Most employers hope they will never have to retrench anyone. But when business conditions change — a contract ends, a restructure happens, a role becomes redundant — the question is no longer whether it needs to be done, but whether it is being done correctly.
Retrenchment in Singapore is governed by specific requirements. Miss one step, and what you intended as a clean business decision can become a legal dispute.
What Counts as a Retrenchment?
The first thing many employers get wrong is thinking retrenchment only applies to permanent staff.
Under the Employment Act, retrenchment is defined as dismissal on the grounds of redundancy, or by reason of any reorganisation of the employer’s business. This applies to:
- Permanent employees
- Contract workers whose contract terms are at least 6 months
There is also a presumption built into the law: if an employer terminates an employment contract with no plan to fill the vacancy soon, that termination is presumed to be a retrenchment — regardless of how it is framed.
If you are letting someone go because the role no longer exists, or because the business has changed, that is a retrenchment. The label on the letter does not change that.
Step 1: Notify the Employee Properly
The affected employee must be notified according to the termination terms in their employment contract — including the required notice period.
MOM’s guidance is clear: if possible, give a longer notice period than the contract requires. Employees need time to prepare and search for new roles. A longer runway also reduces the risk of disputes about the manner in which the retrenchment was handled.
Step 2: Notify MOM Within 5 Working Days
This is one of the most commonly missed requirements.
If your company is registered in Singapore and has at least 10 employees, you are legally required to submit a Mandatory Retrenchment Notification to MOM within 5 working days of informing the employee of their retrenchment.
Employers with fewer than 10 employees are not required to notify MOM, but are strongly encouraged to do so.
MOM also allows employers to submit a voluntary early alert while still planning a retrenchment — this can connect you to outplacement support from Workforce Singapore (WSG) and e2i for your affected employees.
Step 3: Retrenchment Benefit — How Much Is Appropriate?
Retrenchment benefit is not mandated by law. The amount depends on what is stated in the employment contract or collective agreement. If there is no contractual provision, it must be negotiated between the employer and the affected employee.
That said, MOM strongly encourages employers to follow the Tripartite Advisory on Managing Excess Manpower and Responsible Retrenchment, which sets out the prevailing norms:
| Situation | Prevailing Norm |
|---|---|
| Non-unionised company | 2 weeks to 1 month’s salary per year of service |
| Unionised company (stated in collective agreement) | 1 month’s salary per year of service |
These are industry norms, not fixed legal amounts. The actual figure depends on the company’s financial position, the industry, and what has been agreed in the employment contract.
Employees with less than 2 years of service are not entitled to retrenchment benefit under the law. Employers may choose to make an ex-gratia payment as a goodwill gesture, but this is entirely at the employer’s discretion.
If a salary cut preceded the retrenchment, MOM’s guidance is that the retrenchment benefit should be calculated based on the salary before the cut — not the reduced amount.
The specific dollar amount for each case should be worked out based on the employment contract terms, the company’s circumstances, and — where there is no prior agreement — negotiation with the affected employee. When in doubt, seek HR or legal advice before making an offer.
Step 4: Pay Everything Owed on the Last Day
On the employee’s last day of work, you must pay:
- All outstanding salary
- Payment in lieu of unused annual leave
- Notice pay (if applicable)
- Retrenchment benefit
Delaying any of these payments is a breach of the Employment Act, even if the amount is still being calculated.
What the Selection Process Must Look Like
Retrenchment is not an opportunity to remove underperformers or manage out difficult employees. MOM is clear that selection must be based on objective factors — primarily the employee’s ability to contribute to the company’s future business needs.
Selecting employees based on age, nationality, race, gender, or other protected characteristics — or using the retrenchment as a cover for dismissal that should have gone through a performance management process — exposes the company to wrongful dismissal claims.
MOM also expects employers to maintain a strong Singaporean core, and will pay attention to patterns where local employees are disproportionately affected.
Alternatives Worth Considering First
Retrenchment is not the only option when headcount needs to be reduced. MOM lists several alternatives employers should consider:
- Redeployment to other roles within the company
- Retraining for new functions
- Shorter work weeks or temporary no-pay leave
- Voluntary separation schemes
Exploring these options first — and documenting that you did — also strengthens your position if any retrenchment decisions are later challenged.
A Quick Self-Check
- Is the termination clearly on grounds of redundancy or reorganisation — not performance?
- Does it apply to any contract workers with 6+ month contracts?
- Have you given proper notice per the employment contract?
- If you have 10+ employees, have you submitted the MOM notification within 5 working days?
- Is the retrenchment benefit based on contract terms, or negotiated where there is no provision?
- If a salary cut preceded this, is the benefit calculated on the pre-cut salary?
- Are all final payments ready for the last day?
- Is the selection process documented and defensible?
Retrenchment handled correctly protects both the business and the people leaving it. The steps are manageable — but only if you know them before the process begins, not after.
