The recent spate of mass retrenchments by tech companies and also the high-profile closure of Jetstar Asia may signal a slowing and uncertain economic environment. With job security a rising concern among workers, it’s important to understand what the legal rights for employees who are retrenched and how to calculate severance pay.
Read Also: Retrenchment Benefits For Jetstar Asia’s Employees After It Shuts Down
What Is Severance Pay?
A severance pay, also referred to as retrenchment benefits, is offered to employees who have been retrenched on the grounds of redundancy or reorganisation of the employer’s business. This may involve the employee being dismissed involuntarily, with the employer having no plans to fill the vacancy any time soon.
It is given to permanent employees as well as contract workers with full contract terms of at least 6 months to help cover the loss of employment. Generally, employees who have worked with the company for at least 2 years would be eligible to receive retrenchment benefits. Whereas, for employees with less than 2 years of service, they could be granted an ex-gratia payment out of goodwill.
What Is The Recommended Severance Pay
The amount of the severance package that an employee gets depends on what has been agreed upon in the employment contract or collective agreement. If there isn’t one, then it would have to be negotiated between the employee and employer.
Alternatively, based on the Tripartite Advisory on Managing Excess Manpower and Responsible Retrenchment, the prevailing norm is to pay a retrenchment benefit of between 2 weeks to 1 month salary per year of service. This amount would depend on the company’s financial position.
For unionised companies, where the amount of retrenchment benefit is stated in the collective agreement, the norm is to pay 1 month’s salary for each year of service.
Read Also: MOM Responsible Retrenchments – Guideline For Companies To Be Fair And Decent
Other Entitlements For Retrenched Employees
Notice Period
In addition to the severance pay, employers must inform their employees of an upcoming retrenchment exercise and the reasons for doing so. Employers are legally required to serve notice to the retrenched workers according to the employment contract. If it’s not stated, then the notice period would depend on your length of service.
| Length of service | Notice Period |
| Less than 26 weeks | 1 day |
| 26 weeks to less than 2 years | 1 week |
| 2 years to less than 5 years | 2 weeks |
| 5 years or more | 4 weeks |
CPF Contributions
Both the employer and the employee must make CPF contributions during the notice period. However, it is not required for compensation in lieu of notice (notice pay), including retrenchment benefits.
Maternity Leave Benefits
If an employee is pregnant during the retrenchment, she is entitled to receive maternity benefits such as 16 weeks of Government-Paid Maternity Leave (GPML) if she meets the eligibility criteria under the Employment Act (EA) or Child Development Co-Savings Act. This would be on top of her retrenchment benefits.
How To Calculate Your Servance Package
Once you understand your rights under the law and employment contract, the next step is to calculate your severance package by determining how much pay and benefits you are entitled to receive.
Your severance package would depend on several factors, such as the length of service in the company, salary, variable bonus, commissions, stock options, and other incentives. Generally, the severance pay is calculated based on the recommended guideline of using a multiple of your monthly salary, based on your years of service. For example, you may receive one month salary for every year that you have worked for the employer.
However, some employers may choose to offer more or less than the standard rate and they may even limit the maximum amount of severance pay due to you.
As part of your pay and benefits, you should also consider any unpaid wages, unused annual leaves, sick leaves, or other benefits that you’re owed at the time of termination.
You should also determine how long your benefits will last and how much they might cost. Some of these benefits include your group health insurance, dental coverage, annual training funds, and other incentives.
As most of these costs may have either been budgeted or paid for at the start of the financial year, employers may choose to continue to offer these benefits for a certain period of time after the termination. Alternatively, they may offer a lump sum payment to cover the cost of these benefits.
What Have Other Companies In Singapore Offered As Severance Package
In the past 2 years, a few high-profile companies, including Jetstar, Amazon, Google, Lazada, and Shopback, as well as local pub and eatery chain Stickies Bar and Swedish home appliance maker Electrolux, announced layoffs in their local workforce.
In particular, the retrenchment benefits offered by Lazada and Shopback are good examples of what a responsible company should and should not do.
ShopBack announced its layoff on March 2024 to better streamline its operational headcount. It offered pay for at least 2 months of the affected workers’ notice period, and an additional month of severance payment for each year of service.
Additionally, ShopBack also offered an extended medical insurance coverage and access to mental healthcare support for its affected workers. These workers were also given career transition support to help with the job search. For their foreign workers, ShopBack offered to cover their repartition costs, including airfare and a budget for moving expenses if they wished to return home.
More recently, Jetstar Asia announced the closure of its business, affecting about 500 employees in Singapore. Employees received four weeks of salary for every year they worked with the company and a bonus payments as a gesture of appreciation. On top of that, there was support to connect Jetstar Asia’s employees to SIA and Scoot for future employment opportunities.
In contrast, local e-commerce giant Lazada announced its mass layoff at the start of the year on 3 January 2024 without any prior warning or notice to its affected employees. As part of the retrenchment benefits, it offered 2 week’s salary for each year of service. On top of that, it stood out for not informing its affiliated union – Food, Drinks and Allied Workers Union (FDAWU) – of its retrenchment exercise or proposed retrenchment terms for its affected workers. This move was seen as unresponsible of an employer, which led the FDAWU to negotiate with Lazada for better retrenchment terms for the affected union members, which included higher severance pay and training support in collaboration with NTUC’s e2i (Employment and Employability Institute).
As Lazada would be continuing operations, unlike JetStar Asia, the way it handled the retrenchment exercise may affect morale of existing workers and cause doubt. It may also have a bearing on the company’s future hiring of talent.
Read Also: How Shopback Help Its Employees To Move On From A Retrenchment
Are Employers Legally Required To Offer Severance Pay
While most of the companies that have carried out retrenchment exercises in Singapore have offered some form of severance pay, they are not legally mandated to do so by law. However, they are strongly advised by the Tripartite Advisory to provide retrenchment benefits to help affected employees while they seek jobs.
Do You Need To Pay Tax On The Retrenchment Benefits
Generally, the Inland Revenue Authority of Singapore (IRAS) considers retrenchment benefits as capital receipts and does not impose tax on them.
Here’s a detailed look at the various types of retrenchment benefits and their tax implications.
| Types Of Retrenchment Benefits | Description | Are They Taxable |
| Compensation for loss of employment | It is given for the loss of employment due to reasons such as company downsizing or restructuring. | Non-taxable |
| Payment for restrictive covenants | It is an agreement to restrict what someone can do (i.e., not to compete with the employer) after the retrenchment. | Non-taxable |
| Outplacement Support | It includes providing counselling and moral support to affected employees and to assist them in their search for jobs. | Non-taxable |
| Payment in lieu of notice/ Ex-gratia/ Gratuity | These are payments made to recognise the past services provided. | Taxable |
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