Are You Overpaying HRDF Contributions? Common Errors Made By Malaysian Employers

A payroll manager looked at her HRD Corp statement with growing worry. The company had paid HRDF for years… but after a quick employee count, she found something alarming:  They paid too much every month — even for workers who didn’t qualify.  This wasn’t on purpose. It wasn’t sloppy. It’s just what happens when companies use old payroll forms outdated groupings, and think “everything’s right.”  Farah’s case isn’t special. All over Malaysia, lots of small and medium-sized businesses lose money each month due to HRDF mistakes — cash that could have gone to training, hiring, or growing their business.  This is the true tale of HRDF overpayments — and more how you can put a stop to it. 

So First — What Is HRDF Contribution? 

HRDF now called HRD Corp, is a must-pay fee for employers in certain sectors. This money helps train workers under approved programs letting companies get back what they spend on training.  But knowing who has to pay is crucial:  Who needs to chip in?  Companies in manufacturing, services, and mining & quarrying with 10 or more Malaysian employees must sign up and pay.  Who can join if they want?  Companies with 5–9 Malaysian employees can sign up on their own if they choose.  How much do you pay to HRDF?  You pay 1% of each Malaysian employee’s monthly wages.  Easy to understand — but not as easy as you might think. Because every time you put someone in the wrong group count wrong, or miss something, you end up paying more than you should. 

The Mistakes You Don’t See That Make You Pay Too Much to HRDF 

Farah didn’t uncover her finding due to one big error. Instead, it stemmed from five minor oversights that many businesses repeat without realizing the price they pay.  This is where numerous Malaysian SMEs lose thousands.

1. Counting Employees Who Shouldn’t Count 

This happens when HR teams hurry through payroll updates, or when job roles lack clear documentation.  These groups don’t count for HRDF levy: 

• Foreign employees 

• Workers hired through outsourcing agencies 

• Interns and trainees without employment contracts 

• Freelancers or part-timers working under project terms 

Just one wrong classification in a mid-size company can increase contributions over a year. 

2. Overlooking HRDF Exemption Periods — the 2021 Exemption 

During the pandemic, HRD Corp rolled out levy exemptions to help employers. Yet many companies: 

• Kept paying because they were unaware 

• Didn’t update the levy status 

• Never asked for refunds for extra payments 

Even now, employers miss new circulars that grant temporary exemptions or change sector classifications. Once an exemption is missed, that money is gone for good. 

3. Failing to Update Headcount When Staff Numbers Drop

A business with 10 eligible workers must pay in. But what if that number falls to 9?  It becomes a choice again — unless the company chose to opt in on its own.  Many small and medium enterprises keep paying because they don’t update payroll templates after staff leave, get laid off, or the company restructures.  During a six-month slump, the company had 7 Malaysian workers — but they paid the full levy all year.

4. Not Canceling Registration When the Business Switches Industries or Shuts Down 

HRD Corp groups businesses by activity codes. When a company moves to a non-leviable sector (which often happens during post-pandemic reshaping), bosses need to tell HRD Corp.  Most don’t.  Meanwhile, HRDF takes money each month without anyone noticing.  In the same way, companies that shut down or join with others also forget to cancel their registration — this leads to unneeded levy payments that they can’t get back unless they catch it. 

5. Not Using HRDF Claimable Training 

This could be the biggest waste of all.  Some companies pay their dues — but never ask for anything back.  This results in: 

• No reimbursements for training 

• Money just sitting in HRD Corp 

• Getting nothing back on what you put in 

Programs like  SBL-Khas, Penjana HRDF, and others allow you to get your training expenses back — if you understand the process.  HRDF contributions aren’t like taxes. They’re money your company can get back by developing employees — but if you turn in claims on time and pick training providers that HRD Corp approves.  Not doing this is like paying for a gym membership and never going — you’re out the money, but you get nothing from it. 

Quick Look at HRDF Overpayment Risks 

Issue	What Happens	Financial Impact
Misclassifying employees	Levy paid for staff who aren’t eligible	Unnecessary monthly deductions
Missing exemption periods	Company continues paying when it shouldn’t	Large cumulative losses
Not updating headcount	Levy continues despite falling below threshold	Overpayment for months or years
Not deregistering	HRD Corp continues charging levies	Long-term leakage
Not claiming training funds	Money remains unused	Zero ROI on contributions

How Companies Can Stop Overpaying — Starting Now 

Farah found a simple fix. She looked at three areas: 

• Contribution setup — checking which workers owed money 

• Business registration status — looking up eligibility on HRD Corp’s website 

• Payroll system accuracy — making sure the math for required payments was right 

After fixing these, her company’s required payment fell by 40%. She also asked for money back for overpaying last year — HRD Corp said yes.  Here’s what every boss should do: 

• Look over who needs to pay every three months 

People come and go, and business changes — your HRDF status might change too. 

• Make sure your payroll system does the math right 

A new HRMS like Info-Tech does HRDF math for you and stops mistakes that happen in Excel. 

• Keep up with HRD Corp notices 

Rules change often. Waivers won’t help if you’re unaware they exist. 

• Ask for training refunds 

You’ve already paid — make sure your staff gets the benefits. 

Closing Thoughts 

Most companies don’t pay too much to HRDF because they’re careless. They end up paying extra when rules change, payroll staff get swamped, and tech can’t keep pace.  But as Farah found out, one audit can uncover thousands of ringgit in contributions you don’t need to make — cash your business should hold onto.  The right HR &  Accounting Software helps Malaysian employers: 

• Figure out HRDF amounts 

• Stay on top of contribution changes 

• Create levy reports 

• Handle HRDF grant claims without a hitch 

Cutting out overpayments isn’t just about following rules — it’s about managing money .  Want to make HRDF, payroll, and compliance run? Schedule A Demo Today.

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