In the professional field, there is always the slightest possibility of being laid off, which can prove to be a difficult time for people. This practice by companies is also known as retrenchment – the reduction of costs or spending during economic difficulties.
While retrenchment can be carried out by any company in the world, in Singapore, there are certain regulations you should be aware of if this occurs. This blog will provide information about retrenchment benefits in Singapore, how they are calculated, whether retrenchment benefits are taxable in Singapore and best practices for companies to follow during this process.
What is Retrenchment?
Before understanding the retrenchment benefits in Singapore and how you can avail of them, let us dive slightly deeper into the definition.
When companies cut costs under retrenchment, most often, it involves the termination of employee contracts. In this phase, you may receive a retrenchment letter which outlines your notice period, the expected last day of work and other benefits you may be entitled to.
It is important to understand regulations pertaining to retrenchment because if you feel the retrenchment process was not conducted properly by a company, you can pursue legal options to get your fair due.
Who Qualifies for Retrenchment Benefits in Singapore?
Retrenchment benefits in Singapore can come in different forms depending on company policy. Some of the benefits you could avail of include:
- A lump sum amount, determined by retrenchment benefits calculations in Singapore.
- Notice pay, which is compensation for the notice period in case the employee is laid off immediately
- Ex-gratia payments, which are additional compensation amounts that aren’t governed by legal laws but rather are a show of goodwill
- Continuation of health and visa support for a certain period of time
So, who in Singapore qualifies for retrenchment benefits?
All employees do – unless you have been laid off for other reasons.
Usually, employees who have been working in a company for over two years will be qualified for retrenchment benefits in Singapore while those working for less than two years may be granted payments out of goodwill.
However, this is highly subjective and all employees are advised to consult their company policy to understand the retrenchment benefits provision.
Retrenchment Benefits Calculation in Singapore
It is important to understand the retrenchment benefits calculation in Singapore, as it will help you understand whether your company is abiding by the given regulations.
Usually, the retrenchment package amount is calculated depending on the company’s financial position in the industry. Employees may receive anywhere between 2 weeks to a month’s worth of salary for each year of service.
For unionised companies, the rules require a month’s salary for each year of service.
Is Retrenchment Benefit Taxable in Singapore?
The biggest question people pose is whether retrenchment benefits are taxable in Singapore. No, they are not taxable as they are capital receipts, according to the IRAS.
This is also applicable even if payments made to compensate for the loss of employment are provided in the contract service or collective agreement, or are computed based on the number of years an employee has worked in the company.
However, payments such as salary in lieu of notice, ex-gratia and gratuity for past services will be taxable.
Best Practices for Employers During Retrenchment
What are some steps employers can implement to ensure that employees are not left feeling helpless during a retrenchment process? Here are some suggestions:
- Ensure that the mechanism for retrenchment is set in place – including setting up an appeal or grievance system for employees.
- Avoid any rumours and ensure that the announcement is clear with regard to the number of dismissals and which employees have been selected for dismissal.
- Carry out personal interviews with the laid-off employees and help them if they require any more information.
- Ensure that severance payments are carried out in a timely manner.
- Have assistance programs such as job assistance, training outplacement and economic development opportunities for laid-off employees.
Consider offering opportunities for transitioning into contract-based roles for affected employees, as this may provide flexibility for businesses while supporting employees seeking interim work opportunities.
Conclusion
Want to understand retrenchment policies and benefits in Singapore better? Reach out to BGC Group to ensure that all your HR and employment mechanism needs are met.
At BGC, we have over a decade of experience providing recruitment services in the APAC region, including Singapore, where we’ve established ourselves as trusted partners for numerous renowned companies. Headquartered in Singapore, our deep-rooted expertise and strong presence in the country make us the ideal choice for businesses seeking reliable recruitment and HR solutions.
Use our premium talent acquisition platform to make your next hire or directly reach out to us for recruitment consultation.
