Conversations with the training provider community indicate support for the imposition of the service fee, with the primary rationale being a need for the Human Resources Development Fund (HRDF) to be adequately resourced to both handle its vastly increased levy collection mandate, as well as expanded and improved service delivery, in the years to come. 

At this juncture, the training provider community is by and large amenable to absorbing the 4% service fee on its end, in exchange for improved access to a much larger pool of employers seeking HRDF-approved training programmes. 

According to Johan Irwan Kamarozaman, president of the Malaysian Association of Professional Speakers (MAPS), while members took some time to come around, they eventually came on board once they attended engagement sessions with the HRDF.

“The HRDF invited a number of training associations to a session on the service fee. The agency spoke to us about the eight value propositions that it wanted to develop for the training provider community, and that the value propositions would require some funding to bring to fruition,” he says.

Meanwhile, Sunil Hasmukharay of the Malaysian Association of Professional Trainers and Coaches (MAPTAC) says while there was some initial concern about the service fee, the HRDF went to great lengths to explain its position and justify the need for it. 

“The HRDF has been very willing to listen to our concerns and explore various solutions to help training providers survive in these difficult times. Specifically, the eight value propositions that the HRDF drafted give us hope that there would be more opportunities in the long run for the training provider community. 

“While the broad timeline for delivery of these value propositions has been pegged at six months to a year, I am curious to know about the delivery timeline for each of the eight value propositions. Seeing as we are all going to be paying this service fee, we would like to know exactly when these benefits are going to come our way.” 

Malaysian Employers Federation (MEF) executive director Datuk Shamsuddin Bardan is also receptive to the imposition of the service fee, but he calls for much more active engagement between the HRDF and employers at large. The MEF is one of a number of employer-related business associations with a seat on the HRDF board of directors. 

“In principle, we are not objecting to the 4% service fee imposed on training providers. We see this as part of the cost of doing business, since the HRDF is about to extend its levy collection mandate. We project a levy collection of closer to RM5 billion annually once the expanded mandate goes into effect. 

“This is a far bigger pool of funds that the training provider community will have to rely on. It certainly dwarfs anything that it has access to now.”

Meanwhile, Koong Lin Loong, who is small and medium enterprise (SME) committee chairman at the Associated Chinese Chambers of Commerce and Industry Malaysia (ACCCIM), says his organisation is opposed to the imposition of the service fee. 

The same can also be said for the SME Association of Malaysia, with national president Chin Chee Seong saying his organisation needs specific assurances from the HRDF that the service fee would not be passed on to employers in any form.

“We are concerned that this service fee will come with additional and unnecessary implementation processes, but more importantly, that it will end up being passed on to levy contributors. We don’t want to be saddled with any unnecessary costs in this very challenging economic environment,” Koong says. 

At the moment, training providers are required to adhere to two sets of price ceilings. The first is a maximum price they are allowed to charge for HRDF-approved training programmes. The second is an upper limit on expenses that trainers are allowed to claim from the HRDF. This would refer to things such as venue costs, materials and refreshments provided in the training programmes. 

While the price ceilings on the training programmes are well entrenched, the expense limits, on the other hand, are presently undergoing an upward revision of between 5% and 7%, according to HRDF chief operating officer Ariff Farhan Doss. He cites a decade-long lull in the review of the schedule of allowable expenses as being the reason for the upward revision. 

To be clear, the revision has not yet been finalised at press time, with Ariff adding that discussions are ongoing.

“At present, some of these costs may be refunded out of the levy collection, while some could be reimbursed using government-allocated funds,” he says.

Under these circumstances, the worry is that the 4% service fee will be passed on to employers in the form of higher overall expense claims, at least a portion of which is reimbursed using funds from the levy collection. 

“While we are in discussions to approve higher allowable expenses, we have also cautioned training providers that these expenses cannot be transferred wholesale to the employers,” Ariff says. 

For his part, he notes that the HRDF and employers have thrashed out a preliminary, twofold understanding on the allowable expenses issue. 

“The employers have told us that they would not object to the service fee being imposed on two grounds: first, that all allowable costs are run through the employers for initial approval, before being reimbursed. Second, any cost increase that does end up being finalised comes with a commensurate increase in the quality of the training.”

