IN five years, freelancers and “gig” workers will be the norm and likely outnumber those with permanent jobs in many companies, said a top employers’ group, as businesses seek to cut costs and pursue leaner operations.

More and more employers in Malaysia are also offering short-term contracts of three to six months to fresh graduates to cut costs, said the Malaysian Employers Federation (MEF) executive director Shamsuddin Bardan

“Businesses have become more selective of who they hire on a permanent basis because they do not want to be stuck with people who don’t perform. At the same time, they are looking at reducing their staff costs,” Shamsuddin told The Malaysian Insight.

But while the trend may benefit employers, it carries long-term economic and social risks, said economist Dr Yeah Kim Leng.

Freelancers and workers of the gig economy often lack welfare protections, such as injury and medical coverage.

They also struggle to save for their old age, as unlike permanent employers, their clients do not have to contribute to their retirement savings.

The growth of this type of workers has already reduced contributions to the Employees’ Provident Fund (EPF). The mandatory retirement savings scheme for private sector workers recently said its coverage of the workforce dropped to 40% last year.

EPF chief executive officer Tunku Alizakri Alias said the fund’s reduced subscribers could be due to more workers entering the informal sector, which includes job-based gigs and freelance work.

When freelancers don’t save, they will not have enough money to sustain themselves in their old age, raising the risk of higher government spending on welfare aid, said Yeah of Sunway University’s Business School.

“There is a need to look into an EPF-style scheme and social protections for freelancers.

“This is because you don’t want the economy to be vulnerable to large groups of people who are in precarious jobs or senior citizens who don’t have enough to live on.”

Savings for old age

Precise data on the size of the gig economy and the freelance workforce is hard to come by. But EPF estimates that they are a part of the informal sector, which also includes small-scale food operators, agricultural workers and taxi and lorry drivers.

These include ride-sharing drivers, despatch riders for food-delivery companies as well as freelancers in the creative industries, such as entertainment and advertising, and in accountancy, IT and the media.

In its 2017 report, EPF said of the more than 22 million Malaysian workers, only 6.8 million are active contributors to the fund, while about 1.7 million are civil servants covered by the public sector pension system.

This leaves about 13.7 million self-employed or freelance workers not covered by EPF or any formal social protection programme.

According to EPF officials, the informal sector has grown by 31%, faster than jobs in the traditional formal sector.

In 2010, the government introduced the 1Malaysia Retirement Savings Scheme (SSP1M) to encourage freelancers and the self-employed to save with EPF.

The government contributes 10% or a maximum RM120 per year to self-employed workers who also get to enjoy annual dividends. From 2018 to 2020, the government increased its contribution to 15% or a maximum RM250.

As of December 31, 2017, there were 90,599 SP1M members with a total savings of RM525.31 million, said EPF. This translates to only 0.66% of the 13.7 million workers in the informal sector.

Fair terms

Yeah said some industries in the informal sector, such as ride-hailing and food delivery, have grown so big that there is room for a minimum form of regulation to protect the workers.

“We don’t want to regulate too much to the point the industry cannot grow. But some industries have reached enough critical mass that they should be able to accept a minimum form of regulation.”

MEF’s Shamsuddin echoed this, saying that food-delivery workers, for instance, should be given some form of disability and injury protection under the Social Security Organisation.

There should also be more stringent rules for contracts and agreements between clients and freelancers.

“Right now, these agreements are not properly done and when a client does not pay up, it’s very difficult and expensive for the freelancer to pursue the case in court. This is extremely unfair to these the workers because they end up getting nothing for their labour.”

Shamsuddin added that not all jobs are compatible with contract or freelance employment either.

“For instance, doctors and nurses, as well as financial officers, should be employed as permanent staff. At the end of the day, loyalty is an issue and freelancers are only loyal to those who pay the most.” – April 10, 2019.