A Panel Discussion: PARACHUTES FOR RETRENCHEES – Employee Insurance Scheme (EIS)

A Panel Discussion: PARACHUTES FOR RETRENCHEES – Employee Insurance Scheme (EIS)

Datuk Shamsuddin Bardan, Executive Director, Malaysian Employers Federation (MEF) & Sivarajan Arumugam, Secretary-General, Parti Sosialis Malaysia PSM participated in a panel on the proposed Employee Insurance Scheme (EIS), discussing the necessity of starting a social safety net for retrenched workers. A very noble idea indeed. However, there are issues such as scheme mechanics, oversight, management and governance come into play. Plus, should the masses subsidize a few?

In this recent BFM radio segment known as “The Breakfast Grill”, Datuk Shamsuddin Bardan, the Executive Director of the Malaysian Employers Federation (MEF) and Sivarajan Arumugam, the Sec-Gen of Parti Sosialis Malaysia (PSM) together with BFM’s Khoo Hsu Chuang are discussing on the Employee Insurance Scheme or better known as EIS.

Khoo Hsu Chuang started off by posting this question to the both of them, “Gentlemen, can you please shed some lights as to why is that we are only discussing about safety nets for the workers and employees after so many years of the country’s independence.”

  • Datuk Shamsuddin of MEF: When we talk about safety nets, it is as if that currently there is no safety net at all for the workers. Of course, if you look at what we have currently, as far as for the safety nets are concerned, we have the Minimum Wages which is a form of safety net, we have the contributions to the EPF. We also have the SOCSO contributions and also if you look at other schemes that we have, of course as employers, we do provide for medical benefits, some even to the family members. Of course, for the employee, normally the medical benefit is fully borne by the employers. So that are some forms of social securities that we have and of course for those people are really in need of assistance, we also have the welfare department to look after those needs.

Khoo Hsu Chuang of BFM: So, let me understand, because the issue that you are representing the employer today on the panel, obviously this has unwanted notion of increasing the cost of doing business but of course I understand Siva, that with you representing the people and the workers, we don’t nearly have enough protection for the retrenched workers at this point of time, is that correct Siva?

  • Sivarajan Arumugan of PSM: Yes, I think it’s about time, because we talk about the issue of social security, even the International Labour Organization (ILO), what do they say is that we are only partially there and at the moment now, we have the payments for work injury, and in terms of retrenchment and unemployment, we only have severance scheme and the termination lay-off benefit. So, we only partially there. What we need here is the second concept which is income security whereby we want to ensure, those who are in working age, have some kind of security income. And the reason for this is that we have to understand the global economy works whereby there will be the boom and the bust times and when we have the crisis, or even now, where I think it is much regular and the economy is driven by so many factors. We have the oil prices slumped, we have the Ringgit problem, so its constantly the workers are having problems of retrenchments. That’s why we need some sort of income security for the workers and that is why is a very crucial thing that we should look at.

Khoo Hsu Chuang of BFM: As it stands right now, the EPU or the Economic Planning Unit has produced some draft papers and proposals and under the draft suggestion, 0.25% of a person’s salary is contributed by the employee and the other 0.25% is contributed by the employer. Now, that means the private sector in a way, has been given a full onus of responsibility to deal with the retrenched worker. Should this be right and proper and why does the government take a stake in the course of this?

  • Datuk Shamsuddin of MEF: To me, this would be very unfair to the employers and employees because the government seems to be taking a laid off approach (or hand off approach) and basically, we understand that they have given some kind of allocation for this in the 10th Malaysia Plan and that was RM 80 million ringgit was supposedly to be given to SOCSO but what we understand now, the fund is no longer RM 80 million but RM 51 million and we are unsure where the rest goes to actually. But what MEF has been saying all the while is that, yes, we do understand that there are some employees that were retrenched when the company goes bust and they were not paid the termination benefits. We proposed, why not use the money that the government has allocated (RM 80 Million) to pay off whatever is due to the employee concern and you sue the particular employer. When you have sued the company and that you have recovered the fund, you can put it back to the remaining pool as guarantee of the retrenchment payment fund. And if you talk about that situation, the EIS, as we understand it and (based on) what we have been briefed, does not talk about this particular payment of termination benefit. If the company retrenched you and the company is actually bankrupt, then the EIS is not supposed to pay for the termination benefit because that is a different scheme to what we have envisaged. If it’s meant like what we have said just now, it’s meant to supplement the income or make the sum payment during certain period. What we have been briefed is basically to say that, yeah it will be paid something like 50% of your wages average for 6 months. So, we effective talking about 3 months’ wages if you are retrenched and you are not able to get a job within certain period. So, question is that whether when people are retrenched, whether they are going to be out of job a long time, or whether they can get a job immediately, let the labour market determine that.

