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Companies may consider temporary wage cuts to minimise retrenchments: National Wages Council

Companies may consider temporary wage cuts to minimise retrenchments: National Wages Council

Office workers at Raffles Place after the circuit breaker period. (Photo: Gaya Chandramohan)

SINGAPORE: Companies that have already exhausted other cost-saving measures should consider implementing temporary wage cuts, but only to the extent needed to minimise retrenchments, said the National Wages Council (NWC) on Friday (Oct 16). 

The pay cuts should depend on the performance and outlook for the company as well as the industry it is in, with the burden of wage reductions not falling on any particular group, the council said.

It added that management should lead by example. 

"Wage cuts accepted in good faith by employees should also be restored when business conditions allow,” NWC said in its guidelines issued on Friday.

The updated guidelines, which will apply from November to the end of June next year, are aimed at sustaining businesses and saving jobs under the challenging circumstances posed by the COVID-19 crisis.

READ: COVID-19: National Wages Council suggests management lead by example when cutting pay

The NWC - a tripartite body made up of representatives from businesses, unions and the Government - usually convenes once a year and had issued a set of guidelines in March.

But in light of the evolving situation, it met again in August to update the guidelines.

The NWC noted that while it had considered issuing quantitative wage reduction guidelines, it decided not to do so as such recommendations would not be meaningful given the uneven impact of COVID-19 on businesses, as well as the significant variation in business conditions across and within different industries and companies. 


The council set out several key principles for companies implementing wage cuts, which include having employers adopt the Flexible Wage System and utilise the range of flexibility provided for under the variable components of the wage structure. 

Under the system, variable components should make up 30 per cent of the annual wage package for rank-and-file workers, 40 per cent for middle management and 50 per cent for senior management. 

Employers can consider using the annual and monthly variable components to adjust wages, said the NWC, recommending that firms only cut basic pay if necessary to avoid retrenchments.

READ: National Wages Council to reconvene, aims for updated guidelines by September

It also urged management to lead by example by taking earlier and deeper wage cuts, and called on companies which pay annual wage supplements - commonly known as the 13th-month bonus - to continue doing so if possible. 

“In deciding what is a reasonable level of wage cut, employers should carefully 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 layoffs and no-pay leave,” the NWC said. 

Unionised companies should where applicable negotiate and agree on any wage adjustments and implementation of flexible wages with the union, it added. 


The council repeated its call for special consideration to be given to low-wage workers, and said that employers who are cutting salaries should implement a wage freeze instead of pay cuts for workers earning a basic monthly wage of S$1,400 or below. 

It noted that while it had considered calling for a reduction in employers’ Central Provident Fund (CPF) contributions, the consensus was not to do so.

It added that such cuts were a “blunt move” which would not take into account the different circumstances of individual companies and employees, and would also have a disproportionate impact on local workers.  

The Government has accepted the guidelines set out by the NWC, with Permanent Secretary for Manpower Aubeck Kam stating that the authorities are committed to supporting workers affected by the COVID-19 crisis. 

Speaking at a press conference on Friday, Mr Kam noted that even as employers seek to avoid retrenchments, if layoffs are necessary, they should follow the Tripartite Advisory on Managing Excess Manpower and Responsible Retrenchment. The updated advisory has been endorsed by the NWC and will be announced on Saturday.

NWC chairman Peter Seah pointed out this was only the fourth time the council had convened twice in one year since it was formed in 1972. 

He noted the situation had changed considerably since March when the council last met, with the coronavirus pandemic worsening and leaving a massive impact on all global economies, including Singapore’s.

“We have taken a bit longer, the discussions have been intensive, because the issues have been more complex,” said Mr Seah.

“There was a lot of give and take and, very importantly, a lot of trust among the tripartite partners to come up with solutions that are best not only for companies but also for employees,” he added. 

Mr Seah said he believed that the different parties would work together to implement guidelines and ensure that Singapore’s economy, businesses and workers would be able to navigate the current crisis and come out stronger as a country. 

Singapore National Employers’ Federation president Robert Yap urged more employers to take on the flexible wage system, noting that only 29.3 per cent of workers here were employed by companies using the system. 

Dr Yap described the flexible wage system as a “shock absorber” that could cushion the blow of crises for companies. 

National Trades Union Congress president Mary Liew warned however that companies should not misuse the council’s recommendations as an excuse to “trim wage costs and put an unfair squeeze on their workers’ salaries across the board”. 

The use of wage cuts to stave off retrenchments is based on trust between employers and employees, said Mr Seah. 

“But when they recover, companies must recognise the sacrifices that workers are making by taking these wage cuts and therefore make every effort to restore these cuts,” he said. 


In a Facebook post on Friday, Manpower Minister Josephine Teo said while there is no one-size-fits-all approach in deciding on a reasonable level of wage cut, companies are encouraged to take into consideration the NWC's guidelines. 

"I’m especially glad NWC made provisions for workers who earn less, for a wage freeze to be considered instead of wage cut," she said. "It is also important that employers give clear commitment to restore wages as soon as they can."

The NWC's recommendations to minimise retrenchments are "timely", Mrs Teo said. 

"Wherever possible, retraining and redeployment within the same employer help both parties. Besides the impact on workers, retrenchments can also impair our companies’ capabilities that they will need to emerge stronger from a crisis," she added. 

"While painful, employers, unions and employees must work together to implement temporary wage cuts to the extent necessary to keep retrenchment down."

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Source: CNA/az(gs)


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