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Sunday, 26 March 2017

Mohamed Rafick Khan : Employment Insurance Scheme Part II



Employment Insurance Scheme Part II

The statistics related to unemployment in this country clearly indicates that the government proposed EIS is not practical and certainly not timely. It raised suspicion whether the government is trying to sustain SOCSO existing schemes growing deficit by adding more small benefits but amount collected is overly disproportionate to the intent purpose of the proposal.

From MEF website, it was reported that contribution would come from the entire private sector workforce which would charged employers and employees at an equal contribution by employer and employee (0.25% of gross salary). It is estimated that the total annual contribution to be collected is estimated at RM1.142 billion (Based on RM2800.00 average salary per month). Anecdotal statistics indicates that potential retrenched staff who are not paid termination benefits is only 0.03% of the entire workforce which is equivalent to RM17.13 mill. This represent only 1.5% of the amount collected. Assuming if the figures would have tripled in the next few years, this would still mean that the proposed scheme has an excess of 95% of the collection.

At the height of the Asian Financial crisis in 1997-98, the number of employees retrenched was only about 0.6% of the total workforce. From the retrenched employees, 95% received their termination benefits while only 5% (which is effectively only 0.03% of the total workforce) were left without getting any compensation. Clearly if the intent of EIS is to look after the interest of these 0.03% of the retrenched workers who were not paid retrenchment benefits, the structure of any proposal should be proportionate to the potential pay out to these workers. 

It does appears that SOCSO is trying to build up is coffers in view of the growing annual deficit to ensure the long term survival of the organization without the need for government to step in financially. It is important that SOCSO be transparent on the statistics. If the existing SOCSO schemes are not sustainable, the government must determine the root cause and apply appropriate measures to ensure its long term sustainability

Based on the statistics above, quite clearly that the issue can be resolved by strengthening the labour law and enforcement to ensure that no employers can escape from paying termination benefits or they are subjected to pay a minimum termination benefits equivalent to the proposed coverage by SOCSO.

The issue is not EIS or SOCSO but rather inappropriate action proposed to resolve a small problem that can be managed by alternative solution. It also makes Malaysia less competitive from business index point of view. It is akin to applying a broad spectrum antiobic to treat a small skin infection. I believe the simplest and practical action without the need further reduce our business environment index is amending the Employment Act and include a provision for minimum termination benefits. 

Dr. Mohamed Rafick Khan
drrafick@gmail.com