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Legal Insights Issue 3/2017, September 2017 – “A SOCIAL SAFETY NET"

A SOCIAL SAFETY NET

 

Foo Siew Li provides an overview of the Employment Insurance System Bill 2017

 

 

It has been reported that the 1997/98 Asian financial crisis had caused 121,222 Malaysian employees to lose their jobs. Recent statistics show that in 2015, a total of 44,343 local employees were laid off while in 2016, 37,699 employees were affected.

 

Greater challenges lie ahead for the labour markets of tomorrow. The advent of technology is having a transformative effect on the global labour force, including Malaysia, with automation rapidly replacing human employees and artificial intelligence and the Fourth Industrial Revolution looming on the horizon. A report by Khazanah Research Institute projected that more than half of all current jobs in Malaysia are at high risk of being affected by automation in the next one or two decades. 

 

In an effort to alleviate the effects of unemployment and to help employees to bridge the gap from one period of employment to another, the Government has introduced the Employment Insurance System Bill 2017 (“Bill”). The Bill was first tabled in Parliament on 1 August 2017 and the revised Bill is set to be tabled at the October 2017 session of Parliament.

 

In this article, the “Act” refers to the Bill when it has been passed and comes into operation.

 

What is the purpose of the Act?

 

The Act will introduce an unemployment insurance scheme in Malaysia which is to be known as the Employment Insurance System (“EIS”). The scheme will be funded by mandatory contributions from employees and employers and will provide certain benefits and a re-employment placement programme for insured persons in the event of loss of employment.

 

Who is an insured person under the Act?

 

Under the Act, an insured person is an employee, irrespective of the amount of wages earned, who is registered or deemed to be registered with the Social Security Organisation (“SOCSO”) and in respect of whom contributions are paid or payable.

 

What constitutes “loss of employment” under the Act?

 

Loss of employment occurs if the contract of service of an insured person is terminated or becomes void due to any reason other than the following:

 

(a)      the voluntary resignation by the insured person;

 

(b)      the expiry of the contract of service of the insured person;

 

(c)       termination of the contract of service by mutual consent of the employer and the insured person without terms and conditions;

 

(d)      completion of the work in accordance with the terms of the contract of service;

 

(e)      the retirement of the insured person; or

 

(f)       the termination of the contract of service of the insured person due to misconduct.

 

Who will manage and administer the EIS?

 

The EIS will be managed and administered by SOCSO.

 

Do employers need to register with SOCSO?

 

Yes, employers are required to register their industries and ensure that all employees are registered and insured with SOCSO under the Act. However, an employer that has registered its industry with SOCSO under the Employees’ Social Security Act 1969 (“SOCSO Act”) is deemed to have registered its industry under this Act. Likewise, an employee who has been registered with SOCSO under the SOCSO Act is deemed to be registered under this Act.

 

What are the contributions to be made under the Act?  

 

Both employers and employees will be required to make monthly contributions of an equal amount as set out in the Second Schedule of the Act to SOCSO. The current proposed contribution rate by an employer and an employee respectively ranges from RM0.10 for wages up to RM30 a month to RM19.75 for wages exceeding RM4,000 a month (i.e. a contribution of 0.5% of the employee’s wages).

 

It has been reported that a proposal to revise the Bill to reduce the rate of contribution from 0.5% to 0.2% by each of the employer and employee will be tabled at the October 2017 session of Parliament.

 

The Act allows the Minister to determine the rates of contribution by the employer and employee once every three years. In addition, there is a discretion to vary the contribution by the employer at any other time.

 

Contributions to SOCSO under the EIS is in addition to the contributions under the SOCSO Act. 

 

Can an employer make the employee bear the employer’s contribution?

 

No, the employer cannot directly or indirectly reduce the wages of any employee, or discontinue or reduce the benefits payable to the employee.

 

What are the benefits available under the EIS?

 

The benefits include the provision of Job Search Allowance, Early Re-Employment Allowance, Reduced Income Allowance, and/or Training Allowance and Training Fee.

 

What is a Job Search Allowance?

 

The Job Search Allowance is a monthly payment for a period of 3 to 6 consecutive months to assist the insured person during the period he is seeking for employment. The payment of the Job Search Allowance will be at the rate of 80% of assumed monthly wages for the 1st month, 50% for the 2nd month, 40% for the 3rd and 4th months, and 30% for the 5th and 6th months as financial assistance during the job seeking period.

