Losing your job can be a stressful experience. In Singapore, while there's no legal mandate for severance pay, it's a common practice to offer financial support during a transition period. This article clarifies the intricacies of severance pay in Singapore, answering frequently asked questions.

What is Severance Pay and When Am I Eligible?

Severance pay, also called retrenchment or termination pay, is compensation given to employees when their employment ends under specific circumstances. In Singapore, eligibility generally requires at least 2 years of continuous service with the company. Those with less than two years might receive an ex-gratia payment (a goodwill gesture), but this isn't legally required.

Severance pay is usually provided in cases of:

• Layoffs
• Redundancies
• Company closures
• Termination without cause (employee not at fault)

How Much Severance Pay Am I Entitled To?

The amount of severance pay isn't fixed by law. Instead, it's typically calculated based on:

• Length of service: Longer service usually means higher severance pay.
• Salary: The higher your salary, the higher your severance pay will generally be.
• Company's financial position: A financially stable company might offer a more generous package.
• Employment contract or collective agreement: These documents often specify severance pay terms.

The common practice is to pay between 2 weeks to 1 month's salary per year of service. For instance, an employee with five years' service might receive between 10 weeks and 5 months' salary.

Example Calculation

Let's say you're a Marketing Manager earning $5,000 per month, with 5 years and 6 months of service. Your severance pay could range from:

• Lower end (2 weeks/year): ($5,000 / 4 weeks) * 2 weeks/year * 5.5 years = $13,750
• Upper end (1 month/year): $5,000 * 5.5 years = $27,500

Tax and CPF Implications

Severance pay in Singapore is generally not taxable if it compensates for the loss of employment, but payments in lieu of notice, gratuities, and other package components may be taxable as they relate to past services or aren't directly tied to job loss. Also, CPF contributions aren't payable on severance pay.

Find out about what is and what is not taxable in terms of payment on the IRAS official page.

Is Severance Pay Mandatory in Singapore?

No, severance pay isn't legally mandated in Singapore. However, it's a widely accepted practice, encouraged by the Ministry of Manpower (MOM) as part of responsible retrenchment practices. Employers are expected to adhere to severance pay terms outlined in employment contracts or collective agreements.

Can My Employer Refuse to Give Me Severance Pay?

While not legally mandatory, an employer refusing severance pay might face scrutiny, particularly if it violates a contractual agreement or responsible retrenchment guidelines. Employers can refuse if:

• You haven't met the minimum service period (usually two years).
• Your termination was due to misconduct or voluntary resignation.
• There's no severance pay clause in your contract, and you can't reach an agreement.

What Should I Do if I Don't Receive My Severance Pay?

If you believe you're owed severance pay, take these steps:

1. Consult a lawyer: An employment lawyer can advise you on your rights.
2. Calculate your entitlement: Determine the amount you believe you're owed.
3. Negotiate: Try to resolve the issue with your employer.
4. Document everything: Keep records of all communication.
5. File a claim: If negotiation fails, consider filing a claim with the Ministry of Manpower (MOM) or contacting the Tripartite Alliance for Dispute Management (TADM).

Severance Pay for Foreigners

Severance pay rules are largely the same for foreigners and locals. However, foreigners face additional administrative procedures, including tax clearance from the Inland Revenue Authority of Singapore (IRAS) before receiving payment and work pass cancellation processes.

Minimum Employment Period

A minimum of two years of continuous service is generally required for severance pay eligibility.

Can I Negotiate My Severance Package?

Yes, you can negotiate. However, legal counsel is advisable to ensure a fair outcome. Consider your length of service, contributions, and the company's financial situation when negotiating.