In view of the ongoing recession in Singapore, and as a result an economic fallout from the COVID-19 pandemic, the National Wages Council (NWC) has come up with a set of 2020/2021 Supplementary Guidelines for employers to sustain their business and save jobs in these challenging times.

The Supplementary Guidelines, which include a call for employers to urgently implement a flexible wage system (FWS), wage recommendations for low-wage workers, ways to minimise retrenchments to the greatest extent, and more, will be applicable from 1 November 2020 to 30 June 2021.

Updated economic performance and outlook

In Q2 2020, the Ministry of Trade & Industry (MTI) and Ministry of Manpower (MOM) indicated that the Singapore economy contracted by 13.2% on a year-on-year basis, worsening from the 0.3% contraction in Q1, while total employment (excluding Foreign Domestic Workers) contracted by 129,100 in H1 2020.

The NWC further noted that the government's economic support measures will also cushion the rise in resident unemployment rate by about 1.7% points this year. This could mean about 155,000 jobs saved over these two years, although there will still be job losses overall. More than half of the jobs saved come from the Jobs Support Scheme alone.

Looking ahead for the year, the weak external economic environment is expected to pose a drag on several of Singapore’s outward-oriented sectors such as transportation & storage and wholesale trade. Moreover, the slow reopening of international borders as a result of the COVID-19 situation worldwide is likely to weigh on the outlook of sectors that are reliant on air travel and tourism, including air transport and aerospace, accommodation, MICE, and arts, entertainment & recreation.

The downturn in the construction and marine & offshore engineering sectors is also expected to be protracted due to the slow resumption of activities at construction worksites and shipyards.

Overall, taking into account the external and domestic situation, MTI expects the Singapore economy to contract by 5.0% to 7.0% for 2020 as a whole. Consequently, softness in the labour market is likely to persist with continued weakness in hiring and pressure on companies to retrench.

Thus, the NWC 2020/2021 Supplementary Guidelines are outlined as follows:

Maximising goverment support measures, retraining and redeploying employees, and more

Many businesses and their employees, as well as consumers have been pushed to embrace the digital world. This trend will only accelerate over time. Given the deepening and lasting impact of COVID-19, companies should take a longer-term view to position themselves and their employees to emerge stronger from the crisis.

In line with this, the NWC encourages employers to evaluate their existing business situation and the outlook for their sector, including the impact on the future of work that the COVID-19 pandemic has either brought about or accelerated. Employers should carefully consider the enterprise and workforce capabilities needed to support their business strategy going forward and which are critical for the company to preserve or build up for the post-COVID-19 economy, as well as which parts of the business need to be restructured.

At the same time, companies should take maximum advantage of government support measures during the downturn to accelerate business and workforce transformation. As far as possible, employers should retain existing employees through appropriate cost-saving measures, retrain and redeploy employees in restructured business units to new jobs within the company, and continue to equip them with skills for the future, especially the Singaporean core.

Where the above is not possible, for example, due to business downsizing, employers may consider retrenchment as a last resort. In such instances, employers are reminded to adhere to the updated Tripartite Advisory on Managing Excess Manpower and Responsible Retrenchment, which the NWC has endorsed, and retrench their employees in a fair, responsible and sensitive manner.

The Guidelines also highlight that employees should support and work closely with their employers on the implementation of appropriate cost-saving measures, including reasonable wage cuts, as well as redeployment opportunities and training programmes to preserve and upgrade critical capabilities or to enable business restructuring.

Retrenched employees should also take advantage of training support schemes to upgrade themselves and be flexible in accepting new job opportunities.

Minimising retrenchments to the greatest extent possible: What to do in case of implementing wage cuts

Both employers and employees should work together closely to minimise retrenchments with a view to helping each other move towards the recovery phase. The NWC therefore strongly encourages all employers to retain their employees in areas of critical capabilities or to take on new jobs in restructured business functions.

