In this article, we will look at how to legally terminate an employee in Singapore. Termination can open employers up to a wide range of risks if not carried out correctly, and it is vital that the right procedures are followed in order to ensure that there are no impacts on your business. The risk of additional costs or possible lawsuits resulting from an improperly implemented termination mean that it is worth taking the time to ensure you are confident that the termination is carried out correctly.
When terminating an employment contract, there are certain legal obligations you will need to observe. Before you do anything to begin the termination process, it is vital to carefully consider the three following points:
- What relevant laws apply to the situation?
- What does your employee’s contract say about termination?
- Why is termination of this employee appropriate in this case?
Termination of an employee in Singapore will most likely be governed by the Employment Act, unless the individual is in a managerial or executive position earning more than S$4,500 a month, a domestic worker, a seaman or a member of Government staff. For those employees not covered by the Employment Act, the termination must follow company policy and their employment contract. It is generally common practice in Singapore that company policy and employment contracts follow the law as set out in the Employment Act, but it is important to remember that this may not always be the case.
In Singapore, as in many countries, there is a distinction between an employee and an independent contractor. Whether or not an individual is an employee depends on the specific facts of their employment. Only employees will fall under the ambit of the Employment Act.
The Employment Contract
An employment contract is capable of being terminated by either the employee or the employer. The contract itself will usually set out how termination is to take place and what notice is required, if any. In some cases, an employment contract will be for a fixed period of time, and will naturally end after this period expires without the need to terminate. It is important to be sure exactly what your employee’s contract says, so that you can proceed accordingly.
Grounds for Termination
You will need to consider exactly why the best course of action is to terminate your employee. It may be that they have exhibited behaviour unsuited to your company, or perhaps your business needs have changed. This reasoning will be the foundation for building a strong case for termination, so it is important to identify exactly what the grounds for termination are.
In Singapore, employees will generally be hired with a probation period of around three to six months, and will be hired as permanent employees after successful completion of this probation period. However, there is an opportunity for the employer to terminate the contract before the probation period ends, for example if they feel that the employee’s performance has been unsatisfactory.
Another ground for termination may arise if the employee has breached the employment contract in some way. This will of course depend on what is contained in the contract, but some examples could include if the employee is absent from work for a period of time without prior approval or adequate explanation. If the breach of contract is serious enough, the employer may be able to terminate without any notice or pay in lieu of notice. However, it is vital to be sure that you have strong enough grounds to terminate this way before proceeding.
If an employee has behaved in a way which amounts to misconduct, then an employer again may use this as grounds for termination. Misconduct can cover a very wide range of behaviours, from negligence, chronic lateness, inappropriate behaviour towards colleagues or customers, or misuse of company property. It is crucial for you as an employer to establish what exactly has happened, and to ensure the misconduct has been thoroughly documented. The law does not set out exactly when inappropriate behaviour amounts to misconduct, so it is prudent to take advice and use your discretion to establish whether termination is appropriate in the circumstances.
There may also be additional grounds for termination such as poor job performance, an irreparable incompatibility with colleagues, or long-term sickness, but it is important to approach these with caution. For employees covered by the Employment Act, you must begin by carrying out a formal inquiry, then consider issuing the employee with one or more formal warnings or disciplinary action before proceeding to termination. Again, it is important to seek advice before making these decisions, to ensure that you do not inadvertently expose your business to any additional risks.
But what if the reason for terminating is nothing to do with the employee, and your business needs have simply changed? There may be circumstances, for example due to a shift in your market or a take-over, where employees must be made redundant or have their contract of employment transferred. In Singapore, retrenchment is the termination of an employee on the grounds of redundancy, whether that is due to redundancy of the employee’s position or the total headcount is redundant. This can occur due to a company ceasing operations, going through a restructuring, or a merger / acquisition. Companies in Singapore have a duty to manage retrenchment responsibly and in line with the Ministry of Manpower Retrenchment Guidelines, which set out the process to follow and the compensation considerations for retrenched employees. How to correctly handle these situations is very fact dependent and you should seek advice tailored to your specific circumstances.
The prescribed minimum retirement age in Singapore is 62, and if you have any older employees, it is worth being aware of the Singapore Retirement and Re-employment Act. This law gives protection to employees who reach the minimum retirement age, with you as an employer being required to offer re-employment.
