Facilitating the Design of an Unemployment Insurance System in Malaysia
In line with the 2010 New Economic Model (NEM), the Government aims at transforming Malaysia into a high income, inclusive and sustainable economy by 2020. As part of the policy measures for intensifying human capital development, NEM proposes to modify the current labour law into a modern one entailing full flexibility in the hiring and separation of workers, enhancing the workers safety net through the introduction of unemployment insurance through unemployment insurance and integrated employment services.
The Government of Malaysia requested technical assistance from the International Labour Organization (ILO) to support and facilitate the design of an unemployment insurance system. Subsequently, in early 2012, the 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 (TPC) 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). The TPC is chaired by the Chief Executive Officer of SOCSO.
The Project “Supporting and Facilitating the Design of a UI system in Malaysia” has been developed into phase 1 and phase 2.
Final Report
Design of an employment insurance system for Malaysia
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.
The Regional Workshops took place in Sabah and Sarawak, respectively on 20 and 21 May 2012; and the National Tripartite Workshop on 22 May 2012 in Kuala Lumpur.
Findings of the Regional Workshops in Sabah and Sarawak
Programme of the National Tripartite Workshop
ILO's opening remarks to the National Tripartite Workshop
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;
4. 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 involuntary;
• 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 Unemployment Insurance (UI)
- Pillar 2: Employability & Business Protection (ALMPs)
- Pillar 3: Acknowledgment of tenure + Savings Accounts (SA)
On 21 September 2012, after reviewing the interim report and the three proposed scenario, the TPC decided that the most suitable model for Malaysia is a scenario which combines social insurance with ALMPs and a supplementary component of savings (UI+ALMPs+SA). However, the TPC also requested the ILO to assess the feasibility of Scenario 2 (UI+ALMP) in addition to Scenario 3.
In this phase, a feasibility study including options for the institutional set-up, financial parameters, a draft law revision (including implications on provisions related to the retrenchment pay), and an implementation plan for the introduction of an unemployment insurance system in Malaysia is being conducted. The feasibility study, conducted by the ILO, includes an actuarial and legal assessments, as well as proposed institutional set-up for the implementation, including linkages with employment and skills development programs. It is also expected that the feasibility study will analyze the impact of introducing an employment insurance system on the production cost and enterprises competitiveness.
On 2 October 2013, in Kuala Lumpur, a technical workshop will be held to present and discuss the findings of the feasibility study among tripartite stakeholders, before the report is to be finalized and submitted to the Government of Malaysia.
The objectives of this workshop are:
- Sharing the findings of the actuarial, institutional and legal assessments on a selected scenario and various pillars;
- Gaterhing feedback from social partners (the feedback will represent views of all groups, and will be led by MEF and MTUC) and key stakeholders.
Tripartite Project Committee:
Mr Mohd Sahar Bin Darusman, Deputy Secretary General (Policy)
Datuk Selvarajah, Chief Executive Officer, Director General, SOCSO
Dr. Michael Chiam, Vice President, MEF
Mr. Abdul Halim Bin Mansor, Deputy Secretary General, MTUC
Mr. Ong Kim Seng, General Manager, Risk Management Division, SOCSO
International Experts
Ms. Valerie Schmitt, Social Security Specialist, ILO DWT Bangkok
Ms. Celine Peyron Bista, Chief Technical Advisor, Unemployment Protection, ILO ROAP Bangkok
Mr. Pong-Sul Ahn, Workers' Activities Specialist, ILO DWT Bangkok
Mr. Gary Rynhart, Employers' Activities Specialist, ILO DWT Bangkok
Mr. Jajoon Coue, International Standards Specialist, ILO DWT Bangkok
Mr. John Carter, International Unemployment Insurance Expert
Mr. Michel Bedard, International Actuary Expert
Mr. John Mark Keyes, International Legal Expert
Mr. Fernando Villalobos, Expert on labour and social security laws
Country Factsheet: Unemployment protection reform and extension of social security coverage
Matrix of the legal review of unemployment protection provisions
Employment Act, 1955
Employees' Social Security Act, 1969
Employment Provident Fund Act, 1991
Pension Act, 1980