E-briefing: Wage cut guidelines to sustain businesses and jobs amid the COVID-19 outbreak

In March 2020, the National Wage Council convened to formulate and implement wage guidelines for the period from 1 April 2020 to 30 June 2021, in a bid to respond to and mitigate the impact of COVID-19 on businesses and jobs.

National Wage Council[1]

The National Wage Council (“NWC”) was set up with the purpose of formulating wage guidelines that are in line with Singapore’s long-term economic growth. The NWC is a tripartite body consisting of representatives from three partners – the employers, the trade unions and the Government.

The NWC meets yearly to consider and reach a national consensus on wage-related issues, and to formulate guidelines every year based on its deliberation on such issues. It considers factors such as productivity growth, the employment situation, international competitiveness, and economic prospects, as well as the public opinion when formulating its guidelines.

The NWC guidelines are used by both unionised and non-unionised companies in Singapore as a reference point in deliberating any wage increases.

Key Aspects of the NWC 2020/2021 Guidelines[2]

The overarching aim of the NWC 2020/2021 Guidelines (the “NWC Guidelines”) is to sustain businesses and save jobs in light of the adverse impact created by COVID-19 on the global economy.

As part of the NWC Guidelines, employers have been recommended to consider the following measures (in order of priority):

1. Reduction of non-wage costs, and the consideration of various measures to utilise and manage excess manpower;
2. Tapping on Government support to offset business and wage costs, and pushing forward with business and workforce transformation;
3. Trimming of wage costs; and
4. Retrenchment of workers as a last resort

This e-briefing focuses on each of the above 4 measures.

Reduction of non-wage costs and consideration of measures to utilise and manage excess manpower

The NWC has recommended that employers and employees focus on training and upskilling. At the same time, Flexible Work Schedules could be adopted by employers in order to maximise the utilisation of manpower as they go through cyclical troughs and peaks. Furthermore, employers are urged to support employees who intend to obtain a second job to supplement their income as a result of receiving less pay from new work arrangements implemented by their existing employers as a consequence of COVID-19.

Employees are also urged as part of the NWC Guidelines to support their employers’ efforts to save jobs by supporting cost-cutting measures and aiding reasonable efforts by their employers to manage excess manpower. Additionally, employees are also advised to participate in training support schemes to upgrade their skills and become more flexible in taking up new job opportunities.

Tapping on Government support in order to push forward with business and workforce transformation

The Singapore Government has pledged close to S$55 billion in 2 support packages, namely the S$48 billion Resilience Budget and the S$6.4 billion Unity Budget, to offset business and wage costs so that employers are able to press ahead with their business and workforce transformation.

All employers are encouraged to take full advantage of the support provided by the Government so that they can accelerate the adoption of business and workforce initiatives in order to gain a future competitive advantage when the economy eventually recovers.

In light of the support packages offered by the Government, the NWC recommends that employers bring forward any planned training for its employees and implementation of productivity initiatives; set up a Company Training Committee with the labour movement in order to, inter alia, reinforce their in-house workplace learning capabilities and re-strategise their businesses; and share productivity gains with their employees.

Trimming of wage costs

The NWC has recognised that, despite support from the Government and efforts to reduce non-wage costs, hard-hit employers facing uncertain prospects may still be required to trim wages in order to save jobs. For such employers adversely affected by COVID-19, the NWC has recommended that a graduated approach should be undertaken to reduce wages, with management leading by example and accepting deeper cuts to their wages. Many companies in Singapore, such as Singapore Airlines, SATS, Certis, BreadTalk and Singapore Press Holdings, have taken the lead in declaring pay cuts for their senior management. The Deputy Prime-Minister of Singapore has indicated that the Prime Minister of Singapore, Cabinet Ministers, and other political office holders, as well as the President, will be taking a three-month pay cut.

If monthly wage levels are unsustainable given the fall in economic demand, the NWC has also recommended that wage cuts can be made from the Monthly Variable Component (“MVC”) of employees’ wages. The extent of the reduction would depend on factors such as the specific employer’s situation, key performance indicators and any guidelines agreed to between employers and unions. For employers in Singapore that have not implemented the MVC, like most small and medium-sized enterprises, the NWC has indicated that they may reduce up to the equivalent of 10% of their employees’ wages, and may reduce an even larger amount for employees in management.

In order to protect employees, employers would be required to set clear guidelines to compensate employees for any wage cuts through future wage increments when business recovers.

However, the NWC has recommended a differentiated approach for the treatment of low-wage workers earning a monthly basic wage of up to S$1,400. Employers are persuaded to freeze the salaries of their low-wage workers amid any firm-wide pay cuts, and strongly encouraged to implement built-in wage increments of up to S$50 for such workers. Additionally, the NWC has advocated for ex-gratia payments to be made, where possible, to low-wage workers who have played a crucial role in helping their employers during these uncertain economic times.

The NWC has also recommended employers to make the effort to continue paying the Annual Wage Supplement or the 13th month bonus to its employees. Furthermore, employers that are doing well despite the gloomy economic climate are also encouraged to continue rewarding their employees with variable payments in accordance with the contributions of the employees and their own performance. Rewards of this type to employees are encouraged in order to instil loyalty and to position employers well for the future when the economy recovers.

Retrenchment of workers

The NWC has made clear that retrenchment of workers is a measure of last resort. If retrenchment is necessary despite the implementation of the above measures, it would have to be carried out responsibility and fairly, based on objective criteria such as the capability of an employee to contribute to the employer’s future business requirements.

Employers are recommended to provide longer notice periods than that required by employment law in Singapore. Furthermore, employers are urged to offer sufficient retrenchment benefits to affected employees and assist them in finding new jobs.