Singapore National Wages Council Announces that Wage Cuts Tolerated if Necessary to Avoid Retrenchment – Are there Limits to Such Flexibility?

• To avoid retrenchments, employers who have already adopted a Flexible Wage System (under which variable components are "carved out" from monthly wages) may consider a temporary reduction of basic wages;
• Employers who have not adopted a Flexible Wages System should do so;
• Management should lead by example by taking deeper salary cuts;
• Wage cuts should be "fair and reasonable", and should consider employees' ability to cope.

Despite the ostensible flexibility suggested by the Supplementary Guidelines, employers should take a measured approach towards implementing wage cuts.

First, the Supplementary Guidelines specify that temporary wage cuts should be applied on an exceptional basis. This means that wage cuts are likely to be considered justified only where the employer's cash flow or financial situation urgently requires them. They should not be routinely used to maximise profits.

Second, employers are expected to 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.  In other words, wage cuts should be implemented as a measure of last resort – and comparisons with other companies within the same sector are unavoidable.

Third, employers are also expected to be sensitive to each employee's ability to cope with such cuts at different salary tiers. For example, the impact of a 50% wage cut will be felt more deeply by lower wage employees compared to employees in the higher salary bands. The implicit suggestion is that wage cuts should be very carefully measured – employers should not take a broad-brush approach.

Finally, employers are expected to restore wage cuts in tandem with business recovery, taking into account both the sector’s as well as the company’s performance.  In other words, wage cuts cannot be indefinite – employers are expected to communicate to employees the "end-date" on which they can expect to see their wages restored. 

If you would like to discuss and develop your HR strategies when implementing wage cuts and other cost-saving measures, please do not hesitate to get in touch with any member of the Bird & Bird Singapore Employment team.

This article is produced by our Singapore office, Bird & Bird ATMD LLP, and does not constitute legal advice. It is intended to provide general information only. Please note that the information in this article is accurate as at 20 October 2020. We will continue to monitor the situation and provide updates on any changes as soon as these are communicated to us. Please contact our lawyers if you have any specific queries.