According to Ministry of Manpower's (MOM) Labour Report, Singapore recorded 4,620 retrenchments in the second quarter of 2026, the highest quarterly figure since the fourth quarter of 2020. The increase was driven primarily by business reorganisation and restructuring, with Manufacturing, Information & Communications and Financial Services among the sectors most affected.
While the broader labour market continues to expand, the rise in retrenchments highlights the importance of managing workforce reductions responsibly and in accordance with applicable employment requirements and tripartite guidelines.
For employers, how workforce restructuring is managed can directly affect employer branding, employee trust and operational risk. While selection and communication get most of the attention, the final payments, Central Provident Fund (CPF) treatment and statutory notification are where small errors can create compliance liabilities.
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What Counts as a Retrenchment in Singapore?
Under MOM's definition, retrenchment is defined as the dismissal of an employee on the ground of redundancy or due to the reorganisation of the employer’s profession, business, trade or work. It applies to permanent employees and to contract workers with full contract terms of at least six months.
If an employer terminates an employee’s employment contract with no plan to fill the vacancy any time soon, MOM presumes the employee has been retrenched. This is different from dismissal for misconduct or poor performance.
Getting the Retrenchment Process Right
Retrenchment should be considered only as a last resort, after exploring other measures to manage excess manpower.
Before proceeding, employers should evaluate alternatives such as:
- Redeployment of employees to other roles within the organisation
- Providing training and skills upgrading to support internal transitions
- Implementing flexible work arrangements (e.g shorter work weeks)
- Adopting other cost-saving measures to reduce manpower costs
Where retrenchment is unavoidable, employers should use objective criteria when selecting employees and ensure that these criteria do not discriminate based on factors such as age, race, gender, religion, marital status, family responsibility or disability.
Unionised companies must also consult the relevant union early regarding selection criteria and benefit packages.
Communicating Retrenchment to Employees
Employers must adhere to the notice period stated in the employment contract. Where possible, employers should consider providing extended notice to give affected employees more time to prepare for the transition and seek new employment.
Clear communication is also important to ensure affected employees understand the arrangements relating to their retrenchment.
Retrenchment Benefits
Under MOM guidelines, employees who have served a company for at least two years are eligible for retrenchment benefits. Those with shorter service may receive an ex-gratia payment at the employer's discretion.
The applicable benefit provisions may depend on the employment contract or collective agreement:
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Provision Type
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Description
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Contractual Provisions
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Payout amount dictated explicitly by the employment contract or collective agreement.
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No Provision
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Payouts must be negotiated between the employer and employee or their union.
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Prevailing Industry Norms
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Two weeks to one month's salary per year of service, depending on the company's financial position and industry. For unionised companies, the norm is one month's salary per year where specified in the collective agreement.
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Employers should review their employment contracts and collective agreements before a retrenchment exercise to understand the applicable benefit provisions.
Final Salary and Other Employee Payments
Employers must ensure that all outstanding remuneration is settled accurately and disbursed on the employee’s last day of work. Final payroll computations may include:
- Outstanding earned salary
- Payment for unutilised
annual leave
- Notice pay, where applicable
- Retrenchment benefits, where applicable
A standardised process for calculating final payments can help minimise errors and support timely payment.
CPF Treatment of Retrenchment Payments
Payroll teams must correctly categorise exit payments to ensure accurate CPF contribution treatment:
- Retrenchment benefits: CPF contributions are not payable on termination benefits provided specifically for retrenchment or loss of employment.
- Salary and leave payouts: CPF contributions apply to regular salary and cash encashment for unutilised annual leave.
- Notice Pay in Lieu: CPF contributions are not payable on salary in lieu of notice. Payroll teams should accurately identify and distinguish each payment component to ensure the appropriate CPF treatment is applied.
Mandatory Retrenchment Notifications to MOM
Employers with at least 10 employees are legally required under the Employment Act to notify MOM if there is a retrenchment. (Timeline: The notification must be submitted within five working days of notifying the affected employee.)
The notification includes details such as:
- Company name and UEN
- Company contact person details
- Union name and whether the union was consulted, if the company is unionised
- Number of employees at the time of submission
- Details of employees being retrenched, including their job title, effective retrenchment date and notification date
- Retrenchment benefit provided and its quantum
- Provision of employment facilitation assistance
Employers with fewer than 10 employees are not required to submit a notification, but MOM strongly encourages them to do so.
Maintaining Accurate HR and Payroll Records
Accurate HR and payroll records are essential to meeting employers’ legal obligations throughout a retrenchment exercise. Inaccurate or outdated information can lead to errors in final payments, CPF contributions and mandatory notifications to MOM, potentially exposing employers to compliance breaches and financial liabilities.
Employers should therefore verify key employee information, including salary details, length of service, outstanding leave balances and contractual retrenchment benefit provisions, before finalising retrenchment arrangements. Maintaining accurate records helps ensure that payments are calculated correctly, statutory requirements are met and the risk of employee disputes is minimised.
How PayrollServe Can Help
A retrenchment exercise requires accurate handling of employee records, final payments and CPF treatment alongside the relevant HR processes. PayrollServe supports businesses with the payroll and HR administration involved in workforce changes, helping employers process employee payments accurately and maintain consistent records.
From calculating final salaries and applicable payments to handling the payroll processes involved in employee exits, our team can support businesses in managing the administrative aspects of a retrenchment exercise efficiently. Beyond administration, employers can also speak to our team for HR advisory support to help navigate the considerations involved.
Contact PayrollServe today to find out how our dedicated team can support your organisation's HR and payroll needs.
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