The net effect of all this, he explains, is that where training providers previously used to make roughly 35% to 40% in profits, those margins will now be offset to some extent by the service fee. Ariff stresses that the service fee will not be passed on to the employers in any way. 

The SME Association, ACCCIM and MEF have seats on the HRDF board of directors. At present, the private sector represents a minority voice on the board, which is dominated by a combination of government officials, politicians and politically-linked individuals.

Ultimately, the twin issues of the service fee and levy collection mandate give rise to a broader question: Do government agencies have a responsibility to live within their means and not look to the private sector, even when the opportunity arises?

Training providers, like much of the private economy, have been hit hard over the last year. Conversations with the training industry indicate that most are unlikely to have been able to run their regular, in-person training programmes, while many have struggled to adapt these in-person and often highly interactive sessions to a strictly online format. 

The Human Resources Development Fund (HRDF) is about to dip into the supply-side of the broad training ecosystem for the service fee, while drastically expanding its levy collection mandate from employers at large. All of this is taking place at a time when the entire economy is still reeling from the effects of the pandemic. If nothing else, the optics are not particularly flattering.

In fact, HRDF chief operating officer Ariff Farhan Doss seems to indicate that the service fee might not even be sufficient for the full depth and breadth of the initiatives that the HRDF intends to roll out. This refers to the eight value propositions (see chart on previous page) that the agency presented to the training provider community recently. 

Amid a protracted discussion with Digital Edge on the merits of the quality assurance portion of the eight value propositions, Ariff has this to say: “It is only going to be partly covered by the 4% service fee. It is not going to be enough. We will still have to look for other ways to raise income, including proposing new initiatives to the government, and hoping that we can include a certain amount for our operations as well with these new initiatives. Relying on the service fee alone is not going to help us, simply because the amount of investment income we used to get from levy collections cannot be fully offset by the service fee.”

Ariff is referring to the investment income that the HRDF receives by parking its substantial levy collections in low-risk money market funds. He expects a threefold increase in the agency’s annual levy collection over the next few years, as this expanded levy collection mandate covers much of the private economy. According to the latest available figures from the HRDF’s 2019 annual report, the agency collected a little under RM900 million in levies that year. 

Ariff appears to suggest that the agency will only collect a threefold increase based on lower levy collection watermarks of previous years, citing RM600 million to RM700 million as a possible benchmark. 

However, Datuk Shamsuddin Bardan, executive director of the Malaysian Employers Federation (MEF), suggests that levy collections could in fact be as high as RM5 billion annually.

In any event, Ariff notes that in addition to the six-month freeze in levy collection last year, the agency’s investment income took a further hit owing to the two-time reduction in the overnight policy rate (OPR), which brought Malaysia’s OPR to an all-time low of 1.75%. 

Nonetheless, this expanded collection mandate will likely yield a tidy annual investment income going forward, even in the prevailing low interest rate environment. 

For his part, Ariff points to the HRDF’s soon-to-be expanded role in the country’s human capital development agenda, and cites a need for additional manpower and other resources to effectively roll out the agency’s various policy proposals. 

Ariff says the agency will not be able to act on its expanded roles and responsibilities without an initial cost outlay, and this outlay might not be covered by its annual investment income in the prevailing interest rate environment. 

Meanwhile, checks by Digital Edge on money market funds from four leading local fund houses indicate that, even with the double OPR adjustment in 2020, all four funds still secured one-year returns in excess of 2%. The funds also saw three-year returns in the high single digits. 

Even if the OPR persists at its historic low throughout 2021, these numbers are nothing to scoff at when taking into account the levy collection windfall that the HRDF is about to come into. 

The HRDF’s investment income would likely increase in time, as the economy gradually recovers and as Bank Negara Malaysia eventually raises the OPR. 

Given that the HRDF prioritises its levy-paying stakeholders, there is an argument to be made for the agency to tighten its belt in these difficult times, holding off on expansion plans, just as its stakeholders have had to do over the past year. 

Ariff concludes: “The idea that we reduce our services so that we reduce our costs [amid the low interest-rate environment] is not tenable. We at the HRDF are expected to maintain certain standards. This administration expects much more from us than the previous regime.”