Singaporean Rules and Regulations for Terminating Employees
Employees or employers who wish to end the relationship between them can do so through termination of the employment contract. Both employee and employer bear certain legal obligations before, during and after employment termination, and the terms and conditions of the employment contract are to guide all terminations. It is critical that both parties take the following points into consideration prior to making the decision to terminate the employment relationship:
- the conditions under which employment can be terminated. This includes:
- who is permitted to terminate employment
- when the termination procedure can be initiated
- which forms of termination require either party to give notice or provide termination payments
- the rights, duties and responsibilities held by employees and employers who are terminating the employment
- the do’s and don’ts of termination
This guide provides a broad overview of the rules and regulations related to termination and retrenchment of Singaporean employees. This guide is provided as general information only; should you require specific advice, please contact Ottavia to discuss your circumstances.
Legislation relating to termination of employment
The principal statute governing employment termination is the Employment Act of Singapore. It mandates that all employment contracts contain a clause on termination, clearly outlining the rights, duties and responsibilities of both the employer and the employee upon termination of the relationship.
Scope of the legislation
All termination of employees protected under the Employment Act must follow the termination guidelines stipulated in the Act. All employees in Singapore are protected under the Employment Act, except domestic workers, seamen, most of the Government staff and those in executive or managerial positions. For those employees not covered under the Act, their employment termination guidelines will be mutually agreed upon by employee and employer and will be drafted with reference to company policy. It is common practice in Singapore that these guidelines largely correspond to those stipulated in the Employment Act.
Termination of an employment contract
Employment contracts can be terminated with or without the giving of notice or salary in lieu of notice by either the employee or the employer. Under certain conditions, notice periods are not applicable as the employment contract will come to a natural termination.
The below table provides a broad overview of under which circumstances either party can terminate the employment contract.
|Employer initiated termination||Employee initiated termination||Natural Termination|
|– Unsatisfactory Probation|
– Breach of contract by employee
– Employee dismissal on grounds of misconduct
– Employee dismissal on grounds other than misconduct
– Employee transfer
– Employee retirement
– Employee retrenchment
– Breach of contract by employer
|– Expiry of fixed term contract|
– End of probationary period
– Death of either party
Unsatisfactory performance during probation
- It is common practice in Singapore to have new employees serve a probationary period of between three and six months, after which they are elevated to permanent employees. However, employers may terminate the employment by paying salary in lieu of notice or by providing between one and two weeks of notice (or otherwise as stated in the employment contract) prior the completion of the probationary period.
Employee breach of contract
- In the event of breach of contract by the employee, an employee may elect to terminate the employment contract.
- Absence from work of more than two consecutive working days without employer approval or without informing the employer of said absence is considered to be breach of contract.
- In such case, the employer is entitled to terminate the contract without the provision of notice to the employee, nor the payment of salary in lieu of notice.
Dismissal of employee on grounds of misconduct
- Should an employee be found guilty of misconduct, the employer is entitled to terminate the contract without notice or payment of salary in lieu of notice.
- Misconduct refers to the employee failing to fulfil the conditions of their employment. The employment contract will usually identify acts that are considered as misconduct. Common examples include: insubordinate or abusive behaviour towards colleagues, clients or other parties, unauthorised possession of company property, negligence that challenges the safety and security of the business and of other people, et cetera.
- The law does not define a degree of misconduct that justifies dismissal.
Dismissal of employee on grounds other than misconduct
- Certain common situations can arise in which an employer has the option of resorting to dismissal of the employee. Decisions on dismissals in these situations should be made after careful thought and consultation, and after the giving of adequate warning to the relevant employee.
- These situations include: poor job performance, sickness or incapacity of the magnitude that it has a negative impact on the employee’s ability to perform their job on a day-to-day basis, incompatibility with other employees to the extent that it negatively impacts workplace relationships, et cetera.
- The employer is required to provide the employee with due notice or to pay salary in lieu of notice.
Transfer of the employee
- Where an employer wishes to transfer their employees to another employee such as an associated or subsidiary company, or an unrelated company, the employment contract may be terminated.
- Establishing a subsidiary company, sale of part of a company, merging two companies or the take-over of one company by another are all common reasons for employee transfers.
- Employers transferring employees are required to satisfy a number of requirements during the transfer process. Employs must notify the employees of the transfer, update them on the terms of the transfer, and ensure that the employees’ new terms of employment are equal to or more favourable than their current terms of employment.
- All disputes and disagreements between the new employer and the transferred employees are to be referred to the Commissioner for Labour.
