Act.  I think PSMB needs to do something to reconcile this and do so fast.

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