When your January payslip arrive, do you have a clue what all the figures, especially ESI, mean?
The Malaysian government has launched the Employment Insurance Scheme (EIS) on 27 October 2017. Administered by the Social Security Organisation (SOCSO), the EIS will be implemented from January 2018 onwards with the aim to provide temporary financial assistance (for up to six months) to retrenched workers.
Why do Malaysian workers need EIS?
The economic slowdown and the retrenchment rate in year 2015-2016 have factorised the implementation of EIS. According to the data reported by the Labour Department, almost 40,000 Malaysian employees were laid off in 2016. Skilled workers made up more than half of them who were retrenched in 2015 and 2016. This figure shows that even skilled worker are not spared and people of any skill are at risk of being retrenched.
What follows the retrenchment is the harsh truth of losing the source of income or having an inadequate emergency fund to live life while hunting for jobs. In relation to this, the Malaysian government has introduced the Employment Insurance System (EIS) as a new protection for workers by ensuring fair remuneration for laid-off employees.
What exactly is the EIS?
Similar to the contribution mechanism of Employees Provident Fund (EPF), the contribution is statutory by both the employer and employee. With the EIS enforced starting from January 1, 2018, employers must contribute 0.2%, while employees will contribute the remaining 0.2% under this new law. The eligible monthly salary starts from as low as RM300 where a 0.4% of contribution (RM1.20 monthly) will be made. The maximum eligible monthly salary contribution is capped at RM4,000. That means 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 laid off?
The contribution to EIS will begin in 2018, but you can only start making claims if you are retrenched in 2019 onwards. Laid-off employees will be given a portion of the insured salary from the 0.4% monthly contribution. Retrenched employees (who will be able to claim a portion of the insured salary for a period of between three and six months), for instance, can get 80% of assumed monthly wages for the first month under the job search allowance.
One thing worth mentioning is that the EIS doesn’t just provide employees money upon retrenchment but it has a few benefits such as:
- Job-hunting assistance
- Re-employment allowance
- Reduced income allowance
- Training allowance
- Career counseling
Please note that each of the above mentioned benefits will take up a percentage of their claim with the aim to help laid-off employees to move forward. Let’s say a retrenched employee get a job offer before the end of their six months (counted from the first day of retrenchment), these employees will get an Early Re-employment Allowance, which is 25% of their remaining job search allowance entitlement.
Similar to the insurance mechanism, the claimable amount depends on the contribution period – how long a retrenched worker has been contributing. That means they could get up to a certain percentage of their last drawn salary for three to six months.
On a final note, the new contribution scheme, EIS, is a kind of insurance that protects salaried employees from unexpected retrenchment. Though EIS is said to be a good initiative that will give laid-off employees a financial buffer, it would be best to develop several streams of incomes, be it investments, or moonlighting as part-timer or running your own business, or at least have a sizeable emergency fund readied for rainy days.