Retirement of the employee
- In Singapore, the retirement age is 62. Employees nearing retirement age can be terminated through provision of advance notice as stipulated in the employment contract.
- The Retirement and Re-employment Act stipulates that employers are now required to provide re-employment to eligible employees turning 62, up to the age of 65.
- It is important to note that the law does not prescribe compulsory retirement of employees turning 62. Employees are not prohibited from continuing employment beyond the statutory retirement age.
- Employers are not required by the Employment Act to pay retirement benefits to a retiring employee unless explicitly stated in the Employment Contract.
- Retrenchment is the termination of the employment relationship by an employer because the employee’s position is or is likely soon to become redundant to the employer.
- Massive restructuring, closing of operations, or sale of a portion of the business are all reasons for an organisation to undertake retrenchment.
- Singapore employers are advised to always responsibly handle retrenchments. If the company is unionised, it is critical that employers consult with the union.
- Notice of retrenchment:
- Employers are required to serve all affected employees a notice of retrenchment.
- The duration of the notice is to be in accordance with the mutually agreed upon terms of the employment contract.
- The stipulations of the Employment Act (as outlined below) will apply where a notice period has not been previously agreed upon in the employment contract.
- Employers are advised to notify the Ministry of Manpower of any retrenchments.
- Retrenchment benefits:
- An employee is entitled to some form of retrenchment benefits where they have been employed by the same company for a minimum of three years.
- No stipulation is made by the Employment Act as to the nature, the extent or the amount of any such benefits. The specifics of any benefits to be paid are left to the mutual agreement of the employee and the employer. A payment equal to between two weeks and one months’ worth of salary is common practice in Singapore.
- Under the Employment Act, employers are not required to provide any retrenchment benefits to an employee who has been with the company for fewer than three years. However, employers may still offer an ex-gratia payment to any non-qualifying employee depending on the financial situation of the company.
- Central Provident Fund (CPF) contributions do not apply for retrenchment benefits and ex-gratia payments.
- Retrenchment payments made as compensation for loss of employment are not eligible for taxation. However, employers frequently include payments made for other purposes in the lump sum that includes retrenchment benefits, such as salary in-lieu of notice or a gratuity payment for past services. As these are considered to be payments for services and constitute gains or profits from employment, they are therefore liable for taxation under the Singapore Income Tax Act. The Inland Revenue Authority of Singapore will decide whether payments made to retrenched employees will be treated as compensation or otherwise as it is largely a question of fact.
- Alternatives to retrenchment: Retrenchment is to be considered a last resort of companies and it is suggested that companies consider the following alternatives instead:
- temporary implementation of shorter work-weeks – no more than two days a week are to be cut and this cut should not be implemented for longer than two months
- temporary lay-offs – employers are to pay a minimum of half of the affected employee’s gross salary during the lay-off period
- flexible work arrangements
- reassigning employees to alternative postings or areas of work within the company
Employee initiated termination
- Resignation of an employee from the company terminates the employment contract. Employees on probation are entitled to resign prior to the conclusion of their probationary period.
- Employees may resign by either giving notice or paying salary in lieu of notice.
- The notice period as stipulated in the employment contract is to be served. Where no such terms exist in the employment contract, the stipulations in the Employment Act are to apply.
- An employee’s resignation cannot be rejected by an employer.
Employer breach of contract
- In the event the employer breaches the terms of the employment contract, the employee may choose to terminate the employment contract.
- Asking the employee to perform work that is outside the terms of the employment contract – usually interpreted to be work that is risky or unsafe – or failing to pay the employee’s salary within seven days after payment is due constitute breach of contract.
- In these circumstances the employee is entitled to terminate the contract without needing to give the employer notice or paying salary in lieu of notice.
Retirement of the employee
- In Singapore the retirement age is 62. Employees approaching the age of retirement and wishing to retire from their role at the company are permitted to initiate termination of the employment contract the day before their 62nd The Retirement and Re-employment Act stipulates that employers are required to offer re-employment to eligible employees turning 62, up to the age of 65.
Expiry of a fixed term contract
- Upon expiry of the contractual terms, an employment contract is automatically terminated. In these cases, the employee is not required to serve out a notice period as the contractual terms have concluded.
- A ‘piece rate contract’ terminates upon the employee’s completion of a specific, pre-determined project.
- A ‘time contract’ terminates upon the expiry of a specific time-frame.
- New contracts are to be drawn up and signed if an employer wishes to engage the employee for a period exceeding that laid out in the original contract or for another project.
