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What is retrenchment?

Simply put, retrenchment is when a company cuts costs or reduces its size to improve its financial health. This can include laying off employees, stopping production of less profitable products, selling parts of the business, or finding cheaper ways to operate. The goal is to save money and make the company more efficient, especially during tough economic times or when the business isn't doing well.

What are the rules?

Under mandatory retrenchment notifications, employers must notify Ministry of Manpower (MOM) of retrenchments within 5 working days after they notify the affected employees.

Who is/are eligible for retrenchment benefits?

  • Employees who have served the company for at least 2 years

  • Those with less than 2 years' service could be paid an ex-gratia payment out of goodwill from company

Amount of compensation

The amount of compensation depends on the employment contract; or what was agreed with the employee. If there is no contract or agreement, the employee and employer needs to negotiate the amount. If the retrenchment comes shortly after a salary cut, the salary before the cut should be taken in account and be used to determine the compensation.

The prevailing norm is to pay a retrenchment benefit of between 2 weeks to 1 month salary per year of service, depending on the company’s financial position and the industry. Both parties are not required to pay CPF contributions for this compensation.

Alternatives to retrenchment

Employers should always consider the following alternatives before making the final decision to retrench employees. A couple of ways as an alternative to retrenchment can be redeployment or temporary layoff for a period of time.

Redeployment refers to rotating employees within the company to either change their scope of work or expand it. Relevant training should be provided for the employee.

Employers can also ask employees to stop coming for work for a period of time. However, they still have obligations towards the employees and they must pay at least half of their gross salary during days where they are laid off. Additionally, if employees consume annual leave on their laid off days, employer is required to pay them half of a day's pay (for each annual leave consumed).

All in all, employers should take serious consideration before retrenchment of employees and take note of the requirements of notification by MOM. Employers should always strive to be a responsible employer and seek help early before pressing the button. They should try to get government support and assistance such as applying for Tripartite Advisory on Managing Excess Manpower and Responsible Retrenchment.

You can check out the link below if you need more information:


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