The Development and Transformation of Human Resources in Malaysia

History of Human Resources (HR) in Malaysia

Since the early 1900s, Human Resource Management (HRM) has experienced major changes, evolving through a few distinct periods in response to the changes in working conditions and organizational demands. Each phase highlights HR professionals' changing priorities and broadening responsibilities, demonstrating how HR has progressed from simple administrative tasks to becoming a strategic business partner.

Era 1950s

The development of Human Resources (HR) in Malaysia can be traced back to the mid-20th century, during British colonial rule in Malaya, long before the country gained independence on 31st August 1957. This period marked the early stages of formal HR practices, which evolved alongside the country’s economic and social transformations. A significant milestone in this evolution was the introduction of the Employment Act of 1955, Malaysia's first employment legislation, which aligned with the government’s development initiatives. These initiatives included the Rancangan Malaya Pertama (1956–1960), the first economic development plan of the Federation of Malaya, which laid the groundwork for shaping the nation’s workforce strategies and HR policies.

Over time, the evolution of HR in Malaysia was deeply influenced by the country's development plans, both during the Malaya era and in the New Malaysia context. Each subsequent economic planning cycle from the early Malayan development plans to the more recent policies under New Malaysia has shaped the direction and priorities of HR practices, contributing to the country’s workforce modernization, labor regulations, and the role of HR in national economic growth.

Era 1960s to 1970s

Since gaining independence, HR in Malaysia has been evolving, particularly during the '60s and '70s. With the introduction of the Rancangan Malaysia Kedua, the Malaysian government focused on planning new economic development from 1971 to 1975. During this time, Malaysian employers and workforce management in the country primarily concentrated on:

• Recruitment and staffing;

• Employee record-keeping;

• Compliance with labour laws, Employment Act 1955; and

• Trade unions encouraged employers to focus on labour relations and collective bargaining.

Traditionally, these responsibilities were handled by general administrative staff or a Chief Clerk (CC) who was also responsible for bookkeeping and payroll rather than by specialized HR professionals, as is common today. During the Rancangan Malaysia Ketiga (3rd Malaysia Plan) from 1976 to 1980, the country's economy grew and prospered. In 1976, the Malaysian Institute of Human Resource Management (MIHRM), a professional organization, was established to address and stabilize the growing number of human resource issues and concerns.

Era 1980s to 1990s

From the 1980s to the 1990s, the country transitioned to an export-oriented economy, engaging with foreign nations and emphasizing the significance of human resources in workforce development during that period. With the participation of the government, the Human Resources Development Fund (HRDF) was established in 1993 by the Malaysian government. This initiative mandates that private companies in Malaysia with at least one employee must contribute to the HRDF to support extensive training and development programs aimed at improving employee skills and competencies. The HR division is responsible for this task. Large companies began implementing comprehensive training and development programs for their employees, to enhance the skills and competencies of their workforce. The roles of HR professionals become wider and include taking up decision-making responsibilities.

Employee engagement first emerged in management theory during the 1990s, but it gained significant traction in management practices in the 2000s. Companies started to focus more on the employee experience and engagement, emphasizing it through various efforts. These initiatives involved conducting engagement surveys to gather real-time feedback and implementing wellness programs that focus on the physical, mental, and emotional well-being of employees. Programs such as Employee Assistance Programs (EAPs) provide counselling and support services. "It was not until the 1990s that some management and organisations began to reassess their corporate philosophy in favour of regarding people not as ‘costs’ but as ‘assets’, one of the key underpinnings of HRM. Some Malaysian managers began to realize that the management of HR could help bring about organisational stability and harmony. Indeed, the ethnic diversity of the Malaysian workforce required appropriate HRM solutions (see Rowley/Bhopal 2005)."

Era 2000s

By the 2000s, as Malaysia became more integrated into the global economy, HR functions broadened to encompass talent management, succession planning, and implementation of HR software for payroll, recruitment, performance management, and diversity and inclusion, influenced by global practices. With government initiatives, monthly contributions to the Human Resources Development Fund (HRDF) as a compulsory obligation continue to contribute to the development of human resources. The industries involved are Manufacturing, Services, Hotel industry, Mining and quarrying, Tour operators, Telecommunications, Computer, Shipping, Aviation, Advertising and the Construction industry. HRDF use these resources and the unclaimed funds collected over the years, to provide many free programs to motivate individuals to engage in skill-enhancing activities that benefit the nation. This initiative further encouraged employers to invest in employee training.

