Editor’s Note: This post was originally written on 4 June 2020, but has been updated and republished to for the year 2023. Rates and figures mentioned below are applicable for 2023 and beyond, until there is further revision.
With rising recession risks all over the world, businesses and institutions in Malaysia stand to bore the brunt. Millions of jobs around the world continue to be affected after Covid, with governments industriously doling out measures to ensure their people are still able to meet their daily needs. This includes job loss prevention, upskilling, and the provision of unemployment aid, such as employment insurance.
Malaysia braces for the recession
Speaking of government measures, did you know that Malaysia has its own unique employment insurance system? Somewhat similar to the unemployment benefits countries like Finland and Switzerland provide (i.e. unemployment allowance, housing allowance, social assistance), Malaysia also provides various types of unemployment aid to workers who have lost their jobs.
Now, most Malaysians would know about EPF, but what about EIS? If you haven’t noticed, take a look at your payslip. You’ll see the word “EIS”, followed by a small deduction.
Used interchangeably, EIS / the EIS / EIS Perkeso, represents the Malaysian employment insurance system mentioned above.
What exactly is the EIS?
Managed by the Social Security Organisation (SOCSO), EIS / the EIS / EIS Perkeso, is the abbreviation for the Employment Insurance Scheme. The Malay name for it is Sistem Insurans Pekerjaan, or SIP.
In this article, we’ll be using “EIS” to denote all the terms above.
In our 3-min explainer on EIS, we describe EIS as a financial scheme to help Malaysians cope with retrenchment and job loss.
For up to six months, EIS would provide cash allowance, as well as other unemployment benefits like job counselling, training, and matching.
As with many employment insurance systems in the world, such as South Korea, EIS is not fully funded by the government. Instead, the individual has a responsibility to contribute to the scheme. This is why you have been seeing EIS deductions in your payslip. In the event of retrenchment, you can be assured that you have set aside something to tap on.
Is EIS the same as EPF?
Both the Employment Insurance System (EIS) and the Employees Provident Fund (EPF) function similarly such that a portion of your wages goes into a pooled fund. However, EIS and EPF are not the same thing.
Besides contributing to EPF, you will also need to contribute a separate amount to EIS. They are two separate entities.
We’ve created a comparison table below:
|Employment Insurance Scheme (EIS)||Employees Provident Fund|
|Effective 2018||Effective 1991|
|Governed under the Employment Insurance System Act 2017 and administered by Social Security Organization (SOCSO)||Governed by the Employee Provident Fund Act 1991|
|Compulsory unemployment aid scheme for all Malaysian citizens and permanent residents in the private sector, aged between 18 – 60||Compulsory pension scheme for all Malaysian citizens and Malaysian permanent residents, no minimum age limit|
|Provides monetary benefits and job-search assistance, in the event of loss of employment||Provides retirement savings. The fund can also be used for certain investments prior to retirement|
|Both employee and employer make monthly contributions||Both employee and employer make monthly contributions|
|Claims can be made via the Job Search Allowance (JSA)||Money can be withdrawn at retirement, or for special purposes before then|
Is EIS the same as company insurance for employees?
If you’re wondering if the Employment Insurance System (EIS) also covers medical insurance, group health insurance, employee insurance coverage (life or term), or employer’s liability – the answer is no.
Because, as mentioned earlier, EIS is only a job-loss coverage scheme (i.e. used for only when you lose your job).
Some may think that the EIS is government insurance. Well, they’re not exactly wrong. It is mandated by the government; however, the government does not buy the insurance for you. Instead, your and your employer “buy” your employment insurance. For you, it is done by taking a small portion of money out of your wages. For your employer, they will need to contribute that amount on top of your wages.
Therefore, you will still need to ensure that your employer provides adequate medical and work-related accident coverage. In addition, you may want to consider purchasing some personal insurance, depending on you and your family’s needs.
Who qualifies for EIS?
Every employee in the private sector who is a Malaysian citizen or permanent resident aged between 18 to 60 years old qualifies for EIS.
An employee is a person employed by an employer under a service contract or apprenticeship. The service contract or apprentice is either written or oral, express or implied.
However, this does not extend to domestic workers, the self-employed, civil servants, and workers in local authorities and statutory bodies. After all, the Employment Insurance System Act 2017 does not include these individuals. In addition, workers aged 57 and above who have never paid contributions before that age are also exempted.
A simple way to remember is this: EIS falls under the same category as SOCSO in terms of eligibility of contribution. This means, whoever is eligible to contribute to SOCSO, they are also eligible to contribute to EIS.
Now that you know who qualifies for EIS, let’s explore when the EIS actually applies to its qualified registrants.
When does the EIS benefit me?
EIS is meant to support those who have been retrenched from their jobs, or who resigned due to threats to themselves or their families.
In other words, you qualify for EIS benefits when losing your job was out of your control, or when you had no other choice but to quit.
EIS covers these situations of loss of employment:
- Normal retrenchment and redundancy
- VSS/MSS (Voluntary/Mutual Separation Scheme)
- Closure of the company due to natural disasters
- Bankruptcy or closure of the company
- Constructive dismissal
- Resignation due to sexual harassment or threats made in the workplace
- Resignation after being ordered to perform dangerous duties that are not within the job scope
What situations do not count towards loss of employment?
Situations where it is not classified as loss of employment are:
- Dismissal due to misconduct by the employee
- Voluntary resignation (not due to harassment, threats, or danger)
- Expiry of a fixed-term contract (includes unconditional termination of a contract based on an employer-employee agreement or the completion of the project stated in the contract)
How do I apply for EIS?
You do not have to manually apply for EIS.
Every employee in the private sector who qualifies for EIS will automatically enrol in the system. Monthly salary deductions are automatic. It is the employer’s responsibility to check that these deductions are correct.
For the application of EIS benefits, if you do lose your job (e.g. claiming of cash allowances and job-search assistance), you will need to apply online or in-person at any PERKESO office. More details will be provided in Parts 2 and 3 of this article series.
Can I opt out of EIS?
Unfortunately, you can’t.
EIS is compulsory in Malaysia (except for those who are excluded – see above “Who qualifies for EIS“). Any failure to comply can result in an RM10,000 fine and/or jail time for up to 2 years.
Now that you know what Malaysia’s Employment Insurance System (EIS) is all about, the next article (Part 2) will show you how to calculate EIS, and how contributions are made from your monthly salary.
Regardless of whether you are an employee or employer, the next article will surely be useful to you.