Malaysian Government Plans to Introduce Insurance Scheme to Protect Retrenched Workers

July 21, 20162:50 pm811 views

The Government of Malaysia plans to introduce Employment Insurance Scheme (EIS) to protect retrenched workers, as employers wind up their business in the country without prior notice.

Datuk Seri Richard Riot Jaem, Human Resources Minister said both employers and the employee will make contributions to the scheme, similar to the contributions made to Social Security Organisation (Sosco) at the moment. This announcement was made by Riot at a media conference, after meeting 300 staff of the National Institute for Occupational Safety and Health (NIOSH) southern region on Wednesday.

This move by the government is only initiated after careful study made by officials on visits to countries such as Europe, Japan, South Korea, United States, Thailand and Vietnam in 2014 and 2015, to understand similar schemes introduced in these countries.

The proposed Employment Insurance Scheme (EIS) to assist retrenched workers is ready to be tabled in Parliament by early next year at the latest, according to a statement by Ministry of Human Resources Malaysia.

Majority of employers and businesses in Malaysia have expressed their willingness to participate in the EIS. This scheme would involve around 430,000 employers and would benefit 6.5 million workers. The scheme is meant to protect employees from the impact of retrenchment, in case their employers go out of business.

It is very important for this scheme to be implemented to ensure that the retrenched workers are able to last at least four months before getting a new job.

Riot Jaem later added: “It must be done because if a company is unable to pay the workers’ salaries after being declared bankrupt, we (ministry) cannot force them to pay. For example in the case of Rayani Air, we cannot do anything except to file the case in the Industrial Court.”

Meanwhile, the Malaysian Employers Federation (MEF) warns of more retrenchment of workers to be expected in the next three years. This is because companies are cutting on costs and moving their businesses to other developing Asian countries.

Citing MEF’s research findings, Shamsuddin Bardan MEF Executive Director said that most of the businesses in Malaysia are uprooting their businesses to move their operations to Thailand, Vietnam and Laos as a consequent result of government not providing enough support to counter the challenging global economy.

The companies are finding it extremely difficult to manage the additional operating costs, after minimum wages order was initiated from July 1. This has resulted in employers having to fork out more for the Employees Provident Fund (EPF) and Social Security Organisation (Socso), after salaries were increased from RM900 to RM1,000 for the peninsula and from RM800 to RM920 for Sabah, Sarawak and Labuan.

Commenting on a statement made by the Human Resources Development Fund (HRDF) that 36,000 employees were retrenched last year, of which 19,781 employees took Voluntary Separation Schemes (VSS), Shamsuddin said a lot of companies are fuming over the compulsory payment channelled on training employees as per the HRDF.

Companies are further unhappy with the fact that 30 per cent out of the total contributions go into the HRDF common pool. This reduces funds to train their employees.

Also regards plans of instituting EIC contributions to protect retrenched workers, Shamsuddin is of an opinion, that it is unfair to ask employers to make the contributions as well. He told Free Malaysia Today, “The government has to contribute. After all, the employers and staff pay taxes. Employers do not mind if the contribution to the scheme is shared by all.”

He also proposed that the government should set up a third EPF account, where the staff and employers can contribute towards two months’ of an employees’ salary. The government should be able to contribute to at least one month of the staff’s salary.

Considering the unemployment payouts cannot be shouldered by employers alone, Shamsuddin thinks, “The government can further chip in for the third month. The three months’ contribution can be spread over six months.” This should help employees during the retrenchment period as employers move their businesses elsewhere.


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