8 Things That Employers Are Legally Allowed To Deduct From Workers’ Salary (According To The Employment Act)

Salary has always been a sensitive topic for employers and employees. With COVID-19 still hurting the Singapore and global economy, it may be an even more touchy issue this year. Already, median local wages in 2020 fell for the first time in 16 years to $4,534 (after employer’s CPF contributions).

Read Also: 10 Ways COVID-19 Impacted Singapore Workers: MOM Labour Force In Singapore Advance Release 2020

As employers continue to manage business slowdown, with revenue and profits potentially taking a hit, you may have to resort to cutting employee salaries. However, Singapore employers have to be guided by the Employment Act, and cannot just deduct their workers’ salary as they deem fit.

Employment Act: Part III Section 26

No deduction shall be made by an employer from the salary of an employee, unless the deduction is authorised by or under any provision of this Act or is required to be made —

a) by order of a court or other authority competent to make such order;
b) pursuant to a declaration made by the Comptroller of Income Tax under section 57 of the Income Tax Act (Cap. 134), the Comptroller of Property Tax under section 38 of the Property Tax Act (Cap. 254) or the Comptroller of Goods and Services Tax under section 79 of the Goods and Services Tax Act (Cap. 117A) that the employer is an agent for recovery of income tax, property tax or goods and services tax (as the case may be) payable by the employee; or
c) pursuant to a direction given by the Comptroller of Income Tax under section 91 of the Income Tax Act.

This means that other than the following 8 reasons, the only other reasons an employer can deduct an employee’s salary is:

  • By court order
  • If an employer is the appointed agent for the recovery of income taxproperty tax or GST

#1 Absence From Work

Employers can deduct an employee’s salary when they are absent from work without a valid reason/permission. 

For example, an employee will be deemed absent without permission if he is absent on sick leave:

  • which IS NOT certified by a medical practitioner; or
  • which IS certified by a medical practitioner not appointed by the employer but did not attempt to inform the employer within 48 hours after its commencement

To calculate salary deductions for unauthorissed absences from work, employers (and employees) can use the calculator for gross rate of pay on the Ministry of Manpower (MOM) website.

#2 Damage Or Loss Of Goods 

Salary deductions can be made for damaged or lost goods that were entrusted to an employee. This includes work gear, tools, equipment, vehicles as well as money that an employee is responsible for.

According to the Employment Act, employers cannot deduct salaries before:

  • Holding an inquiry to determine if an employee is directly at fault
  • Allowing employee to explain the reason for the damage or loss

The amount deducted also cannot exceed 25% of one month’s salary (unless with the permission of the Commissioner). It must be made as a one-time lump sum payment.

#3 Accommodation Provided By Employer

Deductions for accommodations can only be made with written consent from employees.

The Employment Act also notes that such deductions cannot exceed the value of the accommodation supplied. In addition, the total amount cannot exceed 25% of one month’s salary.

#4 Amenities And Services Provided By Employer 

Similar to providing accommodations, deductions for providing amenities and services can only be made with written consent from employees. Furthermore, such amenities and service must be authorised by the Commissioner.

Also similar to providing accommodations to employees, the Employment Act states that such deductions cannot exceed the value of the amenities or services supplied. In addition, the total amount cannot exceed 25% of one month’s.

Read Also: Minimum Requirements For Key Employment Terms (KETs) On Employees Contracts

#5 Recovering Advances, Loans, Unearned Benefits, Or Overpaid Salary

For advances: Employers can deduct employee salaries in instalments spread over not more than 12 months. Each instalment cannot exceed 25% of an employee’s salary. The Employment Act also explicitly states that this cannot include advances made for travelling expenses before the commencement of the employment contract.

For loans: Employers can deduct employee salaries in instalments. Each instalment cannot exceed 25% of an employee’s salary.

For unearned benefits or overpaid salary: Employers can recover the full amount. Unearned benefits may include any benefit other than salary, such as annual leave in access of what is prescribed by the Employment Act, allowances, and others.

Read Also: How To Calculate Leave Encashment Or Salary-In-Lieu Of Notice Period For Your Employees

#6 CPF Contributions

Technically, employers are deducting an employee’s salary to make CPF contributions. Obviously, this is allowed. Employers are only allowed to deduct the employee’s CPF contributions, and not the employer’s CPF contributions.

Read Also: Complete Guide To Employer’s CPF Contributions In Singapore

#7 Payments To Any Registered Cooperative Society

With an employee’s written consent, employers can deduct their salary for payment to any cooperative society. This includes for subscriptions, entrance fees, instalments of loans, interest, and other dues payable by employees to such society.

#8 Any Other Purpose

While this is quite a catch-all term in the Employment Act, written consent must be received for such deductions. Such deductions must also benefit employees.

Employers Cannot Deduct More Than 50% Of An Employee’s Salary

Employers cannot deduct a maximum amount of more than 50% of an employee’s monthly salary. When calculating this amount, it DOES NOT include:

  • Absence from work 
  • Recovery of advances, loans, unearned benefits or overpaid salary
  • Payments (with consent) to any registered cooperative

However, when an employee’s contract is terminated, the total authorised deduction may exceed 50% on the final salary payment.

Employers Are NOT ALLOWED To Cut An Employee’s Salary Without Informing them

For all types of salary deductions, employers are not allowed to make deductions to workers’ salaries without first informing them. Of course, in certain cases, employers have to get written consent as well.

Neither are employers allowed to change the terms and conditions of an employment contract without your employee’s consent. To prevent misunderstandings, the Ministry of Manpower encourages written agreement to be signed.

Read Also: Singapore Employment Act: 10 Statutory Requirements To Pay Employees

Can Employers Implement Pay Cut Because Of Bad Business (Such As COVID-19)?

COVID-19 has greatly impacted certain businesses, and employers may need to cut wages of their employees. While there’s nothing stated on the Employment Act for this, employers need to adhere to the agreed employment contract with their employees.

To implement cost-cutting measures, employers need to engage and mutually agree with unions and your employees on the appropriate salary arrangements. If you cannot reach an agreement with an employee over cost-cutting measures, MOM states that:

  • the initial contractual terms and conditions must remain unchanged – employers are not allowed to change terms in the employment contract without your employee’s consent.
  • You or your employee can serve notice and end the employment relationship.

MOM has also indicated that employees should be “prepared to share some of the cost burden of your employer to help preserve jobs during this period”.

Need Financing Support During This Period?

From now till 31 March 2021, SMEs can enjoy extra financing support of up to $5 million through the Temporary Bridging Loan Programme.

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