How to Terminate an Employee in Singapore
You must terminate in writing, and the termination must be as per the terms of the contract. Usually, there will be a notice period, or an option to pay salary in lieu of notice. If there is no notice period set out in the contract, then the following minimum periods from the Employment Act should be used:
- Employed for less than 2 weeks: 1 day notice period
- Employed for 26 weeks – 2 years: 1 week notice period
- Employed for 2 – 5 years: 2 weeks’ notice period
- Employed for 5+ years: 4 weeks’ notice period
Any notice period in the contract can we waived if this is agreed between you and your employee. You should note that employees who have worked the agreed notice period remain entitled to Central Provident Fund contributions for their salary during the notice period.
During the notice period, the employee and employer remain bound by the employment contract and must continue to act in accordance with it. The employee has the right to use any annual leave they have left and offset this against the notice period, bringing the date of termination forward. Any annual leave used in this way will not be paid for by the employer. However, if annual leave is taken during the notice period but the termination date is not brought forward, then the employee will receive his salary in full. An employee cannot be forced to use their annual leave during their notice period.
Childcare and Maternity Leave
Various employment rights and benefits are mandatory under Singapore law. For example, the Child Development Co-Savings Act sets out maternity leave and childcare leave benefits. When an employee is on maternity leave, it is prohibited for an employer to terminate her contract. Failure to adhere to this law will attract strict penalties for a company. Equally, an employee cannot terminate their employment contract while on maternity leave and use the remaining maternity leave as notice of termination. An employee cannot use the childcare leave that they are eligible for to offset their notice period.
Severance Pay in Singapore
Unlike some Asian countries such as China, there is no law in Singapore requiring employers to provide severance pay when terminating an employee’s contract. However, if an employee is being retrenched, the company should pay compensation, which is usually between two weeks’ and one month’s salary per year of service, provided they have worked for the company for over two years. In order to maintain a positive relationship with outgoing employees, companies may decide to offer a goodwill payment even if the employee has not been at the company for over two years.
Post-Termination: Employee Appeals
Under the Employment Act, employees who feel their dismissal was unfounded or unfair can make a written appeal to the Minister for Manpower. This appeal must be lodged within one month of the dismissal. If the Minster finds the dismissal was unfair, they may either order the employer to reinstate the employee and pay him for the period he was dismissed, or to pay the employee compensation. Any employee, whether covered by the Employment Act or not, may bring a claim to the Employment Claims Tribunal for unfair dismissal. It is crucial if one of your terminated employees alleged unfair dismissal that you take appropriate legal advice to ensure the situation is handled correctly.
Terminating foreign employees
Termination of a foreign employee will result in cancellation of their Employment Pass/S Pass within seven days of the employment coming to an end. When the Employment Pass/S Pass is cancelled, all other passes related to the main pass will also be cancelled, and a 30-day short term visit pass will be issued. Unless the foreign employee has received an alternate valid visa, they should not remain in Singapore once their employment has terminated.
For Employment Pass/S Pass holders whose employment has been terminated, tax clearance from the Inland Revenue Authority of Singapore (IRAS) is required to ensure that all taxes have been paid in relation to the employment. Ideally, you should provide a minimum of one month’s notice of the imminent termination to the IRAS. Once you have terminated an employee’s contract, you will need to notify the Singapore tax authority and withhold all payment due to the foreign employee from the day the employer decides to terminate the employment. The tax authority will assess any taxes due and will issue a tax clearance certificate confirming that all taxes have been paid. Once you receive this tax clearance certificate, you can release any payment due to the employee.
INS Global: Your HR partner in Singapore
Making the decision to terminate an employee requires a considerable amount of care and planning, with important steps that should be given thorough consideration. As an employer, you are in a difficult position when balancing the interests of your employees against the interests of you company, and a natural compassion for your employees can make the process of termination challenging and complicated.
As an expert HR consulting company, INS Global can help you terminate employees in Singapore. We are here to support you through the entire process, offering expert guidance and advice tailored to your individual circumstances. We can assist with any settlement negotiations, manage employee payments, reimbursements and provide calculations of employee benefits. The presence of a third party such as INS Global can help with communication between employer and employee, smoothing the exit negotiation process. We can also help with recruitment of new employees with our range of recruitment solutions.
At INS Global, we offer support in Singapore and beyond. Whether your business is in Singapore, China, Japan, Taiwan or Hong Kong, and whatever your issue, contact INS Global today to see how we can support you with your HR needs.