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HRDF: How Malaysia Turned Employer Levies Into a National Skills Engine

HRDF: How Malaysia Turned Employer Levies Into a National Skills Engine

HRDF: How Malaysia Turned Employer Levies Into a National Skills Engine

Every country wants the same thing:

A workforce that can keep up with the economy.

But there is a problem.

Technology changes.

Industries change.

Jobs change.

And the skills people learned five or ten years ago may no longer be enough.

So who should pay for workers to continuously learn new skills?

The employee?

The employer?

The government?

Or everyone?

Malaysia’s answer was unusually structured.

It created a system in which certain employers contribute a human resource development levy, which can then support employee training and skills development.

That system eventually became what Malaysians commonly know as HRDF, and today the organisation is known as HRD Corp.

But the story is more interesting than simply:

“Companies pay a levy and get training grants.”

It is actually a decades-long attempt to solve a much bigger problem:

How do you make skills development part of the economic system rather than something companies only do when they feel like it?

Where Did HRDF Come From?

The roots of HRDF go back to the early 1990s.

Malaysia was undergoing significant economic transformation.

During the late 1980s and early 1990s, the country was moving increasingly from an agriculture-oriented economy toward manufacturing and industrial activity. HRD Corp’s historical records describe this period as one in which the changing economic structure created a growing need for a more skilled workforce.

The government responded through the Human Resources Development Act 1992.

The Act created the legal basis for imposing and collecting a human resource development levy and establishing a Human Resources Development Council. The purpose was to encourage employee training and increase the pool of skilled workers.

The Human Resources Development Council was subsequently established in 1993.

At the beginning, the focus was much narrower than today’s HRD Corp.

The initial system focused particularly on the manufacturing sector, with employers contributing to a training fund that could be used to support approved training.

In its first year, the organisation collected approximately RM55 million in levy from the manufacturing sector and introduced three training programmes.

So Who Actually Proposed HRDF?

This is where the history gets interesting.

It would be tempting to name one politician or one individual as “the founder of HRDF.”

But the evidence doesn’t support such a simple story.

The more accurate explanation is that HRDF emerged from government policy and legislation responding to Malaysia’s changing economic and labour needs.

The key legal milestone was the Human Resources Development Act 1992, followed by the establishment of HRDC in 1993.

In other words:

Economic transformation

↓

Need for more skilled workers

↓

Human Resources Development Act 1992

↓

Human Resources Development Council, 1993

↓

HRDF levy-and-grant system

This distinction matters because HRDF wasn’t simply a company initiative.

It was designed as a national workforce-development mechanism.

Why Make Employers Pay a Levy?

At first glance, the idea seems strange.

Why should a company pay money into a government-managed training system?

The logic is actually quite straightforward.

Training employees costs money.

It also costs time.

Employees have to leave their normal duties.

Production may have to be adjusted.

Managers have to plan training.

And companies may worry that after investing in someone’s skills, that employee could leave for another employer.

This creates a classic economic problem:

Everyone benefits from a more skilled workforce, but individual companies may not always have enough incentive to invest in training.

The levy system attempts to solve part of that problem by creating a dedicated pool of funding for workforce development.

The World Bank has described Malaysia’s HRDF as a mechanism designed to encourage enterprise-based training, with eligible employers contributing to the fund and receiving support for approved training.

How Does the HRD Levy System Work?

For employers covered by the current system, the levy is generally 1% of monthly wages plus fixed allowances for the mandatory category, while the optional category is generally 0.5%. Eligibility depends on the employer’s sector and other criteria.

The basic concept is:

Employer pays levy

↓

Levy is recorded

↓

Employer identifies training needs

↓

Training programme is approved

↓

Employee receives training

↓

Employer claims eligible costs

The system therefore attempts to turn training from an occasional expense into something that can be planned and financed.

What Has HRDF Actually Contributed to Malaysia?

This is where the scale becomes interesting.

HRD Corp’s 2025 financial report states that the organisation approved approximately RM2.66 billion in financial assistance for training and skills development, supporting more than 2.86 million training places.

A separate HRD Corp announcement reported RM2.62 billion in approved assistance and more than 2.8 million training places in 2025. The difference reflects reporting bases and timing, so the financial report is the better source for the final annual figure.

That’s not 2.86 million unique people.

And this distinction is important.

Training places ≠ individual workers.

One person may participate in multiple training programmes.

So it would be misleading to say:

“HRD Corp trained 2.86 million Malaysians.”

The more accurate statement is:

More than 2.86 million training places were supported in 2025.

Is the Number of Skilled Workers Actually Increasing?

This is one of the most interesting questions — and also one where we need to be careful.

There isn’t a single official statistic called:

“HRDF skill expertise increase rate.”

