Three employees leave your company in the same month. One quits. One is let go because his performance hasn’t improved despite coaching. One is let go because you’re restructuring and her role no longer exists.
Same outcome on paper. Very different legal obligations.
Most employers know these situations feel different. Fewer know exactly how the law treats them differently — and what happens when you apply the wrong process to the wrong situation.
Resignation: The employee initiates, but you still have obligations
When an employee resigns, the legal requirements fall mainly on them — they must serve the notice period stated in their contract, or pay you salary in lieu of notice. But employers have obligations too.
You must pay out any unused annual leave at the gross rate of pay on their last day (unless the departure is due to misconduct). You must continue making CPF contributions for salary earned during the notice period — but not if salary in lieu of notice is paid instead. Any notice of termination, whether from you or the employee, must be in writing.
One thing you are not required to do: give a reason. Neither party has to explain why.
If your contract doesn’t specify a notice period, the statutory minimum under the Employment Act applies:
| Length of service | Minimum notice |
|---|---|
| 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 or more | 4 weeks |
Termination: You initiate — and wrongful dismissal risk is real
When you terminate an employee, the same notice rules apply in reverse. You give notice (or pay salary in lieu), pay out unused leave, and ensure CPF is settled.
The key additional risk here is wrongful dismissal. MOM defines a dismissal as wrongful if it’s without just or sufficient cause — for example, dismissing someone because they filed a complaint, took medical leave, or are pregnant. Employees can file a wrongful dismissal claim at TADM within one month of their last day of employment.
Termination for misconduct follows a different path: you can dismiss without notice, but you must conduct a proper inquiry first. Skipping the inquiry and jumping straight to dismissal is where many employers create legal exposure.
Retrenchment: The most regulated of the three
Retrenchment is not just a word for “we’re letting you go.” Under Singapore law, it has a specific definition: dismissal on the grounds of redundancy, or due to reorganisation of the business. Critically, if you terminate someone with no plan to fill their role, MOM presumes a retrenchment has taken place — regardless of what you call it in the letter.
This matters because retrenchment triggers specific obligations:
- MOM notification: If you have 10 or more employees and you retrench any of them, you must notify MOM within 5 working days of informing the affected employee. This is mandatory under the Employment Act.
- Retrenchment benefit: Employees with at least 2 years of service are eligible. The prevailing norm is 2 weeks to 1 month of salary per year of service, depending on your company’s financial position. Employees with less than 2 years may receive an ex-gratia payment — this is discretionary but considered good practice.
- No CPF on retrenchment benefit: Unlike regular salary, retrenchment benefit is not subject to CPF contributions.
Retrenchment also applies to contract employees — not just permanent staff. If a worker is on a fixed-term contract of 6 months or more and is dismissed due to redundancy, they are covered.
The mistake that costs employers most
The most common — and expensive — error is calling a retrenchment a “termination” to avoid paying retrenchment benefit. This doesn’t hold up. MOM looks at the substance of the situation: if the role is gone and there’s no replacement being hired, it’s a retrenchment. Getting this wrong can result in back-payment of benefits, MOM investigation, and reputational damage with your remaining team.
A quick check before you act
Before you proceed with any departure, ask yourself:
- Who is initiating this — the employee or the company?
- Is the role being eliminated, or is this about the individual’s performance or conduct?
- Have I served the correct notice and documented it in writing?
- If it’s a retrenchment: have I calculated benefit eligibility and submitted MOM notification within 5 working days?
Getting the category right from the start keeps you on the right side of the Employment Act — and keeps your team’s trust intact.
— Written by The HRGenie team. This article is for general information and does not constitute legal advice.
