Understanding salary in lieu of notice is crucial for both employees and employers in Singapore. This guide clarifies the legal framework, calculation methods, and potential implications surrounding this compensation mechanism.
What is Salary in Lieu of Notice?
In Singapore, "salary in lieu of notice" (also known as "payment in lieu of notice") is compensation paid when an employment contract ends without the employee serving their full notice period. This applies whether the employee resigns or the employer terminates the employment. The payment compensates for the salary the employee would have earned during the unserved notice period.
Entitlement to Salary in Lieu of Notice
Resignation by Employee
If an employee resigns, they must either serve their contractually specified notice period or pay the employer an equivalent sum in lieu of notice. This payment equals the salary they would have earned during the notice period.
Termination by Employer
If an employer terminates an employee's contract without serving the agreed notice period, they must pay the employee salary in lieu of notice. This is calculated using the employee's gross daily rate multiplied by the number of unserved notice days.
The calculation generally uses the employee's gross daily rate multiplied by the number of unserved notice days, but exceptions exist, such as in cases of gross misconduct where no compensation is required.
Calculating Salary in Lieu of Notice
The calculation method depends on the length of the unserved notice period:
- Complete Month: The full monthly gross salary is paid (excluding overtime, bonuses, and other additional payments).
- Incomplete Month: The payment is (monthly gross salary * 12 / 260) multiplied by the number of unserved notice days.
| Length of Service | Default Notice Period (if not specified in contract) |
|---|---|
| Less than 26 weeks | 1 day |
| 26 weeks to less than 2 years | 1 week |
| 2 years to less than 5 years | 2 weeks |
| 5 years and above | 4 weeks |
Mutual Consent and Waiver
Both employer and employee can mutually agree to waive the notice period. However, this waiver must be in formal writing.
Additional Considerations
- If the employment contract doesn't specify a notice period, the default periods based on length of service (as shown in the table above) apply.
- Employees can use accrued annual leave to offset the notice period, but this requires employer agreement. Note that using annual leave to shorten the notice period will not result in additional compensation from the employer.
- CPF contributions are not applicable to salary paid in lieu of notice.
- Salary in lieu of notice is considered taxable income and is subject to income tax deductions.
Probation Period
During a probationary period, either party can terminate employment by serving the notice period (as specified in the contract or by the default periods mentioned above) or by paying salary in lieu of notice. The terms of the employment contract will govern this.
Employer's Right to Compensation
If an employee leaves without serving their notice period, the employer can seek compensation. However, direct deduction from the final payment is not automatically allowed without mutual agreement or a clear contractual provision. The employer must obtain consent or follow the legal process to recover the compensation.
Differences Between Termination and Resignation
The calculation of salary in lieu of notice is the same regardless of whether the employment ends due to termination or resignation. The key difference lies in who is responsible for the payment: the employer in case of termination, and the employee in case of resignation (unless mutually waived).
Refusal to Pay Salary in Lieu of Notice
Refusal to pay by either party can lead to legal disputes. The aggrieved party can pursue legal action through the Tripartite Alliance for Dispute Management (TADM) or the Ministry of Manpower (MOM) to recover the owed amount.
Does Salary in Lieu of Notice Include Bonuses and Other Benefits?
Generally, yes. Salary in lieu of notice typically includes basic salary, commissions, bonuses, and other regular allowances as stipulated in the employment contract.
Payment Timeline
Salary in lieu of notice should be paid on the employee's last day of employment or within three working days (or seven days in case of resignation) of the termination date.
Conclusion
Navigating salary in lieu of notice requires careful attention to the employment contract and Singapore's Employment Act. Understanding your rights and obligations is crucial to avoid disputes and ensure fair compensation.
