Guide to Employee Termination in Singapore for SMEs 

Navigating employee termination can be a delicate process for any business, especially in Singapore where strict employment laws exist to protect both employers and employees. This guide provides SMEs with crucial information on legally and ethically managing employee terminations.

Understanding the Legal Framework

Employment Contracts and Termination Clauses:

• Probation Periods: Typically range from three to six months, during which the terms of termination are usually more flexible.
• Contractual Terms: It’s essential for employers to clearly understand and adhere to the termination clauses specified in the employment contracts.

Legislation Governing Termination:

• The Employment Act in Singapore outlines the basic conditions for termination, including notice periods and valid grounds for dismissal.
• The Employment of Foreign Manpower Act regulates the specific conditions for hiring and terminating foreign employees.

Valid Reasons for Termination

Employers must have legitimate reasons for terminating an employee, which include:

• Misconduct: Such as theft, dishonesty, or insubordination.
• Poor Performance: Failure to meet job performance standards.
• Redundancy: Changes in job scope or organisational restructuring leading to the elimination of a position.

Procedures for Fair Termination

Conducting a Fair Inquiry:

• Before taking any disciplinary action for misconduct, employers must conduct a fair inquiry, allowing the employee to explain and defend their actions.

Notice Periods for Termination: The duration of the notice period usually depends on the length of service and is explicitly outlined in the Employment Act.

• Less than 26 weeks: One day
• 26 weeks to 2 years: One week
• 2 to 5 years: Two weeks
• Over 5 years: Four weeks

Termination Letters:

• Written notice is mandatory for termination initiated by either the employer or employee, ensuring transparency and formal documentation of the termination.

Special Considerations for Foreign Employees

• Work Pass Cancellation: Employers must cancel the work pass of foreign employees within 7 days of termination.
• Tax Clearance: Employers are required to ensure all tax obligations are fulfilled before the employee leaves Singapore.

Handling Employee Resignation

• Acceptance of Resignation: It is illegal for an employer to refuse the resignation of an employee. Employees may resign by serving the required notice or compensating with salary in lieu.

Options for Managing Workforce Reduction

In times of business downturns, employers might consider alternatives to outright termination:

• Shorter Work Week or Temporary Layoff: These measures can help manage excess manpower by reducing working hours without permanent layoffs.
• Flexible Work Arrangements: Implementing part-time work or compressed work weeks can also be effective.
• No-Pay Leave: As a last resort, employers may ask employees to take unpaid leave to reduce costs.

Rights and Obligations during Employment Transfer

• Transfer Notifications: Employers must notify and consult with employees about any impending transfer due to organisational restructuring.
• Preservation of Terms: Terms of employment should ideally remain consistent post-transfer, unless renegotiated.

Retirement and Re-employment

Singapore encourages the re-employment of older employees:

• Retirement Age: The minimum retirement age is 63, with employers required to offer re-employment up to the age of 68.
• Eligibility for Re-employment: Employees must have satisfactory work performance and be medically fit to continue working.

Summary

Terminating an employee, whether due to performance issues, misconduct, or redundancy, requires careful consideration of legal guidelines and ethical practices. By following the structured approach outlined in this guide, SMEs in Singapore can ensure they handle terminations fairly and responsibly, minimising potential legal repercussions and maintaining a positive workplace environment.

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