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Termination of Employment in Singapore - Best Practices in 2023

Employment termination

Are you an employer or employee who is looking to end the employment relationship? You may do so by terminating the employment contract.

Both parties, employer and employee, are bound by specific legal responsibilities when terminating the employment contract. Any termination must follow the terms underlined or stated in the employment contract.

This simple guide will help you understand who the legislation governing employment termination is, as well as the basic rules and best practices of employee termination and retrenchment in Singapore.

Ministry of Manpower Singapore and the Employment Act

The Ministry of Manpower (MOM) in Singapore is a government ministry responsible for formulating and implementing labor policies related to workforce and employment issues in the country.

Its main objective is to promote a competitive workforce and harmonious labor-management relations to ensure the well-being of workers and the overall economic progress of Singapore.

The Ministry oversees various aspects of labor, including employment regulations, workplace safety, foreign worker policies, skills development, and labor market analysis. MOM plays a crucial role in maintaining a fair and inclusive labor environment in Singapore.

The Employment Act serves as Singapore's primary labor legislation, encompassing fundamental terms and working conditions applicable to various categories of employees, with certain exclusions.

In Singapore, the employment contract is vital in regulating the employer-employee relationship. Both employers and employees have the flexibility to negotiate and reach mutual agreements on the contract's terms while ensuring adherence to the guidelines set by the Employment Act.

It's essential to keep in mind that the Employment Act does not apply universally to all types of employees.

Instead, it is specifically designed to cover those individuals classified as "employees" as defined within the Act.

The Employment Act excludes those in managerial or executive positions, domestic workers, seamen, and most Government staff.

đź’ˇTip: Read more about this in our Employment Act guide.

Types of Employment Terminations

Both the employer and employee can terminate the employment contract by giving notice or salary in lieu of notice. There are some scenarios where termination can happen without notice or salary in lieu of notice.

Here are some types of employment terminations:

Initiated By Type of Termination Description
Employer Unsatisfactory performance or failed probation Based on the employment contract, most new employees are required to undergo a probation period. The probation period will last roughly 3 to 6 months, depending on your employment contract. The employer is entitled to terminate the employment before the probationary period ends by usually giving 1-week to 1-month notice, depending on the employment contract.
Employer Breach of contract by the employee An employer will be able to terminate the employment contract when the employee breaches the employment contract. For example, the employee might be absent from work without consent or valid reason. In this case, the employer can terminate the employment contract without giving notice to the employee.
Employer Employee Misconduct An employer can terminate the employment contract without giving notice when the employee is found guilty of misconduct. Some examples of misconduct are stealing company property, insubordination, and negligence. 
Employer Employee dismissal due to other factors excluding misconduct An employer can terminate the employment contract by giving notice, especially if there is dismissal due to other factors excluding misconduct, such as poor performance, incompatibility, or incapacity.
Employer Employee Transfer An employer might want to transfer an employee from the current employer to another employer, such as a subsidiary or associated company. In this case, the employer must provide notice of such transfer with similar or better terms in the employment contract. 
Employer Employee Retirement Employers are allowed to initiate termination of employees who are nearing retirement age. In Singapore, the retirement age is 62. However, employers can offer re-employment to eligible employees who turn 62 up to 68.
Employer Retrenchment Retrenchment happens when the employee’s position is deemed redundant to the employer. More information regarding retrenchment will be available below.
Employee Resignation An employee can terminate the employment contract by giving notice depending on the employment contract’s terms. An employer cannot reject an employee’s resignation but may provide a resolution or counteroffer that might retain the employee.
Employee Breach of contract by the employer An employee can terminate the employment contract if the contract has been breached by his or her employer. For example, if the employer fails to pay the employee’s salary within seven days after the salary is due. In this case, an employee can terminate the employment contract without notice.
Employee Retirement In Singapore, the retirement age is set at 62 years. Employees approaching this age and wanting to retire from their current company can initiate the termination process on the day before their 62nd birthday. With the implementation of the new Retirement and Re-employment Act, employers are now obligated to provide re-employment opportunities to eligible employees who reach the age of 62 and extend this option up to the age of 65.
Contract-based or natural causes Expiry of a fixed contract An employment contract is automatically terminated at the expiry of a fixed-term contract. The employer may provide a new contract if the employer wishes to extend the employee’s period of employment in the company. 
Contract-based or natural causes Death Death of either party - Employer or Employee will automatically terminate the contract. Do note that the contract will only terminate automatically at the employer's death if the employer was the sole employer. 

