Leaving your job in Singapore? Understanding how to calculate your unused annual leave encashment is crucial. This comprehensive guide clarifies the process, addressing common questions and concerns.
What is Annual Leave Encashment?
Annual leave encashment is the conversion of unused annual leave days into a monetary payment. It provides financial compensation for leave not taken.
When Are You Entitled to Annual Leave Encashment?
- Eligibility: Entitlement isn't legally mandated but may be part of your employment contract or company policy.
- Calculation: Uses the MOM formula detailed above.
- Specific Scenarios: Resignation or termination usually allows for encashment (unless termination is due to misconduct).
- CPF Contributions: Subject to CPF contributions (if within the AW ceiling).
- Company Policies: The specifics are determined by company policy and your contract.
Calculating Your Annual Leave Encashment
The Ministry of Manpower (MOM) provides guidelines for calculating the monetary value of your unused annual leave. Here's a step-by-step process:
(12 months x Monthly basic or gross rate of pay) / (52 weeks x Average working days per week) x (Number of unused leave days)
Example:
Nelson works 5 days per week and earns $6,000 per month and he had 10 unused leave days.
Applying the formula, we have:
(12 x $6,000) / (52 x 5) x 10 = $2,769.23
Therefore, the leave encashment amount would be approximately $2,769.23
Additional Considerations
- Leave encashment is considered additional wages and is subject to CPF contributions for both employer and employee (if within the Additional Wage (AW) ceiling).
- Always check your employment contract to understand how unused leave is handled (encashed, carried forward, or forfeited).
Tax Implications of Annual Leave Encashment
Annual leave encashment is considered taxable income in Singapore. This applies regardless of whether you receive it during or after employment. The tax year is typically the year you receive the payment.
Tip: Find out Singapore's tax treatment on the IRAS official page of tax treatment.
Employer's Right to Refuse Annual Leave Encashment
Whether your employer can refuse leave encashment depends on your Employment Act (EA) coverage and your contract:
- Part IV of the EA (Lower Salary Tiers): No statutory requirement for encashment. The employer decides whether to encash, carry forward, or forfeit.
- Not Covered by Part IV of the EA (Higher Salary Tiers): Your contract dictates the terms.
- Termination of Employment: Encashment is typically allowed unless termination is due to misconduct.
Annual Leave Encashment During Probation
Generally, you're not entitled to leave encashment if you resign during your probationary period (usually the first 3 months) because annual leave entitlement begins after 3 months of service. However, if you resign after 3 months, a pro-rated amount might be payable, depending on company policy.
Is Annual Leave Encashment Mandatory?
No, it is not mandatory in Singapore. It's at the employer's discretion and should be outlined in your contract or company policy.
Documents Needed to Claim Encashment
- Employment Contract: Check for leave encashment provisions.
- Payroll Records: Confirm your salary and unused leave days.
- Form IR8A: Relevant for tax purposes.
Inform your HR/payroll department of your intent to encash your leave.
Timing of Annual Leave Encashment Payment
Usually, payment is included in your final salary or provided separately after your last day, especially upon resignation. The calculation is based on your remaining leave balance, following the MOM formula.
Can You Encash Other Leave Types?
No, annual leave encashment applies only to unused annual leave, not sick leave or other leave types.
