The unemployment rate in Malaysia is considered to be relatively low and stable at approximately 3.45% in 2016. According to The Organisation for Economic Co-operation and Development (OECD), a country is in full employment if its unemployment rate is below 4%.
However, based on data reported by the Labour Department, almost 40,000 Malaysian employees were retrenched from their jobs in 2016.
Even skilled workers are not spared, as they make up more than half of them who lost their jobs in 2015 and 2016. This proves that people of any skill are at risk of being retrenched.
The challenge of being retrenched comes when there’s no income coming in or adequate contingency fund to help them and their dependents (if any) get back on their feet. With this somber reality, the government has introduced the Employment Insurance System (EIS) as a new protection for workers.
It’s been slated to begin on January 1, 2018, and those looking to claim can only do so in 2019. But let’s break down what there is to know about EIS.
What exactly is the EIS?
EIS is a financial scheme aimed at helping employees who have lost their job, and it is managed by Social Security Organisation (Socso). This scheme is meant to enable retrenched workers to gain monetary funds that would help them get back on their feet for up to six months.
The EIS will function similarly to the Employees Provident Fund (EPF), where the contribution will go into a pooled fund and then the fund will be invested.
The EIS is not only offered to those who have been retrenched but also those who resigned due to threats to the insured or even to their family. This even includes sexual harassment at work.
Currently, the scheme will involve 430,000 employers and 6.6 million employees.
How the EIS works
Employers and employees will contribute 0.2% each of an employee’s salary, this means that the total contribution would be 0.4% of an employee’s monthly salary.
The minimum eligible monthly salary can be as low as RM300, where the 0.4% will see them contributing RM1.20 monthly. On the other hand, the maximum eligible monthly salary contribution is capped at RM4,000. So even if you’re earning more than RM4,000 a month, the contribution from you and your employer is fixed at 0.4% of RM4,000, leading to the maximum amount of contribution capped at RM16 per month.
What can you claim when you are retrenched?
The contribution to EIS will begin in 2018, but you can only start making claims if you are retrenched in 2019 onwards. The EIS doesn’t just provide you money upon retrenchment. It also comes with a number of benefits such as:
- Job-hunting assistance
- Re-employment allowance
- Reduced income allowance
- Training allowance
- Career counseling
Each of these benefits will take up a percentage of their claim with the aim to help them move forward. For example, if they successfully secure a job before the end of their six months, these employees will get an Early Re-employment Allowance, which is 25% of their remaining job search allowance entitlement.
Depending on how long a retrenched worker has been contributing, they could get up to a certain percentage of their last drawn salary for three to six months. So let’s say Kamal has been working for a few years and has contributed to the EIS for about five years. His last drawn salary was RM3,500 before he was retrenched.
When he makes a claim with EIS, he gets a percentage of his last drawn salary every month, until the sixth month. Here’s an example of the percentage and amount he may get:
On top of that, he will also get coverage for training (capped at RM4,000), and when he gets re-employed before the end of the six months, he will receive RM875 under the re-employment allowance. The latest announcement has also revealed that retrenched workers will qualify for a cash allowance of RM600 per month for up to three months as well.
Employers need to play their part
The employers also have a major role to play in EIS. There have been concerns that employers would find the scheme a burden on their finances, but Director of the Social Security Research Centre at Universiti Malaya, Prof Datuk Dr Norma Mansor, argued against that.
According to her, with the EIS, laying off employers should be less of a burden to both employers and employees.
The insurance scheme would make it cheaper for employers to lay-off workers in order to upgrade their technology and automate their businesses compared to the current workers’ protection scheme.
Currently, when there are layoffs and there are termination benefits, the responsibility lies solely on employers alone. Employers are supposed to pay an equivalent of 4.5 months of the terminated worker’s salary and it only covers workers earning RM2,000 and below. This is a costly measure and would see some companies retaining employees even when they can’t afford to do so. With the EIS, this should be less of an issue.
With the EIS enforced starting from January 1, 2018, employers are not allowed to reduce an employee’s salary indirectly or directly owing to contributions made to the scheme. Any employers that do not comply with the scheme or make false claims could lead to a maximum RM10,000 fine or a jail term of up to two years or both upon conviction.
Who will really benefit from the EIS?
The year 2015 was a dark year for many Malaysians when up to 6,457 people were laid off, 30% of which came from the oil and gas industry. The EIS is meant to protect those with jobs that are at risk of being retrenched due to issues such as volatile currency and commodity, and even includes bad economies, such as what happened to the oil and gas industry.
The bleak outlook was expected to continue this year with some warning signs that the banking industrymight be affected.
This new insurance scheme is meant to help those who are trying to get back up on their feet after such a major loss, but the question remains: how much can it really help?
Many of those laid off in the oil and gas industry were once earning RM10,000 monthly, but EIS contribution is capped at RM4,000 a month. This means that even if retrenched, the EIS will not cover your full salary, which is not ideal especially if you have to maintain high financial commitments such as multiple mortgages, loans, and credit cards.
If you are earning above RM4,000, it would be best to look for ways to diversify your income either by investments, part-time jobs or even starting your own business, or at least have a sizeable contingency fund stashed for rainy days. However, for those who are earning below RM4,000, the EIS would be enough to give you some comfort and a financial buffer to get you back on your feet for six months.
Just as how having Socso proves to be helpful for those who are injured during work, the EIS aims to protect employees from retrenchment by ensuring fair remuneration for them. Seeing how Socso has given out up to RM2.9 billion benefits to workers in 2016, the EIS can also successfully protect employees financially.