What is the Purpose of EIS in Malaysia?

If your company hires employees in Malaysia, chances are you’ve seen EIS deductions on monthly payroll reports. But what exactly is EIS, and why does it matter for HR and employers?

The Employment Insurance System (EIS) was introduced by PERKESO (SOCSO) to support Malaysian workers who lose their jobs. It’s a protection scheme meant to help employees stay afloat and find new opportunities during tough times.

Read the article below to know the purpose of EIS, who must contribute, how much to deduct, and what HR teams need to know when managing employee exits and payroll compliance.

What is Employment Insurance System (EIS)

EIS is a social security scheme that provides temporary financial relief and job placement support to workers who lose their jobs involuntarily. It was introduced under the Employment Insurance System Act 2017 and is managed by PERKESO (also known as SOCSO).

It is like a safety net for employees. If someone gets retrenched, their contract ends unexpectedly, or their company shuts down, EIS steps in to help with temporary income, training, and re-employment services.

The system aims to reduce the long-term impact of unemployment, especially in industries where layoffs happen due to restructuring, economic shifts, or company closures.

What is the purpose of EIS in Malaysia?

The core purpose of EIS is to support Malaysian workers during job loss while helping them find new employment quickly. From a national perspective, EIS contributes to economic stability by reducing the risks of long-term unemployment and protecting families from sudden income shocks.

EIS is part of your role in the company to make a broader employment ecosystem. You contribute to the fund every month, and in return, your employees have access to financial assistance and job matching services if they lose their jobs through no fault of their own.

It also eases the burden during retrenchment exercises. Instead of cutting ties without a support plan, you’re helping your staff land on their feet.

Who Must Contribute to EIS?

EIS contributions are mandatory for most private-sector employers and employees.

Employers: All private companies must contribute, except for government agencies, domestic helpers, and self-employed individuals.
Employees: All Malaysian and permanent resident employees aged 18 to 60 years old must be covered. However, employees who are 57 years old and above, and have never contributed to EIS before, are exempt.

EIS applies whether your employee is full-time, contract-based, or part-time, as long as they’re under a valid contract of service.

Employer & Employee Contribution Rates

The EIS contribution is split equally between the employer and the employee:

Employer: 0.2% of the employee’s monthly wages
Employee: 0.2% of monthly wages

You need to deduct this from payroll every month and submit the contribution to SOCSO, alongside other statutory payments like EPF and SOCSO contributions.

What Benefits Does EIS Offer?

If an employee is retrenched or loses their job involuntarily, they can apply for various benefits under EIS. These include:

Job Search Allowance (JSA): Monthly payouts for up to 6 months while the employee looks for a new job.
Reduced Income Allowance (RIA): For those who work part-time during the unemployment period.
Early Re-Employment Allowance (ERA): A bonus for finding a job faster than expected.
Training Fee Coverage and Allowance: Funding for job-related training courses to help workers reskill.
Employment Services: Counselling, job matching, and career coaching provided by PERKESO.

EIS Claim Process for Employees

If an employee becomes unemployed, they need to start their EIS claim within 60 days of losing their job. The steps are:

Register and submit documents through the EIS Perkeso Portal.
Attend an interview with a PERKESO officer.
Receive job placement support or get referred for training programmes.

If your employee wants to claim EIS, help them by verifying the claim if needed and providing employment records when requested.

Employer Obligations Under EIS

So, what do HR and employers need to do to stay compliant?

Submit EIS contributions monthly, along with other SOCSO payments.
Inform employees of the EIS deduction on their payslips or employment letters.
Assist with claim verification when former employees apply for EIS benefits.
Keep accurate payroll records that include all deduction amounts and contribution dates.

Penalties for Non-Compliance

Failure to deduct or submit EIS contributions is a serious offence. Employers who neglect this responsibility can face:

Fines
Legal action
Audit investigations by SOCSO

Tips for HR Teams

Managing EIS contributions and processes doesn't have to be stressful. So, how HR teams can stay on track:

Use payroll software like Kakitangan or PayrollPanda to automatically calculate and deduct EIS contributions.
Include EIS breakdowns on employee payslips to promote transparency.
Prepare a clear exit SOP for employee terminations that includes EIS claim guidance.
Train your HR team on how EIS works so they can answer questions confidently.

FAQs

What is the contribution rate for EIS in 2025?

It remains at 0.2% each from employer and employee, based on monthly wages.

Are part-time or contract employees eligible for EIS?

Yes, if they are hired under a contract of service and meet age eligibility.

How long does it take for EIS claims to be approved?

Processing timelines may vary, but most claims are reviewed within weeks of submission, provided all documents are complete.

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