Contract of Employment
Termination of Employment
Transfer of Employment
Personal Income Tax
The law relating to employment in Singapore is largely based on English common law principles with some statutory protections. While sharing common roots, employment law in Singapore has developed separately since Singapore's independence in 1965. From the outset the government of independent Singapore sought to establish a pro-active and complementary relationship between labour, industry and government. Labour relations have generally been harmonious and constructive. The law has sought to strike a balance between providing appropriate protection for workers and keeping the economy agile so that it can respond quickly and flexibly to changes in conditions.
The relationship between employer and employee is regulated largely by the contract of employment between them. Generally parties are free to contract as they choose but there are some limits. For example, there are statutory minimum periods of notice of termination that cannot be contracted out of, and under the common law certain contractual stipulations such as unreasonable restraints of trade are not enforceable.
The principal statutes regulating employment law are the Employment Act and the Industrial Relations Act.
The Employment Act does not apply to all relationships between employers and employees because it applies only to 'employees' as that term is defined in the act. The definition includes workmen and certain government employees but it does not include seamen, domestic workers, persons employed in a managerial executive or confidential position or any other person who may from time-to-time be declared by the Minister of Manpower not to be employees for this purpose. The term 'workmen' includes manual labourers, drivers of commercial vehicles and certain other categories of workers.
Part IV of the Employment Act prescribes certain minimum requirements regarding rest days, hours of work, holidays, annual leave, sick leave, payment of retrenchment benefits, retirement benefits and certain other conditions of service. However, Part IV does not apply to employees who are paid a basic monthly salary of S$1600 or more.
Except to the extent that the Employment Act, a trade union collective agreement, or an award of the Industrial Arbitration Court provides otherwise, termination is governed by the terms of the employment contract.
There are some statutory restrictions on the ability to terminate in accordance with the contract. These include:
- termination by reason of an employee joining a trade union;
- termination by reason of an employee being called for national service. (It is a criminal offence to dismiss an employee for this reason);
- termination of a female employee's employment while she is on maternity leave. (Female employees are entitled to eight weeks of paid maternity leave);
- termination on the ground of age of any employee who has not attained the minimum statutory retirement age (ie, 62 years); and
- termination without giving the minimum statutory period of notice or paying salary in lieu of notice. (The minimum period ranges between one day if the employee has been employed for less than 26 weeks to four weeks if he has been employed for five years or more.)
Section 18A of the Employment Act deals with transfer of employment where an undertaking or part of an undertaking is transferred from one person to another. These rules probably apply only to employees who fall within the definition of 'employee' in the Employment Act.
Section 18A provides that the transfer of an undertaking (or part of it) will not terminate the contract of service of any employee employed by the transferor. Rather, the contract of service will have effect after the transfer as if originally made between the employee and the transferee.
Section 18A also imposes certain notification requirements on the transferor and the transferee and provides a procedure for dealing with disputes that arise in connection with such a transfer.
Employees are subject to Singapore income tax on the income they derive from their employment in Singapore. Employees who are resident in Singapore are entitled to various personal reliefs. The rate of tax will depend on the employee's chargeable income after allowable deductions and personal reliefs but the maximum rate is 28%. Income tax is not collected on a PAYE (pay-as-you-earn) basis. It is paid annually in respect of each year of assessment. Tax returns must be filed annually and also when an employer ceases to employ an employee.
Income derived by Singapore employees from employee share options is also subject to Singapore income tax.
There are no compulsory contributions to any pension scheme or social security insurance scheme in Singapore. However, in the case of employees who are Singapore citizens or permanent residents, contributions must be made to the Central Provident Fund (CPF). The employer must deduct and pay to the CPF Board a specified percentage of the employee's salary. In addition, the employer must contribute to the employee's CPF account with the CPF Board a specified percentage of the employee's salary. The employee's rate of contribution (ie, the percentage deducted from the employee's salary) is 20%. The employer's rate of contribution was also 20%, but it was recently reduced to 12% as one of the cost-cutting responses to the South East Asian economic crisis. With signs of recovery in the Singapore economy, it is expected that starting from the beginning of next year, the employers' rate of contribution will be restored progressively to 20%.
The CPF scheme is not a pension scheme. It is a compulsory savings scheme. The amount in each employee's CPF account belongs to him and can be withdrawn by him when he attains the age of 55. Prior to that, portions of the CPF account can be used for certain purposes such as purchasing a home or paying for medical expenses. A person who leaves Singapore permanently may withdraw the balance of his CPF account when he leaves.
For further information on this topic please contact Gary Pryke or Rosabel Ng at Drew & Napier by telephone (+65 535 0733) or by fax (+65 535 4906) or by e-mail ([email protected] or [email protected]). The Drew & Napier web site can be accessed at www.drewnapier.com .
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