international employment law firm alliance L&E Global
Singapore

6. Cost-Reduction Strategies

To what extent can employers implement the following cost-reduction strategies as a result of COVID, and what are the primary limitations on each?

  • Furloughs.

While employers are able to ask their employees to temporarily stop work, they would still have obligations towards their employees. This includes:

    • paying the employee at least 50% of their gross salary during the days that they are temporarily laid off.
    • Asking employees to take up to 50% of their earned annual leave.
    • Implementing the layoff period such that it does not exceed 1 month at any one instance subject to review.
  • Salary reductions.

Salary reductions should generally only be implemented where the employer is facing extremely poor or uncertain business conditions that are likely to be long-term.

Where employers implement salary reductions, they would need to notify the Ministry of Manpower if:

  • They are registered in Singapore; and
  • Have at least 10 employees,

And

  • Implement cost-saving measures that result in:
    1. More than 25% reduction in gross monthly salary for local employees; or
    2. More than 25% reduction in basic monthly salary for foreign employees.

Where employers receive Job Support Scheme pay-outs, they are expected to use these to support employees' salaries and a failure to do so may lead to lower future pay-outs. Errant employers may also be denied future payouts and may have their work pass privileges curtailed.

  • Redundancy.

Employers are strongly encouraged to consider alternatives before redundancy. Such alternatives include training employees, redeployment, implementing a flexible work schedule or a shorter work week or temporary layoffs.

Employers who are in sound financial position should continue to pay retrenchment benefits according to their existing employment contracts, collective agreements, memoranda of understanding, or the prevailing norms for retrenchment benefit (ie between 2 weeks and 1 month salary per year of service).

In respect of employers whose businesses are adversely affected, the employer should work with the employee (or the employee's union, if applicable) to renegotiate for a fair retrenchment benefit linked to the employee’s years of service.

Employers in severe financial difficulties may provide a lump sum retrenchment benefit. Instead of linking retrenchment benefit to employees’ years of service, a lump sum of between one and three months of salary could be provided, taking into consideration the Job Support Scheme pay-outs that employers have received and their financial position.

  • Facility closure.

Please refer to our comments on 'Furlough' above.

Any questions

Ask our member firm Clyde & Co Clasis in Singapore