SUMMARY OF CURRENT MALAYSIAN LAWS AND REGULATIONS AIMED AT PROVIDING PROTECTION TO EMPLOYEES AT RISK OF UNEMPLOYMENT
In early 2012, the International Labour Organization (ILO) reached an agreement with the Malaysian government to provide expertise on the Project “Supporting and Facilitating the Design of a UI system in Malaysia”. The project is coordinated by a Tripartite Project Committee comprised of representatives from the Ministry of Human Resources (MoHR), Social Security Organization (SOCSO), the Malaysia Employers Federation (MEF) and the Malaysian Trades Union Congress (MTUC). Datuk K. Selvarajah, CEO of SOCSO, heads the TPC and establishes the focus of the study by making it clear that all stakeholder views must be considered and everyone must benefit from an unemployment protection system that is tailored to the needs of Malaysia.
The project is developed into two phases:
The first phase aimed at facilitating the national consensus on the introduction of the unemployment insurance in Malaysia. Several options for unemployment benefits were proposed and discussed in a National and two Regional Tripartite Workshops with government agencies, social partners and experts.
On 20 July 2012, the TPC reached a consensus on a proposed mandatory social unemployment benefits system which will embrace the following agreed objectives:
1. Provide adequate protection for those who lose their job and contribute to poverty eradication;
2. Give flexibility to enterprises in adjusting to economic changes and in reorganizing their business (e.g. in the case of the introduction of new technologies) - UI would therefore contribute to the
protection of businesses and not only of employees;
3. Facilitate mobility of labour force through income security and re-employment measures;
Be associated with job retention measures;
5. Support job search and placement, training and retraining.
The TPC also attained consensus on elements of the possible unemployment benefits such as:
coverage - all private sector salaried employees and apprentices under a contract of service of
any type or duration;
qualifying conditions – 12 months of contributions in the last 24 months and termination must be
a benefit rate of 40 to 50% and a duration of 3 to 6 months;
entitlement conditions – job seekers must register at the employment office upon termination and
report monthly on their job search activities.
Also, there would be a phasing out retrenchment benefits while introducing unemployment benefits: workers would remain entitled to the retrenchment benefits accrued up to the effective date of implementation of UI system but no further retrenchment benefits would accrue for work commencing after the effective date of UI system.
The first three scenarios, in agreement with the TPC, build cumulatively on the following three pillars:
Pillar 1: Compensation for loss of income
Pillar 2: Employability & Business
Pillar 3:Acknowledgment of tenure
Unemployment Insurance (UI)
Unemployment Insurance (UI)
Unemployment Insurance (UI)
On 21 September 2012, after reviewing the interim report and the four proposed scenario, the TPC decided that the most suitable model for Malaysia is the Scenario 3 which combines social insurance with ALMPs and a supplementary component of savings. However, the TPC also requested the ILO to assess the feasibility of Scenario 2 in addition to Scenario 3.
A letter of agreement to pursue the project into its Phase II was signed early December, which concluded the first phase and launched the second phase.
During a second phase, a feasibility study to define the parameters of a possible unemployment benefits system based on actuarial and legal assessments, as well as proposed institutional set-up for the implementation, including linkages with employment and skills development programs, will be conducted based on two scenarios formerly agreed. It is also expected that the feasibility study will analyze the unemployment benefits impact on the production cost and enterprises’ competitiveness. Findings of the feasibility study will be presented and discussed in a tripartite forum before the report is finalized and submitted to the government.
Reference is made to the Malaysian New Economic Model under the National Economic Advisory Council “NEAC 2010”.
In order to inspire the workforce to draw out their best, the Policy purpose include to remove labour market distortions constraining wage growth; and in achieving that purpose, the possible policy measures laid down are to (pages 124-127):
1.- Protect workers through a stronger safety net, while encouraging labour market flexibility; 2.- Revise legal and institutional framework to facilitate hiring and firing; and
3.- Raise pay through productivity gains, not regulation of wages.
Moreover, in the chapter titled “Intensifying Human Capital Development”, one of the measures proposed is enhance the labour safety net by introducing unemployment insurance. Some relevant excerpts in that section of the report are the following1:
- “Gaps and inefficiencies remain in safety net mechanisms, particularly for protection of workers. Economic transformation under the NEM is expected to result in some degree of frictional unemployment, for which an enhanced labour safety net is needed to help ease transition for workers.”
- “The current safety net system focusses on retrenchment benefits for workers laid off due to economic circumstances. Multiple problems have been encountered with this system. Businesses have closed without meeting retrenchment obligations.
Or in the case of insolvency, retrenchment benefit claims (other than outstanding wages) are not positioned advantageously for access to the proceeds from liquidation of the failed firm’s assets. An appropriate labour safety net would include an unemployment insurance scheme supported by up-skilling and retraining programmes, and upgraded employment services. Unemployment Insurance (UI) would alleviate reliance on retrenchment benefits to cover income loss from a job loss. UI would enable the risks from job market anomalies to be pooled and provide for payouts when needed, similar to any insurance model. It would need to be simple to minimize administrative costs.
Benefit payouts should be of limited duration to preserve the financial integrity of the fund. Payouts should represent partial income replacement to force beneficiaries to actively seek a replacement job. This would minimize the risk of employability from prolonged unemployment. Laid-off workers must also participate in up-skilling or retraining for continued access to UI benefits. Dedicated training facilities must be set up for this purpose.
Retrenched workers must be prepared for relocation to suitable job locations for continued access to UI benefits. Best practice calls for UI funding through levies on employers and workers. This would add to the costs of doing business, but is understood worldwide as a normal cost of business....”.
- “Mechanisms for effective job search and placement services must be enhanced and tailored for retrenched workers. This will require a consolidation of existing public job search assistance agencies into a single nationwide network leveraging internet technology. Coverage could be expanded to include private sector job search networks.
Pilot programmes could be established for job search networks for high skill workers and professionals. A side benefit of internet-based search networks is the collection of data to measure evolving demand. This data can be used to
Under the Malaysian constitutional framework, the establishment of any unemployment insurance requires a legislative reform. The Legislature of each State has the power to make laws with respect to unemployment insurance
Source: Federal Constitution of Malaysia, sections 74.2; Ninth Schedule, Legislative List, List I, section 15(b).
A.- EMPLOYEES PROVIDENT FUND ACT 1991 (Act No.452)2.
The Employees Provident Fund will be hereinafter referred to as “EPF”:
I.- CONTINGENCIES AND OBJECTIVE.
a.-Attain the age of 55 years.
b.-Mental or physical incapacity from engaging employment.
d.-Change of residence for foreign workers leaving the country with no intention of returning to Malaysia. e.-Housing (purchase or construction, or even repayment of loans for the same purposes).
h.-Taking up of insurance policy provided terms and conditions are approved by the EPF Board. Source:Sections54, 58A, 58B, Schedules Fifth and Sixth.
The objective of EPF is to provide monetary benefits once the aforementioned contingencies occur.
It could be either mandatory or voluntary:
a.-Private sector workers, including foreign workers who are permanent residents of Malaysia. b.-Non-pensionable public sector employees
b.-Foreign workers who are not permanent residents of Malaysia.
e.-Any person who is employed and whose country of domicile is outside Malaysia participating in a provident fund or other similar scheme established or administered outside Malaysia.