Retrenchment in Singapore

Amid the current economic uncertainty fuelled by Covid-19, unemployment and retrenchment in Singapore continued to rise. According to Ministry of Manpower (MOM), retrenchment rose by 108% to 6,700 between April and June, compared with 3,220 in the first quarter of 2020. The softness in the labour market is likely to persist with continued weakness in hiring and pressure on companies to retrench.

When retrenchment become the last resort, employer has to ensure fairness in retrenchment packages and process retrenchment fairly and with dignity.

We have prepared a list of FAQs for employer to note when retrenchment becomes inevitable.

What constitutes a retrenchment?

Retrenchment is the termination of employees due to redundancy or reorganisation of the business

Who should submit retrenchment notification to MOM?

Employers with business registered in Singapore and have at least 10 employees are required to notify MOM when at least 5 employees are given notice of retrenchment within any 6-month period.

Does employer need to notify MOM when employees on contract term are retrenched?

The requirement to notify MOM apply to permanent employees as well as contract employees with contract term of at least 6 months.

What is the penalty for non-compliance of mandatory retrenchment notice?

Failure to comply with the notice under Employment Act will be a civil contravention, for which administrative penalties can be imposed.

Does employer need to submit notification before retrenchment exercise is carried out?

Employers are strongly encouraged to notify MOM early of the intention to retrench and indicate their interest for workforce Singapore (WSG), the tripartite partners and other relevant agencies to provide employment facilitation assistance for affected employees.

Is retrenchment benefit compulsory in Singapore?

While retrenchment benefit is non mandated by law, MOM strongly encourages employers to adhere to the advisories, including to provide retrenchment benefit to help affected employees. Employers who do not follow the advisories may be denied future government support or have their work pass privileges suspended.

Employers are reminded to ensure that their employees are treated with empathy and dignity and the retrenchment exercise is conducted in adherence to the Tripartite advisory

Who are eligible to retrenchment benefit?

Employees with 2 years’ service or more are eligible for retrenchment benefit. Those with less than 2 years’ service could be given an ex-gratia payment.

What is the quantum of retrenchment pay-out?

The quantum of the pay-out depends on what is provided for in the employment contract or collective agreement. If there is no contractual provision, it is to be negotiated between employees and their employer.

What is the common practice for retrenchment benefit?

The common practice in Singapore is to pay between 2 weeks’ to one month’s salary for every one year of service.

Is retrenchment pay-out taxable?

Retrenchment payments that are made to compensate for the loss of employment are not taxable

Does retrenchment pay-out attract CPF?

CPF contribution are not applicable for retrenchment benefits and ex-gratia payment.

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