Malaysia to implement the Employee Insurance Scheme in 2018?

Malaysia to implement the Employee Insurance Scheme in 2018?

Last week, Prime Minister Datuk Seri Najib Razak announced that the government has agreed to implement the proposed “Employment Insurance Scheme” (EIS). The EIS will affect an estimated 6.5 million employees in the private sector.

What is the Employee Insurance Scheme?

  • The EIS is intended to act as a “safety net” for workers who have been retrenched as a result of their employers being wound-up / becoming insolvent.
  • While there can be a finding of unfair dismissal and companies can be ordered by the Industrial Court to make compensation to employees who have been wrongfully retrenched, from a practical perspective, companies that are actually insolvent and subsequently wound-up will be unable to pay any compensation to employees if they do not have sufficient assets to do so
  • The EIS will therefore provide financial aid to employees who have been retrenched and have not found alternative employment
  • Aside from financial assistance, employees looking for new jobs will also be provided assistance with job search, career counselling and job suitability
  • Under the proposed EIS, both employers and employees will be statutorily required to contribute towards the employee’s insurance account (this will be similar to how it is done for SOCSO and EPF payments). In other words, for employees this means another deduction from their monthly salary, and additional monthly costs for employers
  • The current proposal is that both employer and employee must each contribute 0.25% of the employee’s monthly salary to the common EIS pool
  • The EIS initiative is expected to be managed by SOCSO

When will it take effect?

  • Planning papers for the scheme have already been approved by the Economic Planning Unit.
  • The government announced that the draft bill is being prepared and will be tabled at the next parliamentary sitting in June 2017.
  • The new law is expected to be enforced from 1 January 2018, while the interest payments are expected to be made from 1 January 2019

Is this a good thing or a bad thing?

  • The EIS has been met with objections from the Malaysian Employers Federation, who claim that its introduction will raise operating costs for businesses who are already facing challenging economic times. The MEF also stated that the EIS would result in the “whole workforce contributing to a large pool which will be used to serve a minimal number of people”.
  • However, the EIS is being championed by other parties since it will provide support to employees who have been laid off and have difficulty finding alternative employment
  • Since the bill has yet to be tabled, there are limited details available on how the EIS will work, and the total costs that it would have on both employers and employees.

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