On 25 June 2024, two significant amendments were passed: the Employees’ Social Security (Amendment) Act 2024 and the Employment Insurance System (Amendment) Act 2024. These changes are set to further impact the social security landscape for employers and employees in Malaysia.
What are the Key Changes?
The amendments basically focused on two key areas:
- The maximum limit of the insurability amount of wages for an employee has been raised from RM5,000.00 to RM6,000.00 per month under both the Employment Insurance System Act 2017 (“EIS Act”) and the Employees’ Social Security Act 1969 (“SOCSO Act”)
- The mandatory contribution rates payable by employers and employees have been updated. For SOCSO, the increase in the employer’s contribution ranges between RM1.70 and RM17.50 per month. For EIS, the increase in the employer’s contribution ranges between RM0.20 and RM2.00 per month.
Impact on Businesses
Prior to these amendments, the wage ceiling for Employees’ Social Security was RM5,000.00 (amended in 2022). This meant that even if an employee earned more than RM5,000.00 a month, their contributions were capped at the RM5,000.00 rate. The recent changes will further increase the maximum limit of the insurability amount of wages for an employee from RM5,000.00 to RM6,000.00 per month under both the Employment Insurance System Act 2017 (EIS Act) and the Employees’ Social Security Act 1969 (SOCSO Act).
While these legislative changes aim to improve social security coverage, it also introduces new financial and compliance responsibilities for employers, as below:
- Financial Planning: Employers will need to account for the increased contribution rates in their financial planning. The additional cost, although not substantial on a per-employee basis, can accumulate, especially for businesses with a larger workforce.
- Compliance Requirements: It is also crucial for employers to update their payroll systems to reflect the new insurability limits and contribution rates as non-compliance can result in severe penalties, including imprisonment of up to 2 years, fines not exceeding RM10,000, or both under Section 94 of the EIS Act and Section 16 of the SOCSO Act.
- Employee Benefits: Employees earning above RM5,000.00 per month will benefit from an improved social security coverage, which can be a positive aspect in terms of employee satisfaction and retention.
With these amendments to the Employees’ Social Security and Employment Insurance System Acts, employers, particularly in the startup and SME sectors, must be proactive in adapting to these changes to ensure compliance and leverage the benefits of enhanced employee coverage.
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This article was written by Low Rui Thong (Pupil in Chambers) from Donovan & Ho’s corporate practice.
Donovan & Ho is a law firm in Malaysia, and our employment practice group has built a reputation for providing strategic employment advice to local and global organisations. Our team of employment lawyers provide advice on employment law and industrial relations including review of employment contracts, policies and handbooks, advising on workforce reductions, and managing dismissals of employees for poor performance or misconduct. We also represent clients in unfair dismissal claims and employment-related litigation. Have a question? Please contact us.
