Member Article

The Employment Insurance System Act 2017 (“EIS Act”) came into effect on 1 January 2018. For the first time in Malaysia some form of unemployment benefits are provided for private employees. Previously, employees who were terminated or retrenched did not receive any benefits during the period they were unemployed.

The EIS Act provides temporary assistance for up to six months for employees who have lost their employment in terms of immediate financial assistance and establishes a re-employment placement programme. Under the EIS Act, both employer and employee are each required to contribute 0.2% of an employee’s monthly salary to an insurance scheme which will be administered by the Social Security Organisation (“SOCSO”). The total contribution from both employer and employee would be 0.4% of an employee’s monthly salary.

Applicability of the EIS Act

The EIS Act applies to all industries having one or more employees[1]and employees who are employed under a contract of service or apprenticeship with an employer, whether the contract is expressed or implied or is oral or in writing but does not include the following:

1. Casual worker;
2. Any domestic servant;
3. Any person who is permitted to win minerals or produce of any kind from or on the land of another;
4. Any person detained in any prison, Henry Gurney School, approved school, place of detention, mental hospital or leper settlement;
5. Public servant;
6. Any employee of local authority or statutory body;
7. Any employee who has not attained the age of 18 years or who has attained the age of 60 years;
8. Any employee who has attained the age of 57 years and in respect of whom no contributions were payable under this Act before he attained the age of 57 years[2].

It should be noted that the EIS Act covers all employees irrespective of the salary as opposed to the termination and lay-off benefits under the Employment Act 1955 (“EA”) which are limited to those who are covered under the EA. 

Are All Terminated Employees Eligible for the Benefits?

The EIS Act provides that employees who have lost their employment due to the following reasons are eligible to claim for the benefits:

1. Retrenched;
2. Resigned under a voluntary separation scheme;
3. Constructively dismissed by the employer;
4. Resigned due to any threat to the employee or family or sexual harassment towards the employee;
5. Resigned due to a command by the employer to perform work outside the scope of work which endangers the health and safety of the employee;
6. Resigned due to force majeure[3].

What Are the Benefits Provided Under the EIS Act?

The EIS Act aims to provide employees with the following temporary post-termination benefits:

1. A job search allowance - a monthly payment for a period of three to six months during the period where the employee is seeking for a job[4];
2. An early re-employment allowance - an incentive payment for accepting an offer of employment within seven days of obtaining approval for the claim for benefits under the EIS Act or the period of receiving job search allowance[5];
3. A reduced income allowance - a lump sum payment to an employee who has two or more employment and has lost one or more of his employment[6]; and
4. A training allowance and training fee - a monthly payment to an employee for a maximum period of six months for attending any training in Malaysia paid by SOCSO[7].

Employees’ Rights Under Other Written Laws

Any claims for benefits made under the EIS Act does not bar an employee from making a claim for unfair dismissal under section 20 of the industrial Relations Act 1967, termination or lay-off benefits under the Employment (Termination and Lay-Off Benefits) Regulations 1980, the Labour Ordinance of Sabah or the Labour Ordinance of Sarawak or any complaint relating to premature retirement under the Minimum Retirement Age Act 2012[8].  

Conclusion

The EIS Act is a step towards providing some support to employees who have lost their job involuntarily.