Conclusion of a probationary period
- The majority of new employees in Singapore serve an initial probationary period of six months.
- The employment contract terminates at the end of the probationary period.
- Should the employer wish to retain the services of the new employee in a permanent role, a fresh employment contract without a time limit is to be drafted.
Death of employee or sole-employer
- The death of an employee automatically terminates any employment contract they were a party to.
- In the event that the employer was the sole-employer, their death will also lead to contract termination.
Guidelines for termination
Notice period for termination
- The party wishing to terminate the contract is required to give notice to the other party in writing.
- The notice period given is to conform to the contractual terms agreed upon by the employee and the employer in the employment contract.
- The notice period is inclusive of the day on which the notice was given.
- Where the required notice period was not previously agreed upon in the employment contract, the following rules shall apply:
- Employment period of less than 2 weeks : 1 day notice period
- Employment period of between 26 weeks and 2 years : 1 week notice period
- Employment period of between 2 and 5 years : 2 weeks notice period
- Employment period of 5 years or more : 4 weeks notice period
- Mutual agreement of the parties can waive the notice period.
- Employees who fully serve the required notice period are entitled to receive contributions to their Central Provident Fund (CPF) account on any notice period salary received.
Termination by payment of salary in-lieu of notice
Where salary has been paid in lieu of notice, Central Provident Fund (CPF) contributions are not applicable.
Employment during the notice period
Both employee and employer are still bound by the terms of the employment contract until the end of the notice period, and both parties are required to duly discharge their duties while an employee is serving their notice period. The employee is not permitted to commence work with a new employer prior to the date of termination.
Offsetting the notice period with accrued annual leave
An employee is permitted to offset the notice period with any accrued annual leave. Where an employee exercises this right to bring forward their last day of work, he will only be paid until this last day of work, not the original last date. The employer will not pay for any annual leave used to offset the remaining notice period.
Annual leave taken during the notice period
Please note that there is a difference between using annual leave to offset the notice period and going on annual leave during the notice period. Employees are free to use their annual leave during the notice period, enabling them to receive their salary for the full notice period. This is because there is no instance of the employee bringing forward their last day of work, and they are considered an employee of the company until the last day of the notice period. Conversely, this means the employee can only begin working at their new employer after the end of the notice period. All unused annual leave can be encashed by the employee. Employers cannot force employees to go on annual leave during the notice period.
Sick leave taken during notice period
All paid or unpaid sick leave taken by the employee during the notice period is to be treated as part of the notice period.
Termination and maternity leave
- Employees are not permitted to resign from their position while on maternity leave and cannot use the maternity leave period as a notice period for termination of employment.
- Employers are prohibited from dismissing employees currently on maternity leave. Failure to comply with this regulation will attract peanlties.
- Employers are required to pay any maternity benefits that their employee is eligible for
- if a notice of dismissal is given to the employee without sufficient cause within six months of the maternity leave period ending.
- if the employee is retrenched within three of months of their confinement. This payment is to be made in addition to any retrenchment benefit which the employee is entitled to receive.
Infant care/childcare leave and the notice period
Any childcare or infant care leave that an employee is entitled for cannot be used by the employee to offset the notice period.
Appeals against dismissals
Employees who consider their dismissal to be unfair are entitled to make a written appeal within one month of their dismissal to the Ministry of Manpower. Should the dismissal be proven to be unfair, the Minister may either compel the employer to reinstate the employee and pay them for the period they were dismissed for, or order them to pay compensation.
Termination of foreign employees
- Cancellation of Employment Pass or S Pass on termination: Termination of the employment of foreign employees working on an Employment Pass or S Pass requires that the employee cancel the Employment Pass or S Pass within seven days of their termination. Upon cancellation, they will be issued with a 30-day short term visit pass. All other passes relating to the main pass will also be cancelled upon cancellation of the main pass. Unless the holder of the Employment Pass or S Pass has received a valid alternative visa (as described above), they and any related pass holders are not permitted to remain in Singapore beyond the date of employment termination.
Tax clearance is required for holders of Employment Pass or S Pass upon termination of their employment, to ensure that all due taxes have been paid. The employer is required to notify the Inland Revenue Authority of Singapore (IRAS)upon termination and withhold all payment due to the foreign employee from the day they notify the employer of their intention to cease employment, or upon the employer making the decision to terminate their employment. After IRAS has completed its assessment and issued a tax clearance certificate to confirm that all due taxes have been paid, the employer is free to release the payments due to the employee.