In principal the Employment Insurance System (EIS) is a welcomed scheme that provides a social safety net for workers, especially in the vulnerable sectors.
It provides temporary income relief for retrenched workers who have not been paid termination or lay-off benefits as indicated in the Employment Act 1955.
And this is an idea that has been championed by NGOs, trade unions and other stakeholders.
But there is a snag.
EIS Financial Model Burdens Workers and Employers:
This is how the scheme, managed by the State, would work: it requires a contribution of 0.5 percent of monthly wages from workers and employers.
For example, a worker earning 2000 ringgit would pay ten ringgit and his employers would contribute the same amount, making it a total of twenty ringgit.
If we multiply this by 6.5 million private sector worker covered by the scheme and further multiply by twelve months, we will have a grand total of 1.56 billion.
Thus, in any given year, the operational base of EIS is 1.56 billion ringgit.
It is this money that will be distributed to people who get thrown out of jobs.
It has been suggested that approximately 35,000 workers were retrenched between 1998 and 2016.
This works out to 18 retrenchments per year.
However, let’s assume a worst case scenario where 35,000 retrenched workers in any one year are given a 15000-ringgit compensation package per person.
This amounts to a total pay-out of 525 million ringgit, leaving a surplus of 1.04 billion ringgit, to be brought forward to the following year.
The remaining surplus will snow ball over the years into a huge fund such as the Human Resources Development Fund (HRDF), Socso and EPF.
The question that arises is why collect a huge amount of money when the retrenchment payment is only 30 percent of total collections.
This money will be underutilized and sit idle.
Why burden workers and employers, especially in the small and medium industries, who are already feeling the sting of stagnant wages, high cost of living, GST plus payments for SOCSO and EPF?
Employers, who are already facing exchange rate losses, will now be saddled with EIS contributions on top of SOCSO, EPF and GST payouts.
Thus the scheme may lead to workers losing their jobs as higher production costs will make employing foreign and undocumented workers very attractive.
A possible alternative: Tripartite Arrangement (Government, Employers and Trade Unions):
A possible alternative strategy in organising the EIS finances would be to use surplus funds that exist in HRDF and SOCSO more effectively.
This together with a one-ringgit contribution from each worker, payments from employers and government in the next years could make the scheme highly sustainable in the long run.
What is needed is political will on the part of the government to commit seven hundred and fifty million ringgit from HRDF to EIS coffers.
With this strategy the scheme can be implemented by the end of the year as opposed to the planned two years.
The one ringgit strategy would contribute about 19.5 million ringgit towards the EIS coffers.
It has been reported that HRDF cash surplus in 2014 was 1.1 billion ringgit, with 1.3 billion ringgit and 1.2 billion ringgit in the following two years respectively.
This, together with payments from workers, employers and the government would give a further annual income of 19.2 million ringgit.
Through this strategy, the government could contain financial burden of workers, use underutilised HRDF funds optimally and reduce financial burden of employers.
And the EIS does not become a burden to its key stakeholders.
The Government has to make public the risk impact assessment:
As such, before jumping to implement its plan, the government must do an impact assessment to see how it affects workers and small and medium industries.
Further, the government needs to explain the basis of using 0.5 percent monthly wage rate contribution as opposed to 0.2 percent.