Guide to Employment Contracts in Singapore17.11.2023
Singapore generally has a freedom-of-contract approach. The Employment Act of 1968 prescribes the minimum standards and provides a framework for the employer-employee relationship in Singapore. If it is not less favourable than the prescribed minimums, the employee and employer are free to negotiate the terms of their employment contract.
Seafarers, domestic workers, and any person belonging to any other class of persons whom the Minister declared not to be employees for the purposes of the Act, do not fall under the Act. For those not covered by the Act, their employment contracts govern their terms and conditions.
Understanding the terms of your employment contract is critical for both employers and employees. Before signing any employment contract, you need to understand the essential elements and statutory requirements to protect the rights of both parties and set the scene for a positive employer-employee relationship.
This article will discuss the employment contract, the essential terms to include in the contract, other terms to consider, and terms that are typically negotiated between the parties. We will also touch on amending the terms of an employment contract and what happens when one party is in breach of the contract.
An employment contract is an agreement between the employer and employee that outlines their relationship and the terms and conditions of the employment. It is legally binding and should be in writing to ensure both parties understand their rights and obligations.
Types of employment contracts
The main types of employment contracts are:
- Permanent employment – the employee is employed on a permanent basis, subject to the terms and conditions of the contract.
- Fixed-term contracts– the employee is employed for a specific period, e.g., a few months or years, or a specific project, seasonal work, or for a particular temporary position.
- Part-time employment – the employee works less than 35 hours a week.
Essential terms to include in an employment contract
Specific terms will vary depending on your contract, but some elements must always be included:
- Employer and employee details – name and contact information of both parties.
- Job title and description – e.g. “sales manager for XYZ region”.
- Commencement date – state the date on which employment commences.
- Duration, if applicable – if it is a fixed-term contract, state the end date; include a renewal clause.
- Employees duties, role, and responsibilities – outline the employee’s role and responsibilities.
- Compensation – set out the employee’s remuneration package, including salary, payment schedule, over-time payment, bonuses, allowances, etc.
- Employee benefits – state benefits such as healthcare benefits, annual leave, sick leave, maternity/paternity leave, retirement fund, etc.
- Working hours – set out regular working hours, rest days, overtime requirements, etc.
- Termination clause – explain notice periods and any conditions for early termination and severance packages.
- Probation clause, if applicable – the parties can agree on a probation period.
Other terms to consider including in the contract
- Confidentiality and non-compete clause – protect sensitive company information by including confidentiality or non-disclosure clauses and agree on non-compete clauses to prevent employees from competing with your business whilst they work for you or after they leave your employment.
In Singapore, non-compete clauses are only enforceable if they are to protect a “legitimate proprietary interest” and the scope is reasonable.
- Intellectual property rights – if relevant, you need to address who will own any IP developed during employment.
- Company code of conduct – this could be included in the employment contract to address matters such as punctuality and office behaviour.
- Grievances and disciplinary procedures – the contract should set out the procedures for disciplinary action.
- Dispute resolution – specify the method of dispute resolution, e.g. arbitration or mediation, to resolve disputes without having to go to court.
Employment terms commonly negotiated
Certain employment terms are fixed and come with the employee’s role. Other terms can be negotiated if the outcome is not less favourable to the employee than stipulated in the Act.
Commonly negotiated terms include the following:
Salaries are subject to negotiation between the employer and the employee. The Employment Act does not stipulate a minimum wage. Employees can negotiate their salary based on their experience, skills, and competencies.
The Act does, however, stipulate that employees must be paid at least once a month.
The parties can also negotiate a bonus. Although not required under the Act, a thirteenth payment has become common practice in Singapore. The amount is usually based on company policy and the employee’s performance.
If the parties agree on a bonus, the details should be specified in the employment contract.
Reimbursements for travel expenses could also be included in the contract. It could consist of transport, a daily stipend, accommodation, and so on.
The Employment Act regulates the working hours of employees earning less than S$2,600 per month. These employees may only work a maximum of 44 hours a week.
For employees earning more than S$2,600/month, the employer and employee can negotiate working hours depending on the company and industry.
Again, the Employment Act stipulates minimum annual leave for employees earning under S$2,600 per month.
The minimum prescribed in the Act is seven days during the first year, and one extra day for each additional year of employment.
Employees can negotiate for more leave days to be included in their contract.
The Employment Act does not require employers to offer private health care insurance to employees. All Singaporeans qualify for a low-cost medical insurance (Medishield).
A percentage of CPF payments are automatically allocated to the employer’s Medisave account, which is used to pay Medishield premiums.
However, many bigger corporations offer additional private healthcare insurance benefits to their employees. If the employer provides private healthcare benefits, it should be included in the employment contract.
If the employee must relocate to Singapore, it is common practice for the employer to offer a relocation package. The package could include delivery of personal and household items, travel expenses, initial accommodation, school fees for children, etc.
In such cases, the terms of the relocation package can be included in the employment contract.
Other issues to consider
Termination of the contract
Either party may end the contract by giving written notice or payment instead of notice.
The law does not specify notice periods. The notice period should be the same for both parties and be defined in the employment contract.
Usually, retrenchment benefits are based on the size and financial status of the company. It is wise to specify retrenchment benefits in the employment contract.
Employees earning less than S$2,600 per month are protected under the Act:
- The employer must pay all outstanding wages and benefits on the final day of employment.
- The notice period must follow the contract of employment.
- Retrenchment benefits should be given to all employees who have worked for the company for at least three years. The Act does not specify such benefits – it should be negotiated between the employee and employer, and be included in the contract.
The Act does not provide for probation periods. Employees and employers should negotiate and stipulate notice periods and conditions in the employment contract if relevant.
Employee stock options
Some companies offer stock purchase plans to their employees. If relevant, the employment contract should include details of any such incentive schemes.
Can the terms of an employment contract be amended?
There are situations where the terms of an employment contract may need to be altered. For example, if the employee’s role and responsibilities change, or there is a change in salary.
The terms can be amended, provided that both parties agree to the amendment.
Many employment contracts include specific provisions to amend the contract. If so, it is critical to follow those requirements. Typically, the amendments must be in writing and signed by both parties.
What happens if one of the parties breaches the employment terms?
If either the employee or the employer breaches the terms of employment, the other party can terminate the employment without notice.
The party in breach must pay compensation in place of the notice.
Examples of breaches by the employee include:
- The employee fails to turn up for work without notice or a valid excuse.
- The employee discloses sensitive company information to competitors.
Examples of breaches by the employer include:
- Not paying salaries on time.
- Dismissing the employee without just cause.
Depending on the nature of the breach, employees can approach the Tripartite Alliance for Dispute Management or the Employment Claims Tribunal to hear the claim or for mediation.
If the employee is unsatisfied with the outcome, they may have a civil claim in the Magistrates’ Court or even appeal to the High Court, depending on the circumstances.
Employers can also approach the courts for a civil claim against an employee in breach of the employment contract.
Final advice on employment contracts
If you are an employer or an employee who is about to enter into an employment agreement or need advice drafting a solid employment contract, you should speak to an experienced employment lawyer.
A well-drafted employment contract sets the scene for great employee-employer relations and helps to avoid employment disputes. It protects the rights and interests of both parties. Please do get in touch if you require support.