If employers have already exhausted non-wage cost-saving measures and government support and still face significant cost pressures and poor business prospects, these employers should seek their employees' support to implement temporary wage cuts to the extent needed to minimise retrenchments. The wage cuts should depend on the sector and company’s performance and outlook.

In the spirit of solidarity, the burden of wage cuts should not fall excessively on any one group. At the same time, management should lead by example and employers should consider varying wage cuts to take into account the ability to cope with such cuts at different salary tiers, while keeping the extent of cuts bearable for all employees.

Wage cuts accepted in good faith by employees should also be restored when business conditions allow.

To give clear guidance to employers on implementing appropriate wage cuts, the NWC sets out the following key principles: 

  • Employers that have adopted the Flexible Wage System (FWS) should utilise the range of flexibility provided for in the variable components of the wage structure. Under the FWS, the variable components should comprise 30% of the total wage package on an annual basis (10% for the Monthly Variable Component and 20% for the Annual Variable Component, inclusive of the Annual Wage Supplement, or AWS) for rank-and-file employees, 40% for middle management, and 50% for senior management.

    However, if necessary to avoid retrenchments, employers can also consider temporary reduction of basic wages after the variable components have already been adjusted. Such a temporary reduction is an exceptional cost-saving measure necessitated by the COVID-19 pandemic.

  • Employers that have not adopted the FWS can also cut wages to the extent needed to minimise retrenchments and keep the business going. These employers should implement the FWS immediately by treating any wage cuts as adjustments to a new variable component, in line with FWS principles.

  • Management should lead by example and take earlier and deeper cuts to their wages to effect the desired extent of cost savings.

  • For employers who already pay an AWS, commonly known as the 13th month payment, this can be considered as part of the Average Variable Component (AVC). If the AWS is regarded as deferred basic wages, i.e. it is not variable, then employers will need to build up the AVC separately.

    The NWC encourages employers that have the practice of paying the AWS endeavour to continue doing so. This is as the payment of the AWS helps employees with their seasonal expenses and is particularly useful for low-wage workers who have little or no discretionary savings.

  • In deciding what is a reasonable level of wage cut, employers should carefully take into account their sector’s and company’s performance and outlook, and the level of Government support to employers to offset business costs and employees’ wages, as well as the cumulative effect of prior wage cuts and other cost-saving measures that have already been implemented to-date on employees, such as reductions in allowances and commissions, shorter work weeks, temporary lay-offs and no-pay leave.

    Employers should also consider varying wage cuts to take into account the ability to cope with such cuts at different salary tiers. Any wage cuts implemented should be fair and reasonable, bearing in mind that employees will still have basic expenses to upkeep.

    Furthermore, where employees continue to contribute their full working hours, or even take on longer working hours, despite the business downturn, employers should take this into account in deciding the appropriate wage cut.

  • Unionised companies should, where applicable, negotiate and agree on wage adjustments and FWS implementation with the union. In addition, to facilitate wage negotiation, employers of unionised companies should share relevant information, such as company performance and business prospects, with unions in advance.

    Transparency is crucial so that sound decisions can be made for mutual interests and trust. For non-unionised companies, employers should take a proactive and transparent approach in communicating with employees on cost-saving measures to be implemented.

    Employees should support non-wage cost-saving measures and work closely with the Management to identify cost-saving opportunities.

Following these measures, the NWC notes that the wage cuts should be restored in tandem with business recovery, taking into account both the sector’s as well as the company’s performance.

Employers should have regular reviews, in discussion with the unions (if applicable), so as to restore cuts to wages in a timely manner. Guidelines on how wage restoration will be done should be clearly specified and communicated to employees, including any applicable criteria such as the extent of recovery of the economy and market conditions, as well as the company’s recovery and the impact of the wage adjustments on the company’s sustainability.

Wage recommendations for low-wage workers: Implement a wage freeze for this group instead

The NWC reiterates its recommendation that employers give special consideration to low-wage workers. It welcomes the additional support that the government has provided low-wage workers via the Workfare Income Supplement and Workfare Special Payment, and calls on employers to also do their part to uplift our low-wage workers.

