2018 will be the rise of new statutory obligation in the employee-employer relationship through the Employment Insurance System (EIS) or ‘Sistem Insurans Pekerjaan (SIP)’. Starting with the wages of employees for the month of January 2018, all employers and employees are required to contribute a total of 0.4% out of the assumed monthly wages for EIS.
This system is introduced by the Malaysian Government to provide workers who lost their jobs with temporary financial assistance. In other words, it is intended to act as a “safety net” for all employees who have been retrenched but subject to certain conditions. If the contract of employment is terminated on grounds such as misconduct or the expiration of a fixed term contract, then this system is not applicable to such circumstances.
The employers have two main legal duties in preparing themselves for the EIS. Firstly, they need to register their industry as well as employees working for them via forms provided by the SOCSO. If employers have registered their employees under the SOCSO before the year 2018, then they don’t have to register their employees since they have been deemed to have registered under the EIS. This means, employers can skip this step of registration and jump into the next one – to CONTRIBUTE. However, if employers enter into a new contract of service in the future, then they need to register and insure the new employee within 30 days from the date of commencement of work.
The next step is to contribute from the employees’ wages for the month of January 2018, where a deduction of 0.2% out of an employee’s monthly wages shall be done. Wages under this system refer to remunerations of money payable to employees and it includes holidays, overtime and extra work on holidays. The overtime done in the month of December 2017 can be excluded in making contributions of this system provided that employers do the needful to count the exact amount of overtime(s) in December 2017 that are paid in the month of January 2018. These contributions shall be done by both parties; employers and employees until the employees attain the minimum retirement age.
These two steps are mandatory for employers to oblige whereby failure to do so will cause employers to be fined up to RM10,000 or 2 years imprisonment or both. Other than these two legal obligations for the preparation of implementation of EIS, employers shall educate their employees on these deductions by engaging with them on this new system and calculate their budget of expenditures on payrolls for such deductions.