Training participation is easier to measure than actual improvement in someone’s expertise.

For example:

Someone attending a three-day AI course doesn’t automatically become an AI expert.

Someone receiving a welding certificate doesn’t necessarily become an experienced welder overnight.

So we should distinguish between:

Training activity

and

Actual skill improvement.

HRD Corp has recognised this challenge itself through its Training Effectiveness Evaluation (HRD-TEE) framework, which assesses learning outcomes and application after training, including an outcome assessment conducted at least six months after a course.

That’s a much more meaningful approach than simply counting certificates.

But Training Participation Has Increased

Although there isn’t a simple national “expertise increased by X%” number attributable to HRDF, the growth in training activity is measurable.

For example, HRD Corp’s 2022 annual report recorded 1,497,264 training places, compared with 566,474 in 2021 — an increase of approximately 164%. HRD Corp attributed this partly to businesses returning to normal operations after pandemic disruptions and pent-up demand for upskilling and reskilling.

By 2025, HRD Corp reported more than 2.86 million training places.

So the trend tells us something important:

Malaysia has significantly expanded the volume of structured workforce training.

But we should not automatically translate that into an equivalent percentage increase in national expertise.

Why Is This Happening?

There are several reasons.

1. Technology Is Changing Faster

AI.

Automation.

Robotics.

Cloud computing.

Cybersecurity.

Advanced manufacturing.

Digitalisation.

These technologies continuously change the skills employers need.

HRD Corp’s own earlier reporting highlighted areas such as automation, AI and IoT as increasingly important for Malaysia’s workforce.

A worker who stops learning doesn’t necessarily become less capable.

But the market can move ahead of their existing skills.

That’s the real problem.

2. Companies Need Skills Faster Than Traditional Education Can Provide Them

Formal education can take years.

Industry requirements can change in months.

This creates a gap.

Imagine a worker who graduated five years ago.

Their qualification hasn’t expired.

But the technology used in their industry may have changed dramatically.

Upskilling and reskilling provide a faster mechanism to close that gap.

That’s one reason employer-based training systems can complement universities, colleges and TVET institutions.

3. Employers Need Productivity, Not Just Certificates

From an employer’s perspective, training is useful only if it eventually improves something.

For example:

Better technical skills

→ fewer mistakes

→ less downtime

→ higher productivity

→ better quality

→ potentially higher-value work.

HRD Corp states that companies actively using its training support can potentially achieve productivity improvements of up to 3%, although this should be understood as HRD Corp’s stated value proposition rather than a guarantee for every company.

4. The Skills Gap Is No Longer Just a Malaysian Problem

This is becoming a global issue.

The World Economic Forum, governments and international organisations increasingly discuss reskilling and lifelong learning because technology is changing the nature of work.

Malaysia’s approach is therefore part of a much bigger global question:

How do we continuously upgrade millions of workers without making them leave the workforce every time technology changes?

How Does the HRD Initiative Affect Labour Skills in Malaysia?

The effect happens through several channels.

Employer-level effect

Companies have a financial mechanism to support training.

Worker-level effect

Employees gain opportunities to acquire new technical and professional skills.

Industry-level effect

Training can be aligned with actual industry requirements.

National-level effect

A more adaptable workforce can help Malaysia move toward higher-value industries.

HRD Corp’s current system includes mechanisms such as HRD Corp Claimable Courses, training assistance, industrial training, recognition of prior learning and on-the-job training.

This matters because not every useful skill is acquired inside a classroom.

And This Is Where Things Get More Interesting: National Training Week

If you’ve ever wondered:

“Is National Training Week part of HRDF?”

The answer is essentially:

Yes — but with an important distinction.

National Training Week (NTW) is organised by HRD Corp under the Ministry of Human Resources (KESUMA).

It isn’t simply the same thing as the employer HRD levy system.

NTW is a nationwide learning initiative, offering free training and learning opportunities to people from different backgrounds.

HRD Corp describes NTW as one of its flagship activities.

In 2025, NTW targeted 1 million learners, with a target of 70,000 training programmes and 1,000 high-impact activities.

So think of it this way:

HRD levy system

Employer → levy → training support

National Training Week

Public → free learning opportunities → lifelong learning

They are connected through HRD Corp, but they serve somewhat different mechanisms and audiences.

Does NTW Benefit People Who Don’t Work for HRD-Registered Companies?

This is one of the biggest differences.

The traditional levy-grant mechanism is largely connected to eligible registered employers and their employees.

NTW is designed to make training opportunities much more accessible to the broader public.

HRD Corp describes NTW as providing free learning and development opportunities for people from different backgrounds and industries.

That’s an important evolution.

The original philosophy was largely:

Train the employee.

