Leave Encashment Calculation in Singapore: A Comprehensive Guide
Leaving your job in Singapore? Understanding how to calculate your leave encashment is crucial. This comprehensive guide clarifies the process, addressing common questions and concerns regarding leave encashment in Singapore.
What is Leave Encashment?
Leave encashment is the process of converting your unused annual leave days into a cash payment. While not mandated by law for all employees, it's a common practice in many Singaporean companies. Additionally, the Ministry of Manpower (MOM) provides guidelines for calculating this payment, ensuring fair compensation for your accumulated leave.
Key Aspects of Leave Encashment
- Definition: The conversion of unused annual leave days into a monetary value.
- Calculation: Based on your last drawn monthly gross salary, the average number of working days per week, and the number of unused leave days. The formula is provided below.
- Taxation and CPF: Leave encashment is considered additional wages, subject to both employer and employee CPF contributions (within the Additional Wages ceiling) and income tax.
- Eligibility: While not legally required, many companies include leave encashment in their employment contracts or policies.
Calculating Your Leave Encashment
The calculation follows a straightforward formula, as guided by the MOM:
The Formula
Daily Rate = (12 * Monthly Basic or Gross Rate of Pay) / (52 * Average Number of Working Days per Week)
Total Encashment = Daily Rate * Number of Unused Leave Days
Example Calculation
Let's say your monthly gross salary is S$4,000, and you work 5 days a week. You have 10 unused leave days.
Daily Rate = (12 * 4000) / (52 * 5) = S$184.62
Total Encashment = 184.62 * 10 = S$1,846.20
Important Considerations:
- Your salary used in the calculation should be your last drawn monthly basic or gross rate of pay.
- If you resign, your notice period is factored into the calculation of your pro-rated annual leave.
Types of Leave Encashable
Generally, annual leave is the primary type of leave encashable upon leaving a job. However, the specifics depend on your employment contract and whether your employment falls under Part IV of the Employment Act.
Find out more who falls under the Employment Act coverage.
Leave Encashment: Mandatory or Not?
Leave encashment isn't mandatory for all employers in Singapore. The Employment Act mandates carrying forward unused annual leave for employees under Part IV (earning $4,500 or less monthly for workmen, $2,600 or less for non-workmen) to the next 12-month cycle, but encashment after that period is at the employer's discretion. For employees not under Part IV, the contract dictates the terms.
Tax Implications
Leave encashment is considered additional income and is subject to income tax. There are no special exemptions for this type of payment.
Discover what is and what is not taxable on the IRAS official page.
Documentation Needed for Leave Encashment
To claim your leave encashment, gather these documents:
- Employment Contract
- Leave Records
- Pay Slips (showing salary details)
- Confirmation of your average working days per week
Encashment Timeline
Usually, leave encashment is paid on your last day of employment. However, company policies may vary, with some paying in the following year. Always check your company's specific policy.
What to Do If Your Employer Refuses Payment
If your employer refuses to pay your leave encashment, you should:
- Review your employment contract and the Employment Act.
- Communicate with your HR department.
- Seek advice from the Ministry of Manpower (MOM) or the Tripartite Alliance for Dispute Management (TADM).
- Consider filing a claim with TADM or, as a last resort, legal action.
Conclusion
Understanding your rights regarding leave encashment is vital. By using the provided formula and being aware of your legal rights, you can ensure you receive the compensation you are entitled to upon leaving your employment in Singapore.
