An employer or employee who wishes to end the employment relationship may do so by terminating the employment contract. Employment termination entails certain legal obligations on the part of both the employer and employee. Any termination must follow the terms and conditions that are spelt out in the employment contract. Before either party takes the decision of terminating the employment relationship, it is important to take the following points of consideration into account:
- the conditions under which employment can be terminated including who can terminate employment, when can a termination be initiated, what types of termination require notice, termination payments etc.
- the rights, duties and responsibilities of employers and employees who are terminating the employment
- the do’s and don’t’s of termination in Singapore
This guide will help you understand the basic rules and regulations governing employee termination and retrenchment in Singapore. The guide is for general information only and not meant to replace professional advise.
Legislation Governing Employment Termination
The Employment Act of Singapore is the principal statute governing termination of employment. Every employment contract must contain a clause on termination, outlining both the employers and employees rights, duties and responsibilities on termination of employment.
Scope of the legislation
Employment termination guidelines as stipulated in the Employment Act is applicable to those employees protected under the Act. Please note that the Employment Act covers all employees except those in managerial or executive positions, domestic workers, seamen and most Government staff. For employees that are not covered by the Employment Act, their employment termination guidelines will be drafted as per company policy and what is mutually agreed upon between both parties at the time of employment. As a common practice in Singapore, these guidelines generally correspond to the stipulations in the Employment Act.
Terminating Employment Contracts
An employment contract can be terminated by either the employer or employee by giving notice or salary in lieu of notice; or without giving any notice nor salary in lieu of notice. In certain cases, employment contracts come to a natural termination and notice periods are not applicable.
The table below illustrates the circumstances under which a contract can be terminated.
|Employer initiated termination
||Employee initiated 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
Employer initiated termination
- In Singapore, most employees commence their employment on a probationary period (usually 3-6 months), and are appointed as permanent employees upon successful completion of the probation. However, the employer is entitled to terminate the employment before the probationary period ends, by providing notice (usually 1-2 weeks or as stated in the contract) or by paying salary in lieu of notice.
Breach of contract by employee
- An employer may choose to terminate the employment contract if the contract has been breached by his employee.
- A contract is breached when the employee absents himself from work for more than two consecutive working days without employer approval or without informing the employer of such absence.
- The employer is entitled to terminate the contract without giving notice to the employee nor paying salary in lieu of notice.
Employee dismissal on grounds of misconduct
- When an employee is is found to be guilty of misconduct the employer has every right to terminate the contract without notice or without paying salary in lieu of notice.
- Misconduct arises when an employee fails to fulfil his conditions of employment. Acts that amount to misconduct are usually spelt out in the employment contract. Some common examples include: unauthorised possession of company property, abusive or insubordinate behaviour, negligence that raises questions on safety and security, etc.
- The law as such does not state the degree of misconduct that justifies dismissal.
Employee dismissal on grounds other than misconduct
- There are certain common situations under which an employer may resort to dismissing his employee. However, decisions on such dismissals should be taken after careful thought and after adequate warnings have been given to the employees in question.
- Common reasons for dismissal of employees include: poor job performance, sickness or incapacity to the extent that it has a negative impact on the employee’s day-to-day work performance, incompatibility with other employees to a degree that affects workplace relationships etc.
- The employer should either provide due notice to the employee or pay salary in lieu of notice.
- An employment contract may be terminated by a current employer who intends to transfer his employees to another employer – a subsidiary or associated company, or an unrelated company.
- Transfers occur due to mergers, take-overs, sale of a part of a company or setting up a subsidiary company.
- All employers transferring employees must notify the employees of such a transfer, update employees on terms of transfer, and ensure that new terms of employment are not less favourable than current terms .
- Any dispute or disagreement between the transferred employees and new employer can be referred to the Commissioner for Labour.
- The retirement age in Singapore is 62. Employers can initiate termination of employees who are nearing retirement age by giving the employee advance notice as stipulated in the contract.
- Under the new Retirement and Re-employment Act, employers are now required to offer re-employment to eligible employees who turn 62, up to the age of 67.