Employee Retrenchment

As highlighted above, retrenchment happens when the employee’s position is deemed to be redundant to the employer. However, retrenchment in Singapore requires employers to follow a series of rules and legislation.

Retrenchment Considerations

Before carrying out any retrenchment exercise, as an employer, you should take the following steps:

  • Adopt a long-term perspective regarding your manpower requirements, focusing on maintaining a robust Singaporean core in your workforce.
  • Notify the Ministry of Manpower (MOM) before you intend to proceed with the retrenchment.
  • If your company is unionized, engage in consultation with the union.
  • Ensure that there is no discrimination against employees or specific groups of employees during the retrenchment process. Instead, base your selection on factors like the ability to contribute to your company's future business needs.
  • Treat your affected employees with dignity and respect throughout the retrenchment procedure.
  • Consider providing a more extended retrenchment notice period for all affected employees.

Retrenchment Benefits for Employees

Employees who have been with the company for at least 2 years are eligible for retrenchment benefits.

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.

Central Provident Fund (CPF) contributions are not applicable for retrenchment benefits and ex-gratia payments.

If the retrenchment comes shortly after a salary cut, the salary before the cut should be used to determine the amount of compensation.

Alternative to Retrenchment

Companies are advised to resort to retrenchment only as a last resort. Here are some alternatives to retrenchment:

  • Downsizing - Downsizing the company to cut costs.
  • Restructuring - Moving employees to other areas of work within the company, which might focus on bringing in more revenue for the company.

Provision of False Reasons for Dismissal

It is against the Employment Act to provide false reasons for the dismissal of an employee.

As such, the employee who considers his dismissal to be unfair can make a written appeal within one month of his or her dismissal to the Ministry of Manpower (MOM) if it is regarding a wrongful dismissal due to your age or has been denied re-employment or Tripartite Alliance for Dispute Management (TADM).

If the dismissal is proven to be unfair. In that case, MOM may either order the employer to reinstate the employee and pay the employee for the period he or she was dismissed or pay compensation due to the unfair dismissal.

Foreign Employees Termination

Upon termination of employment for foreign employees on an Employment Pass or S Pass, it is mandatory to cancel the respective Employment Pass/S Pass within seven days of termination.

Subsequently, a 30-day short-term visit pass will be granted upon cancellation. It's important to note that when the main pass is canceled, all other associated passes will also be canceled.

Unless the Employment Pass/S Pass holder has obtained an alternative valid visa, they and any related pass holders should not remain in Singapore beyond the date of employment termination.

For Employment Pass/S Pass holders whose employment has been terminated, Tax Clearance is necessary to ensure that the employee has duly settled all taxes.

The employer must inform the tax authority (IRAS) and withhold all payments owed to the foreign employee from the moment the employee notifies the employer of their intention to cease employment or when the employer decides to terminate it.

Once the IRAS completes its assessment and issues a tax clearance certificate confirming that all taxes have been paid, the employer can then release the payment due to the employee.

Final Thoughts

It is important to understand the rules and regulations behind the termination of employment.

For employers, do take note of terminations with the required notice period, giving just or sufficient cause of dismissal, and provide notice or compensation in lieu of notice.

There are certain legal obligations as an employer.

Wrongful dismissal is dealt with strictly in Singapore, and to avoid such scenarios, employers need to understand the rules.

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FAQs

Can either the employer or employee terminate employment?

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Is retrenchment illegal in Singapore?

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How do I report a wrongful dismissal, and what is the punishment for wrongful dismissal?

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Can I terminate foreign employees?

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