Khoo Hsu Chuang of BFM: On the point which Datuk has rightly pointed out, and of course on the fact that the government is handing off the responsibility to the private sector, in your discussion with the government and the relevant ministries, has there be an indication that they’ve taken the responsibility?

  • Sivarajan Arumugan of PSM: We had several meetings with the ministry and also with SOCSO which is in charge of this particular thing, what we understand is of course, they are pumping in the seed fund into this (EIS) but I understand it differently because what I understand is that the core of the issue is that 31% of all those workers being retrenched they end up not getting any form of compensation or benefits because the company winded up and went bust. That was the core reason why such a fund (EIS) was started. So, what I understand is that the government will pay if the company goes winding up. It will pay the workers whatever due that the workers supposed to get. Apart from that, they will also receive monthly allowances. So this is for the sector of workers who do not get anything (in the event the workers are retrenched and the company winds up).

Khoo Hsu Chuang of BFM: Under which framework is this as you (PSM) speaks as though it is already existing. Under EIS?

  • Sivarajan Arumugan of PSM: Under the proposed EIS, from the presentations given and from our discussions with ministry itself. I think the whole issue sparked off from the issue that not only the workers are being retrenched but the bigger issue was workers were retrenched without getting anything when the company goes bankrupt. And when the company goes bankrupt, it is a very problematic situation where the workers have to go to and fro from the Labour Department to the Insolvency Department and they might not get anything but might get an award on paper(s) but will not get any cash. This is a very dire situation and that is exactly what the Ministry want to address. They can have a fund, and they can immediately kick in and pay the workers whatever is due and perhaps monthly allowance, retraining until they get new jobs. This is what we understand from the Ministry.

  • Datuk Shamsuddin of MEF: To me, now there were facts that there was some briefing with PSM and on the fact that they want to take up the non-payment of the termination benefits is new to me. MEF has not been briefed about that particular move and what MEF understand is that there is no issue of payment of non-payment on the termination benefits but let me correct the current situation. Say for example, even in the heart of the financial crisis, Asian Financial Crisis, at that time, when we look at the data, only about 5% of the employees retrenched are not been paid the termination benefits. It’s not something like 30% and if you look at 2015, the data from the government indicated that 100% compliance as far as the termination benefits or retrenchment benefits are concerned. I am very surprised if the data given by the government is actually 30% of the companies actually just abandoned their responsibilities to pay termination benefits. To me, that was not the case or the scenario. As Mr. Siva (from PSM) pointed out on the training and retraining, are we not doing training and retraining currently? We have the HRDF (Human Resource Development Fund) where employers actually required to contribute 1% of the wages and training & retraining now is done by HRDF, so why should the EIS which is supposed to cover issues about retrenchment and of course the other part mentioned is to say that there will be a job matching. Are we not having any job matching currently which is done by JobMalaysia for free. Why employers and employees should be required to pay for this kind of services? I understand that the EIS also conducts research on the labour market. Are we not doing any research market through IMEA within MOHR which they are also doing it for free. Why should the employers & employees be asked to pay for such services? I see a lot of duplications, a lot of issues that are not clear and this is where we have to say that if you proposed to collect 025% from both employers and employees, and if you are talking about wages from the private sector which is about RM 18 billion per month or perhaps the average pay of RM 2,800. If you take RM 2,800 as the base pay for contribution purposes and we take the 0.25% from both employer and employees, in a year the collection would amounted to RM 1.24 billion. That much money is not required to pay the less than 0.6% retrenchment that are occurring currently. The retrenchment figure has always been around 40,000 to 50,000 per year. My opinion is that, the government is collecting much more than is required.

