What is a contract of service
A contract of service is an agreement in which:
- One person agrees to employ another as an employee
- The other person agrees to serve the employer as an employee
The agreement can be in writing, verbal, expressed or implied. It can be in the form of a letter of appointment or employment, or an apprenticeship agreement. However, to minimise disputes on the agreed terms and conditions, the contract should be in writing.
Terms and essential clauses
The employer cannot change the terms and conditions of employment unless the employee agrees to it.
A contract of service should include the following clauses:
- Starting date
- Job title and job scope
- Hours of work
- Probation period, if any
- Salary, e.g. basic salary, allowances, commission
- Employee benefits, e.g. sick leave, annual leave, maternity leave
- Notice period for termination of contract
- Code of conduct, e.g. punctuality, no fighting at work
All terms and conditions of employment must follow, or be better than, the Employment Act provisions. Any terms that are less favourable are considered illegal, null and void, and the terms of the Employment Act will be in effect in their place.
Starting a contract of service
The contract is in effect when the new recruit turns up for work on the appointed starting date.
If the recruit fails to turn up:
- The Employment Act does not apply, as the employer-employee relationship did not start
- The employer cannot claim notice pay or any compensation under the Act
- Any claims for compensation by the employer will have to be a civil claim through a lawyer
Confirmation of an employee
Confirmation depends on the terms in the contract, as it is not covered by the Employment Act.
Note: The length of an employee's service is calculated from the date on which the employee starts work, and not the date of confirmation.
Terminating a contract of service
Either the employer or the employee can terminate a contract of service.
Contract of service vs. contract for service
A contract of service is an agreement between an employer and an employee.
In a contract for service, an independent contractor, such as a self-employed person or vendor, is engaged for a fee to carry out an assignment or project.
This table summarises the main differences between the two:
Contract of service
Contract for service
Has an employer-employee relationship
No employer-employee relationship
Employee does business for the employer
Contractor carries out business on their own account
Covered by the Employment Act
Not covered by the Employment Act
Includes terms such as employer CPF contribution and leave benefits, etc.
Statutory benefits do not apply
There is, however, no single conclusive test to distinguish a contract of employment from a contract for services.
Some of the factors to be considered in identifying a contract of employment include:
- Who decides on the recruitment and dismissal of employees?
- Who pays for employees' wages and in what ways?
- Who determines the production process, timing and method of production?
- Who is responsible for the provision of work?
- Ownership of factors of production
- Who provides the tools and equipment?
- Who provides the working place and materials?
- Economic considerations
- Is the business carried out on the person's own account or is it for the employer?
- Can the person share in profit or be liable to any risk of loss?
- How are earnings calculated and profits derived?