Can you legally give staff a pay cut?

As with all things stated in written contracts, getting employee consent is mandatory

Can you legally give staff a pay cut?

Administering pay cuts are not easy affairs — but is it legal in Singapore?

If staff are covered by the Employment Act, the Ministry of Manpower (MOM) states that employers can deduct salary “only for specific reasons”.

A local employment lawyer added that as salary is tied to what’s written in employment contracts, employers need to first seek consent from staff.

According to the Act, pay cuts are allowed for:

  • CPF contributions
  • Absence from work
  • Damage or loss of work-related money and goods
  • Accommodation expenses
  • Supplying expenses and services
  • Recovering advances, loans, overpaid salary or unearned benefits
  • Payments to any registered societies

Any other reasons require the consent of employees and be done in writing, so as to avoid any disputes or claims. As a guide, MOM said that pay cuts should only be done for the purpose of benefiting the employee and cannot contravene any other law.

READ MORE: HK employees willing to take pay cut for this

“If the company’s really not doing well, I don’t think any employee is going to be averse to the fact that they have to take a pay reduction in order for the company to survive,” said the lawyer.

She said that in most instances, salary deductions are ultimately a negotiation process.

And as salaries are not regulated by the Act, MOM explained that “salary to be paid is subject to negotiation and mutual agreement between an employer and an employee or the trade union representing the employees”.

If the employee refuses to take the lower salary, employers can follow up with a court order or approach other valid authority.

However, in extreme cases, employers could consider termination, said the lawyer, as most employment contracts allow for termination “at convenience” as long as you observe the notice period or pay in lieu.

On the flip side, if you’ve made an unauthorised deduction, MOM states that employees are allowed to file salary-related claims with the Tripartite Alliance for Dispute Management. Claims that cannot be solved through mediation can be forwarded to the Employment Claims Tribunal and become a legal issue.

To hear more on the leading HR employment issues in Singapore, book your ticket to HR Leaders Summit Singapore here.

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