 

The expression “assumed monthly wages” refers to an amount equal to the aggregate sum of the monthly wages for each month for which the contributions have been paid or is payable during the six consecutive months immediately preceding the month in which the loss of employment occurred, divided by the number of months for which contributions were paid or payable. The amount of the “assumed monthly wages” is set out in Part I, Part II or Part III of the Third Schedule.

 

What is an Early Re-Employment Allowance?

 

The Early Re-Employment Allowance is an incentive paid in lump sum to an insured person for accepting an offer of employment from any employer and commencing employment within seven days from the date of approval of a claim for benefits (“waiting period”) or the period of receiving a Job Search Allowance. The rates for the Early Re-Employment Allowance are:

 

(a)     where an insured person accepts an offer of employment and reports for work within the waiting period, 25% of the total Job Search Allowance;

 

(b)    where an insured person accepts an offer of employment within the waiting period but reports for work within the period of receiving the Job Search Allowance, 25% of the total balance of the Job Search Allowance which remains unpaid; or

 

(c)     where an insured person accepts an offer of employment and reports for work within the period of receiving the Job Search Allowance, 25% of the total balance of the Job Search Allowance which remains unpaid.

 

What is a Reduced Income Allowance?

 

The Reduced Income Allowance is a lump sum payment to assist an insured person who holds two or more employments and has lost one or more of his employments. The Reduced Income Allowance will be paid at the rates of 80% of the assumed monthly wages for the 1st month, 50% of the assumed monthly wages for the 2nd month, 40% of the assumed monthly wages for the 3rd and 4th months, and 30% of the assumed monthly wages for the 5th and 6th months. An insured person who receives the Reduced Income Allowance is not entitled to a Job Search Allowance, a Training Allowance, or Early Re-Employment Allowance.

 

What are the Training Allowance and Training Fee?


The Training Allowance is a monthly payment to an insured person for a period of not more than 6 months for attending any training in Malaysia provided by a training provider under the re-employment placement programme. The Training Allowance will be paid at a rate of 25% of the assumed monthly wages subject to a minimum of RM10 and a maximum of RM20 per day. Such allowance shall be paid monthly according to the number of training days attended by the insured person.

 

Any Training Fee charged to the insured person by the training provider will be paid by SOCSO up to a maximum of RM4,000.

 

Will an insured person receive any other assistance?

 

Yes, SOCSO also manages a re-employment placement programme which provides employment services such as job search, counselling, matching, placement, mobility assistance or referral to undergo a re-skilling programme for the insured person who has lost his employment.

 

How does an insured person make a claim?

 

The insured person must submit an application for claim for benefits to SOCSO within 60 days from the date he considers that he has lost his employment.

 

What will SOCSO do after receiving a claim?

 

SOCSO will determine whether the insured person has lost his employment. If SOCSO finds that this is the case, SOCSO shall consider whether the insured person has made the required number of monthly contributions over the required number of consecutive months immediately preceding the loss of employment in respect of a claim for benefits and either approve or reject the claim. If the claim is approved, SOCSO will determine the relevant benefits to be provided to the insured person.

 

How often can an insured person make a claim? 

 

The Act allows an insured person to make up to 12 claims for benefits. The qualifying conditions for each claim are set out in the Fourth Schedule. The number of monthly contributions which has been taken into account in respect of a claim for benefits by an insured person will not be taken into account for any subsequent claim for benefits by such insured person. 

 

CLOSING COMMENTS

 

The introduction of the EIS will undoubtedly be a significant milestone in the protection of employees in Malaysia. While the benefits accorded under the EIS are interim in nature, they will no doubt assist an insured person financially and, possibly, to gain re-employment by learning new skills or upgrading existing skills under SOCSO’s re-employment training programme.  

 

Although the EIS will increase the cost of doing business in Malaysia, it may very well be the social safety net that we can no longer afford to do without.  

 

The collection of contributions to the EIS is expected to commence in January 2018 with the first benefit payout commencing in January 2019.

 

 

 

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ACCOLADES & AWARDS

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Our Tier 1 rankings are in the following areas: 
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