Era 2010s to 2020s

From 2010 to 2020, Malaysia's human resources (HR) landscape underwent significant changes driven by technological progress, shifts in workforce demographics, and changing business requirements. Let's dive into the major significant HR trends that defined this period:

The emergence of HR analytics started in 2010 when HR departments began leveraging analytics to derive insights from workforce data. This phase marked the shift from descriptive to diagnostic analytics, helping organizations understand the “why” behind trends such as high turnover or low engagement of employees. HR focuses on measuring and improving workforce metrics. Analyzing employee engagement, recruitment efficiency, and performance data. However, there are challenges when there is a lack of tools to handle large datasets and difficulty aligning data insights with business strategies.

With the rise of big data, cloud computing, and advanced analytics, HR started making predictive and prescriptive decisions. Analytics started to play a strategic role in workforce planning, talent management, and employee retention. New technology like early AI, machine learning (ML), and cloud-based platforms were used to predict turnover risks, identify high-potential employees and optimise recruitment strategies through predictive models. However, HRM faces another challenge related to data privacy concerns and the need for skilled HR analytics professionals. With the government initiative, Malaysia's Personal Data Protection Act (PDPA) was passed by the Malaysian Parliament in 2010 and came into effect in November 2013.

During the digital transformation era in early 2010, many companies started using cloud computing, due to the necessity for digital transformation across various sectors. As the internet expanded, HRMS shifted to a web-based model, facilitating easy online access to HR functions and data. Numerous companies, such as ADP, SAP, and Oracle, provide comprehensive HR solutions featuring recruitment, performance management, and employee self-service portals, focusing on user experience and enhanced functionalities. The cloud computing facility has revolutionized Human Resource Management (HRM) offering scalable, efficient, and accessible solutions for managing people, processes, and data. The digital environment rapidly changing due to businesses' demand to remain competitive when Malaysia's workforce becomes increasingly tech-savvy and dynamic.

In 2013 a significant revision and evolution in Malaysia's employment laws introduced the Minimum Wages Order where all new employees should start with minimal wages of RM1,500 per month.

In 2016, Malaysian businesses concentrated on enhancing workforce capabilities, recognizing them as the driving force for elevating company competitiveness. Reskilling and upskilling employee skills in areas like IT, digital skills, and leadership.

In 2016 also publicly listed companies in Malaysia were mandated to conduct sustainability reporting and publicly disclose Corporate Social Responsibility (CSR). Since then, CSR has become a responsibility of HRM, alongside the business development or public relations departments. Employees have increasingly appreciated companies with robust CSR commitments. HR strategies have involved aligning workplace policies with sustainability objectives and promoting employee involvement in community initiatives.

In 2020, following the COVID-19 pandemic, HRM is undergoing another transformation as flexible working is acknowledged by organizations globally. They have introduced remote work, flexible hours, and telecommuting policies to enhance work-life balance, making remote work a necessity instead of a choice.

Beginning in 2021, in response to the global Covid-19 pandemic's effects, many companies flourished in Malaysia. Platforms like Grab and Foodpanda launched new employment models. HR departments adapted by exploring flexible staffing solutions and offering short-term contracts for project-based work. This new approach was also adopted by many other companies to mitigate risk.

Starting from January 1st, 2022, a new amendment to the Employment Act 1955 was implemented, increasing maternity and paternity leave. Under this provision, married men in Malaysia are entitled to seven days of paid paternity leave for each birth.

In 2023, a new provision was introduced, extending maternity leave from 60 to 98 days. All female employees qualify for paid maternity leave, irrespective of their salary level.

In 2024 the Human Resources team plays a crucial role in embedding Diversity, Equity, & Inclusion (DEI) into the company culture. Indeed, Human Resources is significantly involved in DEI regarding recruitment, retention, equity, and compensation along with other departments in an organisation. Multinational corporations initiated efforts to attract talent from various backgrounds, and local companies have started to adopt similar practices.

Between 2010 and 2020, Malaysia's HR trends reflected a balance of leveraging technology, emphasizing a people-centric approach, and adapting to regulatory and societal changes. These trends laid the groundwork for future innovations and challenges in the next decade.

Suzie Wong