QUESTION

Dear HR Practitioners,

Due to company re-organisation, certain positions have become redundant and we are considering retrenchment. Our company is not unionised. Can anyone advise me whether it is compulsory to pay retrenchment benefits based on the employment act such as 1 month salary per year of service? We are an SME and are unable to compensate our staff based on the employment laws.

YL

REPLY 1

Retrenchment benefit is not mandatory in Singapore though 90% of employers here do pay retrenchment benefit with 85% of retrenched locals were paid retrenchment benefits based on tenure, with the common pay-out rate being one month of salary per year of service according to MOM report. In general rule employees with 2 years’ service or more are eligible for retrenchment benefits. Those with less than 2 years’ service could be granted an ex-gratia payment recommended by Singapore Tripartite Agreement. The prevailing norm is to pay a retrenchment benefit varying between 2 weeks to 1 month salary per year of service, depending on the financial position of the company and taking into consideration the industry norm.

However do note that it is mandatory that Employers must notify MOM of retrenchments within 5 working days after they notify their employees.

KL

REPLY 2

For retrenchment of non-unionised company, after making the necessary report to MOM, you will need to proceed with the retrenchment benefit as stipulated in your contract.

While MOM spell out the following “ The prevailing norm is to pay a retrenchment benefit of between 2 weeks to 1 month salary per year of service, depending on the company’s financial position and the industry.”

This is a guideline for the Company to follow. If there are no retrenchment benefit being agreed in the contract, there is basically nothing binding for the company to make any payment necessary.

HS