SINGAPORE, Oct 16 — Given the worsened economic outlook brought on by the Covid-19 pandemic, the National Wages Council (NWC) is now setting out recommendations on how employers should carry out wage cuts in order to minimise retrenchments.
In supplementing its earlier guidelines released in March, the council today said that employers can consider temporarily cutting workers’ basic pay if it meant reducing job losses.
The recommendations to cut employees’ basic salary go beyond its guidelines in March calling on employers to consider adjusting the monthly variable components of their workers’ salary.
In its latest recommendations, the NWC again also urged companies to adopt the Flexible Wage System (FWS).
This is a wage scheme that has a set monthly and yearly variable components allowing wages to be more fairly adjusted in periods of economic uncertainty.
Council member Aubeck Kam, who is permanent secretary for manpower, in a press conference on Friday said that the priority remains to save as many jobs as possible but given that much has changed since the guidelines were last issued, the council acknowledged that wage cuts have become inevitable for some companies.
In the last six months, Singapore has entered a recession, retrenchments have more than doubled in the second quarter and the forecast for the economy was narrowed to a contraction between 5 and 7 per cent.
This is only the fourth time since being set up in 1972 that the council has convened twice in the same year, with the last time being 2009 amid the global financial crisis.
The government has accepted the new proposals by the council which will take effect from November 1 to June 30 next year. They build on the earlier announced guidelines in March.
Cut basic pay to minimise retrenchments
Employers who have already reduced the variable components of their workers’ pay under the flexible wage system can consider temporarily cutting their basic pay, if necessary, to avoid retrenchments, said the council.
Cuts to basic pay should be considered an “exceptional cost-saving measure” after exhausting other means besides retrenchment.
When business recovers, the basic portions of their pay should be restored first before the variable components.
For rank-and-file employees under the flexible wage system, the council recommends that the variable components not exceed 30 per cent of a worker’s annual salary, with the monthly component taking up 10 per cent and the annual component being 20 per cent.
The remaining 70 per cent forms their basic pay.
The variable component for middle management should be 40 per cent of their total annual salary and 50 per cent for senior management.
Firms should adopt flexible wage system ‘immediately’
Currently 29.3 per cent of employees are on the flexible wage system and the council hopes to increase this to about 70 to 90 per cent.
It again urged companies to “immediately” adopt the system which the council described as a “shock absorber”.
For example, any wage cuts already implemented for a rank-and-file employee that is within 10 per cent of their monthly salary can be recognised as a reduction in the monthly variable component of their pay.
Dr Robert Yap, president of the Singapore National Employers Federation said: “It can help save jobs during bad times while providing an upside in good times.”
National Trades Union Congress president Mary Liew however warned that businesses should not use the wage system as a means to trim their wage cost.
Cuts to the variable components of workers’ pay should be topped up when businesses recover, she said.
No reduction in CPF contribution
The council added that it had “carefully considered” whether to reduce employers’ contributions to workers’ Central Provident Fund (CPF) and has decided against it.
“First, a fixed rate reduction is a blunt move that does not take into account the significant variation that we see experienced by firms, as well as by sectors across the economy,” Kam said. “Second, a CPF cut would disproportionately affect only local employees.”
Other recommendations
As part of the guidelines, the council also recommended that:
- Management take earlier and deeper wage cuts
- Employers that pay the Annual Wage Supplement, commonly known as the “13th month payment”, continue to do so
- Employers carefully consider the reasonable level of wage cuts. They should take into account the sector’s and company’s performance and outlook, the level of government support, the cumulative effect of prior wage cuts and cost-cutting measures, the impact on employee’s finances and whether employees continue to contribute full or longer working hours
- Employers should negotiate and agree on wage adjustments, including the adoption of the flexible wage system, with the relevant union
- Employers doing well should bring forward hiring plans and tap on the Jobs Growth Incentive, which provides incentives for hiring locals
- Service-buyers should support self-employed workers by avoiding cancelling projects
- To protect lower-wage groups employers should freeze wages for those earning below S$1,400 (RM4,275) a month instead of cutting their pay
- Agreed-upon wage increments under the Progressive Wage Model should continue — TODAY
