Malaysia plans to introduce a mandatory employment insurance scheme next year to protect workers – but employers’ groups argue that the low rate of retrenchments does not justify the heavy cost.

Two major groups representing employers and manufacturers said less than 0.5 per cent of the workforce of 14 million are laid off in any given year, yet the proposed scheme would incur costs for all employers and employees.

The new scheme is slated for launch early next year. Organisations and workers will contribute to a fund to be used to pay benefits to those whop are retrenched, or whose employers are made bankrupt or abscond.

Laid-off workers are expected to receive benefits for three months as well as support in job search, counselling and training.

Since 2012, between 26,000 and 45,000 workers are reported to have been made redundant each year but the numbers could be higher due to under-reporting, said Malaysia’s Social Security Organisation in an April press report.

Shamsuddin Bardan, executive director of the Malaysian Employers Federation which includes 5,000 individual employers and 22 industry groups, said such centralised schemes are very expensive to run, and typically use around 20 per cent of the fund for administration.

With the low rate of retrenchments in Malaysia, he said it made more sense for employees to make additional contributions to the existing provident fund, to be withdrawn if retrenched. Organisations should be left to manage their own retrenchment funds, he argued.

He conceded there had been cases of workers being retrenched without benefits, but said the number was small enough to be managed without such a large fund being created.

“We are very much against this: we do not see the need for such a large fund to support a very small number of affected workers,” he said.

The MEF’s position is supported by the Federation of Malaysian Manufacturers (FMM) which, according to a press report in March, had asked for a deferral of the scheme. FMM, which represents 2,800 manufacturing and industrial service employers, said Malaysia already had high regulatory costs, and this additional tax would affect businesses’ sustainability.

Malaysia’s largest employee union, however, supports the proposal, amid fears of a potential increase in lost jobs due to the uncertain economic conditions and increasing automation.

The Malaysian Trades Union Congress, which represents 500,000 workers, was quoted in a press report in March as saying that insurance was important as almost 100,000 workers were deprived of termination benefits over the last 10 years. Malaysia’s Socialist Party, which champions labour issues, said the proposed scheme would offer more comprehensive protection for workers, especially the vulnerable lower-income group.

Its secretary-general, A. Sivarajan, noted that such insurance schemes have been adopted by many other countries, and form part of the recommendations of the International Labour Organisation for worker protection.

The law is scheduled to be presented to Parliament in July.