- Please note that the law does not prescribe compulsory retirement. It does not prohibit an employee from continuing employment beyond the statutory retirement age.
- The Employment Act does not require an employer to pay retirement benefits to an employee, unless it is stated in the employment contract.
- Retrenchment involves terminating employment because an employee’s position is or is likely to become redundant to the employer.
- Retrenchments usually take place when an organisation decides to close operations, or sell a portion of its business or is undergoing massive restructuring.
- All employers in Singapore are advised to handle retrenchments in a responsible manner. It is especially important to consult with the Union if the company is unionised.
- Retrenchment notice:
- Companies must give their employees a notice of retrenchment.
- The notice duration should be in accordance with the contractual terms mutually agreed upon.
- In the absence of notice period being previously agreed upon, the Employment Act stipulations (as mentioned below in this article) will apply.
- Companies are advised to notify the Ministry of Manpower of any retrenchments by faxing a duly completed form
- Retrenchment benefits:
- An employee who has been employed in a company for at least three years should be paid some retrenchment benefits if he/she is being retrenched.
- The Employment Act does not dictate the nature or amount of such benefits and leaves it to the mutual agreement between the employee and the employer. The common practice in Singapore is to pay between 2 weeks’ to one month’s salary per year of service.
- An employee who has worked less than three years in a company is not entitled to retrenchment benefits under the Employment Act. However the company can offer an ex-gratia payment, depending on its financial situation.
- Central Provident Fund (CPF) contributions are not applicable for retrenchment benefits and ex-gratia payments.
- Retrenchment payments to compensate for the loss of employment are not taxable. However, employers often include payments for other purposes when paying out retrenchment benefits, like salary in-lieu of notice and gratuity for past services. These are considered payments for services and constitute gains or profits from employment and are therefore, liable to tax under the Singapore Income Tax Act. Whether payments made to retrenched employees are to be treated as compensation or otherwise is largely a question of fact and will decided upon by the Inland Revenue Authority of Singapore.
- Alternatives to retrenchment: Companies are advised to resort to retrenchments only as a last option and the following alternatives can be adopted instead:
- implementing shorter work-weeks – the reduction should not exceed 2 days in a week and should be implemented for not more than two months
- temporary lay-offs – employers should pay at least half of the gross salary during the lay-off perio
- flexible work arrangements
- reassigning employees to alternative areas of work within the company
Employee initiated termination
- An employment contract is terminated when an employee resigns from the company. An employee who is on probation is entitled to resign before the probationary period ends.
- An employee can resign by giving notice or by paying salary in lieu of notice.
- The notice period to be served should be as per the contractual terms. In the absence of such terms the Employment Act stipulations (as detailed below in the article) will apply.
- An employer cannot reject an employee’s resignation.
Breach of contract by employer
- An employee may choose to terminate the employment contract if the contract has been breached by his employer.
- A contract is breached when the employer fails to pay the employee’s salary within seven days after salary is due or asks the employee to do work that is not within the terms of the contract of service (usually refers to work that is unsafe and risky).
- The employee is entitled to terminate the contract without giving notice to the employer nor paying salary in lieu of notice.
- The retirement age in Singapore is 62. Employees nearing retirement age and wishing to retire from the services of a company can initiate termination the day before his/her 62nd birthday. Under the new Retirement and Re-employment Act, employers are now required to offer re-employment to eligible employees who turn 62, up to the age of 65.
Expiry of fixed term contract
- A contract is automatically terminated on expiry of contractual terms. In such cases there is notice period to be served as the contractual terms have come to an end.
- A ‘piece rate contract’ terminates on completion of a specified project.
- A ‘time contract’ terminates on completion of a specified time frame.
- If an employer, wishes to engage the employee for a prolonged period or for another project, a new contract should be formulated.
End of probationary period
- Most companies in Singapore hire new employees on an initial probationary period of six months.
- The employment contract evidently terminates at the end of the probationary period.
- If the employer wishes to continue employing the new recruit by offering him a permanent role, a fresh employment contract must be drafted.
