The Ministry of Manpower advises employers to carry out any retrenchment exercise responsibly, in consultation with the union (if the company is unionised).
The company should pay all salaries (including unconsumed annual leave, notice pay, etc.) to the employees on their last day of work.
Under the Employment Act, an employee who has been employed in a company for at least three years can request for retrenchment benefits if he/she is retrenched.
As the law does not stipulate the quantum to be paid, the amount is subject to negotiation between the employee and employer. The quantum will also depend on the company's financial position.
An employee who has worked less than three years in a company is not entitled to retrenchment benefits under the Employment Act. However, the company may pay an ex-gratia payment at its discretion.
Both retrenchment benefits and ex-gratia payments do not attract CPF contributions.
Alternatives to retrenchment for a company with excess manpower include:
- Temporarily laying off employees for a short period of time; or
- Implementing a shorter workweek.
The reduction in workweek should not:
- Exceed two days in a week; and
- Last more than two months.
Temporary Layoffs
Based on the Tripartite guidelines agreed between the unions, employers and the Ministry of Manpower, the affected workers should receive no less than half of their gross salary during the days that they are laid off.
A company that is paying its employees half of their salaries during the days that they are laid off could also arrange for them to take half-day paid annual leave on those days.
In doing so, the employees will be able to continue receiving their full-day earnings, including the half-day salary the employer is paying. However, the employees should not be made to consume more than 50% of their earned annual leave for this purpose.
For Employers
The Ministry of Manpower has published a study on how some companies have successfully managed their excess manpower. These companies have benefited, in terms of preserving a favourable corporate image, and improving staff relations and morale.
