EIS in Malaysia: What do I need to know?

Updated 22 Feb 2018 – By Caitlyn Ng


There’s an unpleasant activity tasked to the HR department of any local organisation, one that’s a painful experience overall – retrenchment. This is, simply put, the act of dismissing an employee that is justified on the basis that his/her role has become redundant.

According to reports, a total of 17,798 workers were retrenched as of June 2017; the number was almost at 40,000 during 2016. It’s predicted that 50,000 workers are expected to be laid-off by the end of this year. Even then, those figures could be just the tip of the iceberg as many SMEs aren’t aware that they need to report retrenchment/lay-off cases to the Labour Department.

For those affected, it can become an immensely worrying state of affairs, especially if the person is advanced in age, has little to no emergency funds, and has dependents. A form of relief has now appeared in the Employment Insurance Scheme (EIS) which took effect on January 1 2018.

1) What is EIS and am I eligible for it?

The EIS was proposed as a ‘social security net’ for retrenched employees who seek a new job and require temporary financial assistance (up to six months) to get back on their feet.

In 2017, the Prime Minister Datuk Seri Najib Razak announced that RM122mil would be allocated for the first phase of the EIS, which are retrenchment payouts for 2018 (known as ‘interim benefits’). People retrenched in 2018 would be given a fixed amount of RM600 a month for a maximum of three months of unemployment.

The second phase would begin in 2019 onwards, when the collected funds will be put to use for retrenchment payouts (job search allowance) and support services. The job search allowance is based on a scaled amount, and is dependent on how long a retrenched worker has been contributing.

The insurance scheme will involve some 430,000 employers and 6.6mil employees. It will not only cover retrenchment, but also workers who have resigned due to threats received to themselves or their family (this includes sexual harassment at work).

If you’re a Malaysian, aged between 18 to 60 years and contribute to Socso, then you’re entitled for the monthly contribution at 0.2% of your monthly salary from the employer, in addition to 0.2% from the workers themselves. The contributions should be made before or by the 15th of each month to avoid a fine for late payment.

There is a salary level cap of RM4,000 a month, which means that anyone earning more than RM4,000 a month would still only be contributing 0.2% of that to the fund. That computes to RM7.90 per month.

Only those over the age of 57 and have never contributed to Socso are exempted from this protection plan. The EIS also does not apply to the following people:

a. Employees who resign voluntarily.  
b. Employees whose contracts have expired or do not have their contracts renewed.
c. Employees who have been terminated for disciplinary reasons or have reached the mandatory age of retirement.

2) What are the benefits of this scheme?

Don’t think of this as yet another programme that eats into your hard-earned salary! There are six specific advantages in having the EIS around, in case the unexpected does happen:

a. Job placement and career counselling
b. Job search allowance (EMP)
c. Early re-employment allowance (EBSA)
d. Reduced income allowance (EPB)
e. Training allowance (EL)
f. Training fees (FL)

They sound pretty straightforward and they are; this isn’t a welfare programme, it’s an accumulated fund that acts as a support service, with the aim to ensure that people make the effort to get re-employed.

Socso will provide assistance the moment a contributor is retrenched; they will conduct an interview and work with various recruitment agencies (both government and private) to help him or her find a job.

“When a person is retrenched, they are to come to Socso and claim their first job search allowance. We will then monitor the interviews that they are called for and liaise with the potential employers. If they get a job any time before the sixth month, we stop paying the job search allowance for the subsequent months due.

“If they secure a job before six months, we will give them an Early Re-employment Allowance, which is 25% of their remaining job search allowance entitlement,” said Socso EIS chief Mohd Sahar Darusman.

Apart from that, if it was deemed necessary by either Socso or potential employers for the retrenched worker to take a course and learn or improve on his skillset, Socso would pay for it up to a maximum of RM4,000.

“On top of that, while they undergo training, they will receive between RM10 to RM20 per day for a maximum of six months. The key success to the EIS is our support services and the monitoring of the support services,” further explained Sahar.

3) How are the reactions of the employers?

According to a news report in The Sun, there’s some dissent from the Federation of Malaysian Manufacturers (FMM) with the new scheme. Among the issues that they have cited include double benefits for workers under the voluntary or mutual separation schemes (VSS or MSS) as well as further deterioration in work attitude and commitment.

FMM also highlighted how human-related costs would rise significantly, without commensurate increase in work productivity and quality.

Another organisation which opposed the establishment of the EIS was the Malaysian Employers Federation (MEF), as they stated that there are flaws which are detrimental to both employers and employees.

“The scheme might encourage irresponsible employers to forgo paying retrenchment benefits because they know their employees will be taken care of by other employees and responsible employers,” said MEF Executive Director Datuk Shamsuddin Bardan.

He also stressed that there is no need for the EIS as the current system of paying termination and lay-off benefits under the law and payment of retrenchment benefits under collective agreements is effective enough.

To conclude

Only time will tell whether the implementation of this scheme will be a success or end up clashing with the Active Labour Market Policies (ALMPs), which is a responsibility of the government.

Human Resources Minister Datuk Seri Richard Riot reiterated that the implementation of the EIS would ensure that the social security network of retrenched workers are guaranteed. As it is, Socso has already received 33 applications for the interim benefit payment from workers who have lost their jobs this year since the scheme came into force on January 1.

“Although the EIS is being opposed by employers, the scheme is important to act as a safety net and ensure that retrenched workers are protected.

“If EIS is implemented immediately, private sector workers who have been retrenched will be able to receive temporary financial assistance for up to six months,” said Riot.

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