Firms told to consider other cost-cutting options before cutting pay

The latest tripartite advisory on managing excess manpower and responsible retrenchment was released on Oct 17, 2020. ST PHOTO: KUA CHEE SIONG

SINGAPORE - Before employers implement wage cuts to save jobs, they should consider and implement other cost-saving measures first, according to the latest guidelines on responsible retrenchment practices.

The latest tripartite advisory on managing excess manpower and responsible retrenchment released on Saturday (Oct 17) lays out the various cost-cutting options employers can consider before retrenching workers.

Employers who want to scale down or suspend business operations because of a short and temporary decline in business activities can consider making adjustments to work arrangements with or without wage cuts, while those with little prospect for the long run may find direct wage cuts and no-pay leave more suitable options.

A Ministry of Manpower spokesman noted that "only a small minority" of all the companies that have submitted cost-saving measures notifications so far went on to carry out a retrenchment exercise.

Under the tripartite advisory, adjustments to work arrangements without wage cuts include redeploying employees to other areas of work within the company if the company is undergoing structural changes.

In such cases, relevant training should be provided.

If there are no other available jobs for the affected employees within the company, another option is to outplace them to suitable jobs in other companies.

Employers can also consider implementing a flexible work schedule, which involves creating a "time bank" of unused working hours while still paying workers their monthly wages.

The banked hours can be "repaid" to the employer later, when business picks up and longer working hours are needed.

On the other hand, adjustments to work arrangements with wage cuts include measures such as offering part-time work, shortening the work week or temporary layoffs.

Employers who are facing dire business conditions that are unlikely to improve in the long term may consider direct wage cuts, but should consult the relevant unions and its employees to reach an agreement before implementing them, the advisory stated.

Companies that have a flexible wage system in place can adjust various wage components to reduce manpower costs.

In particular, the variable bonus payment can be reduced or not given when a company is not performing well.

The annual wage supplement, or 13th month bonus, which is usually one month's wage paid at the end of the year, can be reduced if business conditions continue to worsen.

  • Responsible retrenchment practices

  • Good practices for responsible employers when carrying out retrenchments:

    1. Provide a longer notice period (beyond contractual or statutory requirements) where possible, either in the collective agreement with unions, or with employees in their contracts of service.

    2. Prepare managers on how to deliver the news in a sensitive manner. Affected employees should be informed of retrenchment in person, unless it is not practical to do so.

    3. Human resources personnel and union representatives for unionised companies should be present to take feedback and questions from retrenched employees. Employers should also maintain an open channel of communication for further questions that may arise.

    4. Give affected employees the time and space to adjust to the news, before asking them to vacate their workplaces.

    5. Offer counselling support to affected employees if necessary.

  • What employers must do under the Employment Act when carrying out retrenchments:

    1. Notify the Ministry of Manpower within five working days after informing affected employees of their retrenchment.

    2. Meet the minimum notice periods according to the affected worker's length of service, or pay a quantum in lieu of the notice.

    •If the length of service is less than 26 weeks, the minimum notice period is one day.

    •For length of service of between 26 weeks and less than two years, the notice period is at least one week.

    •Those who have worked for two years to less than five years must be given at least two weeks' notice.

    •For those who have worked at the company for five years or more, they must be given at least four weeks' notice.

To respond quickly to changes in the business environment, employers can reduce the monthly variable component (MVC), which forms part of the monthly basic wage.

This means the employer will not have to wait until the end of the year to adjust the variable bonus payment or other annual variable components.

Companies that have not yet implemented the MVC can consider treating any cut in basic wages of up to 10 per cent as a cut in MVC, which should be restored later when the business recovers.

No-pay leave should only be considered after employers have considered other measures and have consulted the relevant unions and its employees.

Mr Sim Gim Guan, executive director of the Singapore National Employers Federation, said in a statement that employers should consider business sustainability and long-term manpower needs.

If retrenchments are inevitable after exhausting other options, they should carry out the exercise with empathy and care, he added.

"We also encourage employers to maintain a strong Singaporean core so that they would have the capabilities and capacities to seize opportunities when the economy starts to recover," he said.

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