Khoo Hsu Chuang of BFM: I think intrinsically and conceptually you are for and in support of such a scheme. It’s just that the mechanics that both of you disagree on.

  • Datuk Shamsuddin of MEF: MEF is totally agree with the concept of Employment Insurance Scheme. If you talk about EIS being an insurance, once you’ve paid the premium and you don’t make any claim on that then that money is no longer your money. It’s gone forever and this is the main concern. It’s not that as an organization we are not concern about the welfare of the employees. We do, that’s why MEF, we say can look at other alternatives. As MEF, we can propose to the government to have a “Savings Scheme” and we’ve suggested employees can make extra contributions to the EPF, and the employer 1% extra for 8 years, which will reach 1 month salary level and add EPF saving and that’s it. Once employer have reached the 1 month salary threshold, the employer can stop the 1% contribution and the employer should be required to set aside 1 month wages and the government also do the same by setting aside 1 month wages for the employee. If the employee is retrenched, he/she can collect the payment of 1 month from respective EPF, employer and the government which makes up to potential 3 months’ wages. The beautiful part of this (MEF) proposal is that if there is no retrenchment, the money is still with the employee (savings) and is part of his/her retirement scheme while for the employer, the money set aside is still employer’s money where they can keep in the bank and earn interest and what not. At the end of the day, under this proposal, the money still belongs to the employers and employees and can still provide that kind of income protection without any frills.

  • Sivarajan Arumugan of PSM: I would like to differ this with MEF. There is a big vacuum that we have now. At the moment, what we have now is of course the employees’ termination lay-off benefits but that is under the Employment Act and the Employment Act only serves those workers earning RM 2,000 and below. So, there is a big segment of will not be included into this employment termination lay-off benefits. So, for those workers who got terminated, it really depends on the contract and or what is agreed between the employer and the employee. So, I think there is a big section of workers out there that really needs the protection. The other thing which I think is important is, at the moment, once the company goes bust, and there’s a big possibility that the companies are not able to pay the workers’ last wages, there are probably nothing or any social security net for the workers at the moment and their fates are just being left on their own. So, for this particular section of workers, we need something else. The other thing I would like to differ with MEF is that HDRF where while you are in employment, you want to get your skill upgraded, and you apply. It is a fund to use to upgrade your skill while you are still in employment where else in retrenchment, should a worker is above 30 years or 40 years old, he/she may need to be retrain again. I think this is something that MEF should support because of relying of foreign labour, why don’t we retrain our workers. Present statistic of unemployment is about 3.5% or about 550,000 unemployed out there. Out of the figure, about 300,000 of them had jobs before but were laid off. So, there is a big section of people of unemployed and they need to be retrained and to get them back on jobs again. So, I think the whole scheme is a holistic to help them to get back on their feet.

Khoo Hsu Chuang of BFM: Does it strike you gentlemen, perhaps with the government’s proposal on social security net for workers, it is not as well thought out as it should be. And do you think there should be more consultation with more relevant agencies such as MEF, PSM., etc?

  • Datuk Shamsuddin of MEF: Basically, as of now, in regards to consultations and discussion and by right all these sorts of policies should be coming as tri-parted discussion where we have the MTUC and MEF as the umbrellas of the employers and employees alike, but it’s not happening. The authority(s) will call both the MEF & MTUC separately and the discussions will be held separately and to present their idea. Perhaps even PSM was also called separately for the same presentation and discussion.

Khoo Hsu Chuang of BFM: Who is the lead ministry for this?

  • Datuk Shamsuddin of MEF: Of course, it’s the Ministry of Human Resources and as you know all this is being tabled at the Economic Council and also the EPU where we don’t have access for both. So the government thought it was fit to talk to the Economic Council about the EIS as if the Economic Council is the body that should decide whether to have the EIS or not.

Khoo Hsu Chuang of BFM: The issue here is that both MEF & PSM has raised very pertinent points but as it stands now, the planning papers have already been approved by the EPU, and the draft bill will be presented in the Parliament in June 2017 but it seems that there are a lot of gaps already in the system. So, what can both MEF & PSM and other bodies do?