Death of either party
- Death of an employee automatically terminates the contract.
- An employer’s death will lead to contract termination, if he was the sole-employer.
Termination with notice period
- The employer or employee who intends to terminate the contract must give notice to the other party in writing.
- The notice period to be given must be as per contractual terms agreed upon at the time of employment.
- The day on which the notice is given is included in the notice period.
- In the absence of notice period being previously agreed upon, the following shall apply:
- Employment period of less than 2 weeks : 1 day notice period
- Employment period of 26 weeks – 2 years : 1 week notice period
- Employment period of 2 – 5 years : 2 weeks notice period
- Employment period of 5 years and above : 4 weeks notice period
- The notice period can be waived upon mutual agreement between both parties
- Employees who have fully served the required notice period, are entitled to Central Provident Fund (CPF) contributions for the notice period salary that they receive.
Termination by paying salary in-lieu of notice
Central Provident Fund (CPF) contributions are not applicable for salary that is paid in lieu of notice by either party.
Employment during notice period
When an employee is serving the notice period, both parties are still bound by the employment contract, and must discharge their responsibilities duly, until the end of the notice period. The employee cannot commence work with his new employer until the date of termination.
Offsetting notice period with annual leave
The employee has every right to use his annual leave to offset the notice period. If an employee does exercise this right and brings forward his last day of work, he will only be paid until this last day of work. The annual leave which has been used to offset the remaining notice period will not be paid for by the employer.
Annual leave taken during notice period
There is a difference between offsetting notice period with annual leave and going on approved annual leave during notice period. An employee can decide to use his annual leave during the notice period, in which case he will receive his salary for the full notice period. In this case, there is no instance of bringing forward the last day of work and he is considered to be an employee of the company until the last day of the notice period. He can join the new company only after the last day of his notice period. Any unused annual leave can be encashed by the employe. Please note, that the employee cannot be forced to go on annual leave during the notice period.
Sick leave during notice period
Any paid or unpaid sick leave taken during the notice period, should be treated as part of the notice period.
Maternity Leave and termination
- You cannot use your maternity leave to shorten your notice period. However, you can use your maternity leave during the notice period. The period when you are on maternity leave will count towards your service of the notice period. All maternity leave not used before your last day of employment will be forfeited.
- An employer is prohibited from dismissing an employee who is on maternity leave. Failure to comply will attract penalties.
- An employer must pay maternity benefits that his/her employee would otherwise be eligible for
- if a notice of dismissal is given without sufficient cause within 6 months of an employee’s confinement
- if the employee is retrenched within 3 months of her confinement. This payment is in addition to any retrenchment benefit which the employee is entitled to.
Childcare/Infant care leave and notice period
An employee cannot use the childcare/infant care leave that he/she is eligible for to offset the notice period.
Appeals against dismissals
An employee who considers his dismissal to be unfair, can make a written appeal within one month of his dismissal, to the Minister for Manpower. If the dismissal is proved to be unfair, the Minister may either order the employer to reinstate the employee and pay him for the period he was dismissed or to pay a compensation.
Termination and foreign employees
- Cancellation of Employment Pass/S Pass on termination: Employment termination of foreign employees on an Employment Pass or S Pass, calls for him/her cancelling the Employment Pass/S Pass within seven days of employment termination. A 30-day short term visit pass will be issued upon cancellation. When the main pass is cancelled, all other passes related to the main pass will also be cancelled. Unless the Employment Pass/S Pass holder has received an alternate valid visa (as mentioned above), he/she and related pass holders should not remain in Singapore after the date of employment termination.
- Tax Clearance is required for Employment Pass/S Pass holders whose employment has been terminated, to ensure that all taxes have been paid by him/her. The employer must notify the tax authority (IRAS) and withhold all payment due to the foreign employee from the day he/she notifies the employer of his/her intention to cease employment or when the employer decides to terminate the employment. Once the IRAS does an assessment and issues a tax clearance certificate, confirming that all taxes have been paid, the employer can release the payment due to the employee.