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Annual Leave Encashment Calculation in Singapore 2024: Step-by-Step Formula & Examples

Annual Leave Encashment Calculation in Singapore 2024: Step-by-Step Formula & Examples

Learn how to calculate annual leave encashment in Singapore with our step-by-step guide, including formulas, tax implications, and important considerations when leaving your job.
Written By
Siyu Chen
HR Editor at Gutsy

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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.

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:

Step 1: Determine Your Monthly Salary

Use your most recent drawn basic or gross monthly salary. This forms the basis of your calculation.

Step 2: Calculate Your Daily Rate

Use this formula:

Daily Rate = (12 × Monthly Salary) / (52 × Average working days per week)

Example: If your monthly salary is $5,000 and you work 5 days a week:

Daily Rate = (12 × 5000) / (52 × 5) = $230.77

Step 3: Calculate Your Leave Encashment

Multiply your daily rate by the number of unused leave days.

Example (continued): With 10 unused leave days:

Leave Encashment = 230.77 × 10 = $2,307.69

Example Calculation Summary

Item Amount
Monthly Salary $5,000
Working Days per Week 5 days
Unused Leave Days 10 days
Daily Rate $230.77
Leave Encashment $2,307.69

Additional Considerations for Leave Encashment

  • 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).

Understanding Annual Leave Encashment

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 It?

  • 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.

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.

Daily Rate Calculation for Annual Leave Encashment

The daily rate calculation, as per MOM guidelines, is:

  1. Calculate Annual Salary: Monthly Salary × 12
  2. Calculate Total Working Days: Working Days per Week × 52
  3. Calculate Daily Rate: Annual Salary / Total Working Days
  4. Calculate Leave Encashment: Daily Rate × Number of Unused Leave Days

Example: $2,000 monthly salary, 5 working days/week:

Annual Salary = $24,000; Total Working Days = 260; Daily Rate = $92.31; Leave Encashment (10 days) = $923.10
The calculation example provided is mathematically correct but does not fully consider Singapore's payroll regulations. Specifically, it overlooks the influence of rest days, public holidays, and differing pay components stipulated by the Employment Act. Calculations should be based on the exact monthly gross salary and actual working days within that period to ensure accuracy.

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 annual 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, annual leave encashment 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.

[1] Ministry of Manpower (MOM) Website [Insert link here if available]

[2] Inland Revenue Authority of Singapore (IRAS) Website [Insert link here if available]

[3] Example Company Policy [Insert link here if available]

[4] Relevant Employment Act Section [Insert link here if available]

[5] Another relevant source [Insert link here if available]

Disclaimer: This article was made with the help of AI and should not be used as a reference for legal matters. Please always double-check with official sources to ensure accuracy.

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