• Employers can consider temporarily cutting workers' basic pay if necessary, the National Wages Council said
• Minimising retrenchments should remain the priority
• Firms that have not adopted the Flexible Wage Scheme should do so “immediately”, it added

SINGAPORE — 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 on Friday (Oct 16) said that employers, who have already reduced variable components of their worker’s pay under the Flexible Wage System, can consider temporarily cutting workers’ basic pay if it means reducing job losses. 

Cuts to basic pay, however, 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, the council said. 

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.

Council member Aubeck Kam, who is permanent secretary at the Ministry of Manpower (MOM), said in a press conference on Friday that the priority has always been to save as many jobs as possible. However, given that much has changed since March, 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 during the global financial crisis.

The Government has accepted the new proposals by the council and they will take effect from Nov 1 to June 30 next year. They build on the earlier announced guidelines in March.

ADOPT FLEXIBLE WAGE SYSTEM ‘IMMEDIATELY’

In its latest recommendations, NWC again urged companies to adopt the Flexible Wage System “immediately”, describing it as a “shock absorber”.   

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.

Dr Robert Yap, president of the Singapore National Employers Federation, said that 29.3 per cent of employees are now on the Flexible Wage System and the hope is to increase this to about 70 to 90 per cent. 

For example, any wage cuts already implemented for a rank-and-file employee that is within 10 per cent of the person's monthly salary can be recognised as a reduction in the monthly variable component of his or her pay. 

“It can help save jobs during bad times while providing an upside in good times,” Dr Yap said.  

National Trades Union Congress' president Mary Liew warned though, 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. 

The council recommended the following when adopting the Flexible Wage System:

• For rank-and-file employees, the variable components should 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

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,” Mr Kam of MOM 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 earlier 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 the Jobs Growth Incentive, which provides incentives for hiring Singaporeans

• Service-buyers should support self-employed workers by not cancelling projects where possible

• To protect lower-wage groups, employers should freeze wages for those earning below S$1,400 a month instead of cutting their pay

• Agreed-upon wage increments under the Progressive Wage Model should continue. Under this model, There is a minimum wage for the cleaning, landscaping and security sectors with mandated wage increases as the worker gains more skills and experience