For employers implementing a policy of wage reduction, they should implement a wage freeze instead for low-wage workers earning a basic monthly wage of up to S$1,400.

For low-wage workers earning a basic monthly wage above S$1,400, employers should ensure that any wage reductions are reasonable. In addition, employers ought to avoid a situation where employees fall below a basic monthly wage of S$1,400 after wage adjustments.

Responsible retrenchment: Maintaining the Singaporean core

As is constantly emphasised, retrenchments should be seen as a last resort for employers who continue to have a viable business plan post-COVID-19. "It should be considered only after exhausting other options such as retaining employees in critical capability areas, or retraining and redeploying employees to new jobs in restructured business units," the NWC notes.

Employers who have to resort to retrenchments should adhere to the updated Tripartite Advisory, which calls on employers to carry out retrenchment exercises in a respectful manner, and with compassion. This includes the manner in which affected employees are notified and the type of support they receive thereafter.

For example, employers should provide a longer notice period where possible and provide affected employees time and space to adjust to the news before requesting them to exit the workplace. Managers notifying the retrenched employees should also be properly prepared and supported to manage the process well.

In the same vein, the Guidelines further state that employers should also take a long-term view of their manpower needs, including maintaining a strong Singaporean core. This can be achieved by putting in effort to build up and facilitate transfer of niche or business-critical skills to their local employees and retaining more locals during a retrenchment exercise.

To help retrenched local employees maintain or build up relevant skills, employers should also consider providing training assistance to them post-retrenchment.

Employers that had carried out retrenchment but subsequently experienced a pick-up in business activities should also make a deliberate effort to strengthen their local workforce by hiring locals when they are able to do so.

Last but not least, as there are job vacancies in various industries, retrenched employees should also be proactive, flexible and mobile to join other industries, to re-skill and to be part of the transformation of the economy.

Minimising the need to reduce CPF contribution rates, and the need for a flexible wage system

After careful deliberation, it is the tripartite consensus for the NWC to not call for a reduction to employers' CPF contributions. A reason cited for this is that a reduction in these contributions would be a "blunt move which would not take into account the varying circumstances of individual companies and employees."

At the same time, the NWC notes that reducing employers' CPF contributions would have a disproportionate impact on local employees.

However, while there won't be such a reduction, the tripartite partners agree that every employer who has yet to implement a flexible wage system should urgently do so, in particular the MVC and AVC, and for all employees to support this effort. Having such a structure in place will enable employers to continue making quick adjustments amidst economic uncertainty, so as to sustain their businesses, and maintain their capacity for eventual business recovery.

In turn, the FWS will provide greater job security for employees and ensure that wages are fairly and more quickly restored in tandem with eventual business recovery

The NWC notes that employers who have yet to implement the FWS can treat any wage cuts already made as adjustments to a new MVC or AVC, as shown in the illustration below.

priya oct 2020 illustration 1 implementing the fws after a 5 monthly wage cut edited nwc mom

If a further build-up is necessary to achieve the proportion of variable wage components recommended under the FWS, this can be done through the transfer of part of basic wages or through future wage increases. As building up the MVC and AVC through future wage increases alone in the present economic climate is likely to be slow in many sectors, the NWC recommends employers to do both, as per the illustrations above.

As a general principle, wage cuts should be made by adjusting the MVC and AVC and not the basic wage component. However, given the exceptional circumstances of COVID-19, employers may consider temporary reduction of basic wages after the variable components have already been adjusted, if necessary to save jobs. Any reduction of basic wages should be restored first, in tandem with business recovery. This is illustrated below.

priya oct 2020 illustration 2 implementing the fws deeper cuts to monthly wage mom nwc

View the further updates to the Guidelines, such as support for self-employed persons, the progressive wage model, and more, on MOM's website.

Photo and infographics / NWC (Taken from MOM's website)
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