  • Datuk Shamsuddin of MEF: This project is carried out under the Ministry of Human Resources but went thru the path of EPU and Economic Council. And anything to do with Labour Market, it should be discussed within the Ministry of Human Resources, should be tabled at the National Labour Advisory Council but unfortunately the membership has lapsed in June last year and it has not been renewed since then. In normal case, should this tabled at National Labour Advisory Council, it will then form a technical committee team to study the feasibility in greater detail but it’s not happening here.

Khoo Hsu Chuang of BFM: What is the PSM’s sense in the ability of the government specifically in the Ministry of Human Resources, to listen to what you guys are saying? Do you think that they are listening or not listening at all?

  • Sivarajan Arumugan of PSM: This idea was already brought up during the last Asian Financial Crisis in 1998 and I don’t think the government is bulldozing this as the idea has been there for a very long time, and the problem as of now is much worse than before. The government has been having a lot of discussions since.

Khoo Hsu Chuang of BFM: The Asian Financial Crisis was in 1997 and today, we are in 2017 and it has been 20 years ever since. Even with the numbers being suggested in the order of RM 60 million, that’s hardly can cover as we have 14.6 million registered workers in EPF, and that’s nearly not enough money to cover everybody, voluntary separation scheme or not.

  • Sivarajan Arumugan of PSM: I think what the government has done is that they put in the seed fund and we must look at it the whole concept that it is an insurance scheme. If you look at the number or workers annually who get into accidents which they apply thru SOCSO, the figure is also about the same which is 60,000 people whom either go thru the industrial accidents. This statistic is from the Ministry themselves. So, in a way, there are 60,000 workers or cases being referred to SOCSO every year and we look at the similar amount of people who are retrenched which is close to 60,000 people but does that make SOCSO irrelevant? No, because here, when we talk about the insurance scheme, it is not correct to look at how many percent or how many workers are being retrenched. The core issue is what sort of social security net that we are providing to our workers. The other thing that I would like to address here is that, we cannot use the EPF because it is meant for your retirement savings which is not enough when one retires. Assuming a worker that gets a minimum wage of Rm 1000 a month and if you take 1% away from that worker, after 1 year, he would have saved up to about RM 1,200. But if a worker who has been working for 20 years, just a normal manual worker and he is retrenched, under the termination employment benefits, he should be getting a payment close to RM 15,000 – RM 20,000. Now, certainly the contributions that he has made to the EPF would not be equal to what he supposed to get and that is why saving in the ‘3rd account’ of EPF is not viable. That’s why we need a collective pool of fund which will pay and the risk has to be shared. So, I think the government is quite clear that this is an insurance scheme, it’s quite a similar concept to the employment injury and layoffs happen every time. I think the industry has to understand that it is only businesses that are badly managed which are causing the whole issue which is not the case. If you look at the figure for the last 2 years, there are big companies which have left Malaysia and layoff is part of cost cutting measures which is a collective responsibility.

Khoo Hsu Chuang of BFM: So we got the bill going to be voted in Parliament in June 2017, what’s the next step moving forward?

  • Datuk Shamsuddin of MEF: I would like to say that currently, when we talk about what other inputs that the government is seeking of from us is none. They seem to be shutting down the doors for us to come into the discussion and proposed what ought to be in the bill. I would say in the Malaysian context, once you talk about something before the bill stage, it goes to the AG’s Chamber and it is confidential and you can’t have a sight of it. Some what we’ve discussed is probably some principles but what is being tabled in the parliament, we don’t know. We may be talking about 0.25% contributions, but we won’t even know whether it will remain at 0.25% or will it be a co-sharing with the employer/employee or whether the employee will contribute fully or employer contribute fully. Let me be very clear of this when we talked about retrenchment, I said only those who have been retrenched involuntarily would receive this kind of benefit. But if you look at last year’s figure, we have about 44,000 people retrenched, and out of that, about 33% of them are on Voluntary Separation Scheme. We are talking about some 30,000 people possibly will get this benefit and I am not saying that this people should not be supported. Yes, we have to support that and I wouldn’t agree with Mr. Siva of PSM that said currently we don’t train people who are retrenched. Within the HDRF, we have 1MOC which is to retrain people who are already retrenched.

Khoo Hsu Chuang of BFM: There seems to be a lot of conflicting with different voices from different part of the ecosystems. So I guess that’s why the ministry has taken this long to come out with this even though they need it.


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