The newer direction is increasingly:

Build a culture of lifelong learning.

Could Other Countries Copy Malaysia’s Model?

Yes — but they shouldn’t copy it blindly.

The underlying idea is highly transferable:

Create a mechanism that makes employers financially responsible for continuous workforce development while giving them a way to recover or access training support.

The World Bank has studied Malaysia’s HRDF as an example of a levy-based training system designed to encourage enterprise training.

But the exact Malaysian model may not work equally well everywhere.

Why?

Because every country has different:

* Labour markets

* Tax systems

* Company structures

* Education systems

* Industry composition

* Government capacity

* Training-provider quality

* Employer participation

* Administrative systems

What Would Another Country Need to Get Right?

If another country wanted to introduce something similar, I would argue that five things matter more than simply creating a levy.

1. Industry Must Have a Voice

Training should reflect what employers actually need.

Not what training providers think employers need.

2. The System Must Be Easy to Use

If employers have to complete enormous amounts of paperwork for a relatively small training claim, participation will fall.

3. Training Quality Must Be Measured

A country shouldn’t celebrate:

“10 million training seats!”

if nobody checks whether people actually learned anything.

That’s why post-training outcome measurement is important.

HRD Corp’s HRD-TEE approach is an example of moving beyond attendance toward learning and application outcomes.

4. Training Must Follow the Economy

If the economy is moving toward:

AI + automation + advanced manufacturing

but training funds mainly support outdated skills, the system becomes a bureaucracy rather than an economic engine.

5. Access Should Eventually Go Beyond Large Companies

This is perhaps one of the biggest challenges.

Large companies generally have HR departments, training budgets and resources.

Small businesses may not.

That’s why programmes such as Program Latihan Madani have attempted to expand training opportunities to micro-SMEs and communities including persons with disabilities, senior citizens, retirees and B40 communities.

That kind of expansion is important if skills development is genuinely supposed to benefit the whole country.

The Hidden Question: Is HRDF Actually Improving Malaysia?

The honest answer is:

It has clearly expanded the scale and financing of workforce training, but measuring its ultimate effect on national productivity and worker expertise is more complicated.

The numbers are impressive.

In 2024, HRD Corp reported RM1.99 billion in levy claims disbursed through various schemes, representing a 31% increase from RM1.52 billion in 2023.

In 2025, more than RM2.86 billion in financial assistance was reported in HRD Corp’s financial reporting, supporting more than 2.86 million training places.

But money spent and courses attended are inputs and outputs.

The real question is:

Did workers become better at their jobs?

Did their wages increase?

Did companies become more productive?

Did Malaysia move workers into higher-value occupations?

Did training reduce actual skills shortages?

Those are harder questions — and they are the questions that ultimately determine whether a national training system is truly successful.

What Malaysia Gets Right About the Concept

Perhaps the biggest strength of the Malaysian model is the idea that skills development shouldn’t be treated as a one-time event.

A person doesn’t finish university and suddenly become “fully skilled” for the next 40 years.

A technician may need automation skills.

A manager may need data literacy.

A designer may need AI tools.

An accountant may need digital systems.

A factory worker may need robotics knowledge.

A facility professional may need energy-management skills.

And tomorrow, all of them may need something completely different.

That’s why the future of workforce development is increasingly about:

Lifelong learning.

Final Verdict

Malaysia’s HRDF didn’t begin as a flashy technology initiative.

It began in response to a very practical economic problem:

Malaysia needed companies to invest more systematically in developing their workforce.

The Human Resources Development Act 1992 provided the legal foundation, HRDC was established in 1993, and the levy-and-grant mechanism evolved over decades.

Today, HRD Corp has expanded far beyond its original manufacturing-focused role.

It now supports a much broader ecosystem of:

Upskilling

Reskilling

TVET

Industry training

Community skills development

Lifelong learning

National Training Week

and increasingly, future-oriented skills.

The most important lesson for other countries may not be:

“Copy Malaysia’s HRDF.”

It may be:

“Build a system where government, employers and workers all have a reason to keep investing in skills.”

Because the countries that succeed in the future may not necessarily be those with the most educated workforce today.

They may be the countries whose workers can learn, unlearn and relearn the fastest.

⭐ ZFRBuild Quick Take

HRDF was never really about collecting a levy.

The levy is only the mechanism.

The bigger idea is to create a workforce-development cycle:

Industry needs skills

↓

Employers invest

↓

Workers train

↓

Skills improve

↓

Productivity and employability can improve

↓

Industry becomes more competitive

↓

New skills are needed

↓

The cycle starts again

And perhaps that’s the most interesting thing about HRDF:

It is not really a training programme.

It is an attempt to make learning part of the country’s economic infrastructure.

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