While many stakeholders are still unconvinced about Malaysia's forthcoming employment insurance system, its long-term benefits will outweigh short-term pain, says Errol Oh
This article was first published in the May 2016 Malaysia edition of Accounting and Business magazine.
The employment landscape in Malaysia has shifted considerably in recent years. Before 2013, there had been no minimum wage policy; nor had there been any law on the retirement age of private sector employees.
That year, it became a legal obligation for employers to pay monthly wages of at least RM900 in peninsular Malaysia and RM800 in Sabah and Sarawak. Last July, the floors were raised to RM1,000 and RM920 respectively.
It was also in 2013 that the Minimum Retirement Age Act came into effect, making it an offence if an employer retires an employee younger than 60.
There will soon be another big change: the introduction of an employment insurance system. In a 23 March press statement, Prime Minister Datuk Seri Najib Tun Razak said that the government had agreed to implement the system for the 6.5 million Malaysians working in the private sector. The proposed law will be tabled in parliament in June and the new act will be enforced from January next year. Employers and employees will contribute to the scheme.
Despite the name, the system covers more than just compensation for those who lose their jobs and funding for insurance. It also encompasses programmes for retraining, and job placement and relocation. Some observers also expect that the system will require a revamp of the retrenchment benefits currently provided for under the Employment Act, although the government has yet to say anything about this.
Earlier in March, the Malaysian Employers Federation (MEF) issued a statement to register its objection, saying that the scheme would increase the cost of doing business and hurt the competitiveness of employers. And, on the same day that the prime minister issued the statement, around 90 industry bodies and chambers of commerce got together to express similar sentiments.
Neither the proposal nor the business community’s disapproval is new. The policymakers began to seriously consider employment insurance after the National Economic Advisory Council formulated a New Economic Model for Malaysia in 2010. This vision includes the introduction of unemployment insurance to strengthen the labour safety net supported by up-skilling and retraining programmes, and upgraded employment services.
In 2012, the government engaged the International Labour Organization (ILO) to help design the system. The first phase was to build consensus among the government, employers and workers; the second involved feasibility studies to determine the legal, institutional, operational and actuarial components of the proposed system.
The ILO released its report on the studies in 2015. Somewhere along the line, it was decided that employment insurance sounds better than unemployment insurance.
The first phase of the project must have been painful. According to the ILO, some stakeholders, such as the MEF and the Federation of Malaysian Manufacturers, questioned the need for any employment insurance system at all. But the ILO is convinced that the timing is right because Malaysia’s current high rate of employment allowed the establishment of an unemployment protection system at a comparatively low cost.
The challenge now is to convince all stakeholders to focus on the big picture and to accept that the system’s long-term benefits will outweigh the short-term pain. Fortunately, the government is experienced in implementing unpopular but necessary measures.
Errol Oh is executive editor of The Star