{"id":8297,"date":"2021-11-05T09:59:46","date_gmt":"2021-11-05T01:59:46","guid":{"rendered":"https:\/\/dollarsandsense.sg\/business\/?p=8297"},"modified":"2021-11-05T10:06:48","modified_gmt":"2021-11-05T02:06:48","slug":"retrenchment-benefits-do-employees-have-to-pay-tax-and-cpf-on-them","status":"publish","type":"post","link":"https:\/\/dollarsandsense.sg\/business\/retrenchment-benefits-do-employees-have-to-pay-tax-and-cpf-on-them\/","title":{"rendered":"Retrenchment Benefits: Do Employees Have To Pay Tax And CPF On Them"},"content":{"rendered":"\n

The Singapore economy is on the mend from COVID-19 \u2013 with\u00a0GDP forecasted to grow 6% to 7% in 2021<\/a>. Despite this, many companies continue to navigate the pandemic with caution, and there are smaller pockets of the economy still subdued and possible even shrinking.<\/p>\n\n\n\n

This has resulted in a generally positive labour market. The Citizen unemployment rate has dropped from 4.9% in September 2020 to 3.7% today. However, this is still higher than pre-pandemic levels. On the other hand, retrenchments have actually fallen to below pre-pandemic levels after spiking during 2020.<\/p>\n\n\n\n

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Source: Labour Market Advanced Release, Third Quarter 2021<\/figcaption><\/figure><\/div>\n\n\n\n

As we can see in the chart above, there are about 2,000 retrenchments in the third quarter of 2021, this is lower than last quarter. In fact, the last time retrenchments in a single quarter came in lower than the current level was in 2011.<\/p>\n\n\n\n

Nevertheless, retrenchments continue to be a topic relevant to every business and employee. In 2020, there were 26,110 retrenchments in total \u2013 which made it the top reason for employees left their job during the year. In 2021, there are already 6,610 retrenchments. Over the last 10 years, an average of over 14,000 retrenchments take place each year.<\/p>\n\n\n\n

Read Also: 4 Things We Learned From Labour Market Report In 2Q 2021<\/a><\/em><\/strong><\/p>\n\n\n\n

Do Employers Have To Pay Retrenchment Benefits?<\/strong><\/h3>\n\n\n\n

With the spike in the number of retrenchments in 2020, the Tripartite Partners \u2013 consisting the government (through MOM), unions (through NTUC) and employers (through SNEF<\/a>) \u2013 updated their advisory on managing excess manpower and responsible retrenchments.<\/p>\n\n\n\n

While retrenchment benefits are not inked in law, the tripartite advisory strongly encouraged employers to provide retrenchment benefits to their laid-off workers. Some of the guidelines provided include:<\/p>\n\n\n\n

1. Employees who had worked for 2 years or more should be eligible for retrenchment benefits. Those who had worked for less than 2 years could be provided ex-gratia payments.<\/p>\n\n\n\n

2. The prevailing norm is to pay a retrenchment benefit of 2 weeks to 1 month of salary for every year of service. This would also depend on the financial position of the company. Unionised companies would also have a stipulated retrenchment benefit in a collective agreement. The norm in such collective agreements is 1 month of salary for every year of service.<\/p>\n\n\n\n

3. If the retrenchment exercise comes shortly after a salary cut, the salary prior to the cut should be used for the purpose of paying retrenchment benefits. This way, cuts would not be implemented just to reduce retrenchment benefit payouts for companies.<\/p>\n\n\n\n

Read Also: MOM Responsible Retrenchments \u2013 Guideline For Companies To Be Fair And Decent<\/a><\/em><\/strong><\/p>\n\n\n\n

Are CPF Contributions Required For Retrenchment Benefits?<\/strong><\/h3>\n\n\n\n

Employees have to pay CPF on wages that is paid to their employees. However, termination benefit or retrenchment benefit is typically not considered as compensation paid for services or work done. As such, CPF payments are not required.<\/p>\n\n\n\n

However, it\u2019s also important to distinguish the difference between a retrenchment and a temporary lay-off. This is because CPF contributions are still required for any benefits paid due to temporary lay-offs. <\/p>\n\n\n\n

Read Also: 10 Types Of Employee Payments (Apart From Salary) That Businesses Need To Pay CPF For<\/a><\/em><\/strong><\/p>\n\n\n\n

A total of 128,860 workers were put on temporary lay-offs during 2020 \u2013 a huge number compared to previous years, mainly because of COVID-19 safe management measures. <\/p>\n\n\n\n

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Source: CPF<\/figcaption><\/figure><\/div>\n\n\n\n

A retrenchment means that the employee is let go. <\/p>\n\n\n\n

A temporary lay-off is usually the result of the workplace shutting down for a designated period. Most employees are affected, while some administrative functions will typically be performed. In such cases, employers may:<\/p>\n\n\n\n