According to the department of statistics Malaysia, the unemployment rate has declined to 3.7 percent in the 2H of 2022 compared to 4.5 percent during the same period last year 1 .
According to the data, this is the lowest rate since February 2020’s month-to-month comparison, showing a good sign of a recuperating economy in Malaysia.
Although there are 16.6 million in the active labor force in Malaysia, 3.7 percent of the unemployed is equal to 620.7 thousand if we look at the actual figure.
Loss of employment in Malaysia
2022 was a challenging year for Malaysia and all of the countries around the world. Loss of employment in Malaysia protected under the EIS was 107 thousand.
Being a country that heavily relies on manufacturing, wholesale, and retailing, Malaysia is highly susceptible to disruptions in the global economic chain. Hence, EIS (employment insurance system) serves as a great protector for employees in crisis when losing a job.
However, is it mandatory for your Malaysian to have EIS? We have prepared the 5 facts about EIS under the employment act Malaysia that you should know!
1. EIS under the Employment Act
Background of EIS:
EIS stands for Employment Insurance System. It was first implemented in January 2018 in Malaysia as social safety insurance to protect employees, mainly to safeguard employee retrenchment from the private sector.
It is a financial scheme aimed to provide insured employees with financial assistance for up to 6 months until they find new employment. EIS is paid by both employers and employees every month.
2. Who is eligible to claim EIS
Under Act 800 of the EIS Act 2017, an employee is entitled to claim EIS under the following conditions:
- VSS/ MSS (Voluntary / Mutual separation scheme)
- Workplace closure due to natural disasters
- Closure of business or bankruptcy
- Constructive dismissal
- Resignation due to sexual harassment or threat in the workplace
- Resignation due to instruction to perform out-of-scope duties that are threatening their safety
Employees are NOT eligible for claims under the following conditions:
- Dismissal due to employee misconduct
- Voluntary resignation
- Expiry of a fixed-term contract/completion of work/termination by mutual consent without other terms and conditions.
3. Contribution Rate
The contribution rate for the EIS consists of 0.2% from the employer and 0.2% of the employee’s monthly salary; both sides will contribute a total of 0.4% contribution every month.
Is there a maximum cap for EIS payment?
Yes. According to Malaysia’s Employment Insurance System Act 2022 3 approved in the Parliament on July 2022, all eligible employees earning above RM 5,000 are subject to a monthly contribution cap of RM 19.80, which is the maximum EIS rate.
4. Is EIS mandatory in Malaysia?
Yes. EIS is compulsory and not optional in Malaysia (Except for those stated below).
Any employer who fails to comply with EIS would result in a fine of RM 10,000 and /or imprisonment for not more than 2 years upon conviction. This system ensures job security for Malaysian citizens.
This scheme is administered by Malaysia’s Social Security Organization (SOCSO) to provide temporary financial assistance for up to 6 months for each retrenched employee.
A simple rule to remember:
If you are paying your employees SOCSO, you will need to pay your employees EIS. Both fall under the same category in terms of contribution eligibility.
Exemptions are only applicable to:
- Domestic workers
- Workers in the local authorities
- Civil servants
- Statutory bodies
- Foreign workers
- Workers aged 57 and above who have never paid the contributions before
5. Claiming EIS
All applications must be submitted either online or manually to the nearest SOCSO office. Claims must be done within 60 days of LOE (Loss of employment) to claim EIS.
- Job search allowance (JSA): A paid monthly salary for 3 to 6 months. Employees are required to prove that they are actively searching for a job every month.
- Reduced Income allowance (RIA): Same rates and duration as JSA, but paid in a lump sum.
- Early re-employment allowance (ERA): This applies to the current JSA receiver. The payment amount is 25% of the balance of JSA, and proof of successful re-employment is required.
6. Avoid payroll penalties
Understanding the employment act and legal requirements can be difficult. Here is our solution to engage EOR services in Malaysia, where you can transfer all your legal liabilities to an EOR (Employer of Record) like us.
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