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The New Year Brings Employment Act Changes in Singapore

March 3, 2009
Related Topics: Global Business Issues, Managing International Operations, Global Employment Law, Featured Article
For the first time in 14 years, the Singapore Ministry of Manpower has made significant alterations to its Employment Act, the main legislation governing employment terms and conditions. These changes took effect January 1, 2009. The act’s purpose is twofold: First, it safeguards basic employment standards, particularly for workers who are considered more economically vulnerable and need protection under the law; and second, it regulates relations between employees and their employers.

The labor climate in Singapore
For a country whose labor climate is known for tenuous boss-employee relationships, the changes to the Singapore Employment Act serve primarily the interests of the employee and organized labor by increasing employee benefits while also increasing restrictions on employers.

About 18 percent of the Singaporean workforce is currently unionized. Ninety-eight percent of those unionized belong to the National Trades Union Congress. The congress played a role in developing the changes to the Employment Act alongside the Singapore Business Federation and National Employers Federation. The changes explained below, while beneficial to workers, also allow for more employer-employee contract flexibility in Singapore’s continuously growing economy.

The legislation update comes in response to changing trends in Singapore’s workforce profile, employee tenure and labor outsourcing since 1995. The services sector now employs a higher percentage of the workforce than it did a decade ago. As of 2007, more than two-thirds of the workforce was employed in service-related jobs, compared with only around 60 percent in 1997. The number of professionals, managers, executives and technicians has also increased to now form nearly 50 percent of the resident workforce, up from 40 percent a decade ago. In addition, contract workers have become more prevalent, now accounting for more than 10 percent of the resident workforce.

Wages in Singapore have also increased significantly since the act was first passed, and along with an increase in outsourced labor, employment tenures have shortened. The Employment Act has been brought up to date to address this changing labor climate, with the main purpose of increasing benefits for workers who are part of a more unstable yet increasingly productive workforce.

A changing workforce profile: Who is covered under the Employment Act?
There have been two major changes regarding who is covered under the act. Before the change, the Employment Act covered all employees except seamen, domestic workers, public servants, confidential staff and employees in managerial and executive positions. Now, however, so called "confidential staff" and junior managers and executives will be protected by EA provisions.

Confidential staff: This class of employee generally includes secretaries or HR clerks who have access to sensitive personnel records, salary information and secrets regarding operation of the business. Despite their access to this kind of information, these workers hold jobs similar to those already covered by the act, and thus they have been brought under it. Under the act, they will now receive employment protection and minimum employment benefits. Companies operating in Singapore should be aware that confidential staff will now be able to take salary claims to labor court and appeal firing decisions. Claims of salary in arrears prior to 2009, however, will not be admissible in court. In addition, as long as their salaries fall below the ceilings of S$2,000 and S$4,500 (about US$1,358 and US$3,056) for non-workmen and workmen, respectively, they will have access to the benefits covered in Part IV of the Employment Act, including the right to overtime pay and paid annual leave.

Managers and executives: In the past, workers in managerial positions (defined as those who influence business decisions) who earned a basic monthly salary below S$2,500 (about US$1,635) had access to civil courts to pursue salary claims, but this course of action has become increasingly costly. They will now be given access to labor court to pursue salary claims, but they will continue to be excluded from the other provisions of the Employment Act. The basic salary used to qualify for benefits under the act does not include bonuses, but bonus disputes can still be taken to labor court. However, travel allowances, reimbursements and accommodation allowance disputes cannot be taken to court. As with confidential staff salary disputes, salary questions that predate 2009 cannot be brought to court.

Salary ceiling increases for non-workmen (manual laborers): Salary ceilings are being raised to reflect changes in wages over the past 14 years. The salary ceiling for non-workmen will rise to S$2,000 (about US$1,307) from S$1,600 (about US$1,046), meaning that non-workmen receiving less than S$2,000 a month will now have the right to: 1) receive overtime pay at 1.5 times the basic rate of salary; 2) receive two days’ pay for work on rest days; 3) receive paid annual leave stipulated in the law; and 4) be protected by regulation of contractual working hours.

Salary ceiling for workmen: Before 2009, all workmen (those who complete manual labor for a majority of their working time) were covered by the Employment Act, regardless of salary level. Many employers felt they had little flexibility in setting overtime and rest-day payment rates for higher-paid workmen. As a result, a new S$4,500 (about US$2,942) basic salary ceiling has been instituted to prevent those making a higher salary from receiving benefits under Part IV of the act. Employers should note that adding allowances to basic workman salaries will not disqualify workers from Part IV benefits.

Part-time employees: Employees who work less than 35 hours a week are now considered to be part time. This redefinition of "part time" from less than 30 hours a week under the previous law will allow employers to employ more part-time workers.

Changes to required employee benefits
Employers in Singapore should be aware of changes to required benefits stipulated under the revised act. These enhanced benefits primarily concern qualification for sick leave. On January 1 of this year, a new section was added to the Employment Act so that all workers covered under the act will have access to benefits. Paid sick leave and public holidays were formerly covered only in Part IV of the act, preventing workers ineligible for Part IV benefits from being guaranteed that time off. This change is not likely to have a significant impact on foreign companies in Singapore, which generally already provide these benefits to all employees.

Reducing qualifying period for paid sick leave: Previously, employees did not qualify for sick leave until they had worked for six months. Under the new provisions, employers must provide paid sick leave after employees have worked for only three months. After three months of employee service, employers will also be required to pay for employees’ medical consultation fees. Sick-leave entitlements will be phased in between the completion of three months and six months of service, so that by six months of service the employee will be entitled to 14 days of paid outpatient leave and 60 days of paid hospitalization leave.

Freer guidelines for obtaining medical certificates: Under the new regulations, employees will no longer be required to obtain medical certificates from employer-appointed doctors to qualify for sick leave. Instead, they will be able to obtain a medical certificate from any public medical institution when company doctors are not readily available or during emergency situations. Under non-emergency circumstances, employers can still require employees to visit a panel of doctors appointed by the firm. The law does not require an employer to pay salary for the days an employee is absent from work with medical certificates from non-public institutions.

Increased penalties on employers
Finally, for employers who fail to follow the regulations laid out in the Employment Act, the maximum penalty fine will be increased fivefold to S$5,000 (about US$3,269) for first-time offenders. For repeat offenders, the maximum penalty fine for most offenses also increases fivefold to $10,000 (about US$6,538). Also, the "composition fine," which is a fine paid directly to the worker as a form of compensation in addition to any fines paid to the government, will be increased to $1,000 from $200.

As a result of the current economic downturn, the government is turning to employers to maintain labor stability. In general, the changes to the Employment Act will result in higher labor costs, but cost increases will depend largely on the type of employees employed by firms. Companies and employers that rely on lower-paid workers who are not manual laborers will see the greatest rise in labor costs, as more of those employees will now be eligible for benefits.

For companies that employ higher-paid manual workers, the changes to the act will increase costs only in the case of labor-dispute litigation. Although lower-paid managers will now receive basic benefits under the act, employers will retain flexibility in dealing with contracts for higher-paid managers. Because all workers covered by the act are now entitled to compensation during national holidays, sick leave after three months and the ability to receive medical certificates from public institutions, all employers should expect to grant more time off for employees.

For now, these increases in labor costs primarily codify industry norms, yet they form a framework that will be shaped anew as foreign and local companies in Singapore adjust to the changing world economy.

The information contained in this article is intended to provide useful information on the topic covered, but should not be construed as legal advice or a legal opinion. Also remember that state laws may differ from the federal law.

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