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Employment Insurance Scheme (EIS) in Malaysia

In Singapore, the payment of retrenchment benefits is mandatory for workers with more than two years of employment if it is specified in their individual employment contracts (or the collective agreements negotiated by their unions). Malaysia, on the other hand, is catching up to provide retrenchment benefits to unemployed Malaysians.

Proposed by Prime Minister Datuk Seri Najib Razak, the Employment Insurance Scheme (EIS) is expected to be tabled in parliament in the July / August 2017 sitting. As the name suggests, the EIS is primarily aimed to help laid-off employees who are looking for another job and who contribute to SOCSO. In addition to this, Prime Minister Datuk Seri Najib Razak had announced on May 1, 2017, that the government has agreed to provide the Social Security Organisation (SOCSO) with RM70 million for the payment of financial benefits in relation to the EIS from next year.
 

What is the Employee Insurance Scheme?

Intended to act as a “safety net” for retrenched employees [because their employers being wound-up / becoming insolvent], the EIS is will provide financial aid to employees who lost their jobs until they find new employment. In addition to that, employees looking for new jobs will also be provided assistance with job search, career counselling and job suitability under the EIS.
 

The Payment of EIS

The proposed EIS initiative will be managed by SOCSO, and the contribution from both employers and employees towards the employee’s insurance account is compulsory. Under the current proposal, both employer and employee are compulsory to contribute 0.25% of the employee’s monthly wages to the common EIS pool, similar to the SOCSO and EPF contributions. For employers who violate the rule and are found guilty will be penalized with a jail term of up to two years and fined a maximum RM10, 000.
 

A Snapshot of EIS’s Benefits

  1. Extended welfare coverage – The EIS acts as the extended welfare coverage for Malaysia’s 6.5 million private employees that require employers to make statutory contribution to EIS’s fund and refrain them from making pay cuts as well as reducing fixed perks.
  2. Financial Aid to Retrenched Workers – The EIS will provide financial assistance to private workers who lost their jobs because their employers being wound-up (or becoming insolvent) until they find new job.
  3. Additional Aid in Job’s Search – Retrenched workers will be aided when they are searching for new jobs with career counselling and training.

On a final note, the Employment Insurance System (EIS) is expected to start in January, 2018. It’s believed that EIS will add efficiency of the labor market in Malaysia through a better-structured system of matching supply and demand, which in turn, will lead to increased productivity and competitiveness of the industries.  On top of that, the aforementioned retrenchment benefits will also act as a stabilizer to help sustain economic activities in a country, especially during the economic crisis.