Understanding your rights as an employee
Termination of employment occurs when either the employer or employee (the “parties”) terminates the contract of service, ending the employment relationship. For employees, this can be a distressing and uncertain period, especially if it is unexpected. As such, it is important for employees to understand the key legal and employment tax considerations that arise when employment ends. Understanding these considerations can help employees protect their rights and navigate their departure from employment effectively and responsibly.
Framework governing employment in Singapore
Singapore Employment Act 1968
The main legislation governing employment in Singapore is the Singapore Employment Act 1968 (the “Employment Act”). The Employment Act sets out the minimum requirements for organisations to follow to ensure fair employment and treatment practices.
Issues not covered in the Employment Act are left for the parties to agree upon in the employment contract and/or employment handbook.
Tripartite Alliance for Fair and Progressive Employment Practices (TAFEP)
The TAFEP was set up in 2006 by the tripartite partners (MOM, National Trades Union Congress (NTUC), and Singapore National Employers Federation) with the aim of promoting the adoption of fair, responsible and progressive employment practices in Singapore. While not legally binding, employers are highly recommended to adopt these practices. Employees can lodge complaints for breach of these practices to TAFEP. In serious cases, TAFEP may refer the employer to MOM for enforcement actions.
Employment contracts and employee handbook
Together with the Employment Act, employment contracts and employee handbooks are the two other key documents with legal force. As such, it is critical that these documents are properly reviewed before being signed.
Particularly onerous terms and obligations may leave employees in a difficult situation post-termination with limited avenues for relief.
Types of termination
Broadly, there are two types of termination – termination with notice and termination without notice.
Termination with notice
The key principle is that the party whom termination is being initiated against has a right to notice or salary in lieu of notice and as such, is the only party that can waive this right. For instance, if an employee initiates termination proceedings, the employer has the right to notice or salary in lieu of notice. This means the employee must pay the employer the salary equivalent of the outstanding period of notice if they choose to leave the company before the relevant notice period is fully served. On the other hand, if an employer initiates termination proceedings, the employee has the right to notice or salary in lieu of notice. As such, the employer must pay the employee the salary equivalent of the outstanding period of notice if they require the employee to leave the company before the relevant notice period is fully served. Nonetheless, the party who has the right to notice or pay in lieu of notice can waive it. Notably, the Employment Act requires the notice period for the parties to be the same.
Also, while employees can request for reason for termination in writing, employers are under no legal obligation to include this in the termination letter. However, if a reason is included which is unsubstantiated or untrue, this could be grounds for a wrongful dismissal claim.
As an alternative to payment in lieu of notice, employers might consider including a ‘garden leave’ clause in the employment contract. This clause requires employees to serve their full notice period without engaging in any work or engaging in minimal work. This prevents employees from leaving the company, to a competitor, with the most up-to-date information critical to the business’s operations. Employees can challenge the reasonableness of the garden leave if it is not expressly included in their employment contract or if the duration of garden leave is unduly long.
Retrenchment / Redundancy
While retrenchment and redundancy fall under termination with notice, there are additional requirements that must be fulfilled for an employer to meet this threshold. The employer must take reference to the Tripartite Advisory on Managing Excess Manpower and Responsible Retrenchment (TAFEM), provide reasonable retrenchment benefits, and submit a retrenchment notification to the MOM in a timely manner if the company employs ten or more employees.
Agoda’s Cautionary Case
It was reported that Agoda laid off around 50 employees from their Singapore office in September 2025. As part of their severance agreement, Agoda instructed retrenched employees to not make reports to government agencies, statutory boards, or trade unions (including, MOM and TAFEP). Doing so would breach the severance agreement, revoking their severance entitlements. When this came to light, NTUC issued a statement calling the terms “irresponsible” and that they were “appalled” by Agoda’s actions. Ultimately, Agoda issued a public apology for the “inappropriate” clause following discussions with MOM and TAFEP. This case confirms that employees’ rights to raise matters to the Tripartite Alliance for Dispute Management (TADM) and the Employment Claims Tribunal (ECT) may not be circumvented.
Termination without notice (summary dismissal)
Employers have the right to dismiss an employee without notice on certain grounds. Examples include:
- Theft, fraud, and dishonesty;
- Gross misconduct;
- Insubordination; and
- Willful breach of the employment contract and/or employee handbook.
However, the employer must conduct a proper inquiry before termination. In doing so:
- Employees should be informed of their alleged misconduct;
- Employees should have the opportunity to present their case; and
- The person hearing the inquiry should not be in a position which may suggest bias.
Additionally, while an employer may suspend employees from work during the inquiry, this is limited to one week. Approval is required from the Commissioner for Labour if the suspension exceeds this duration. Employees must also be paid at least half their salary during suspension. Failure to do any of the above could provide grounds for an employee to make a claim for wrongful dismissal against the employer.
Employees’ rights upon termination
Upon termination, employees are generally entitled to rights that must be provided for by the employer in a timely manner.
Notice period and contractual terms
Notice provisions tend to be incorporated into the employment contract and must be complied with. In absence of this, the employer must adhere to the statutory minimum found in the Employment Act. An employee is due payment in lieu of notice in the case of immediate termination or termination before the full notice period is served (unless they were summarily dismissed).
Bonus, final salary, and CPF contributions
Employees are entitled to their final salary, encashment of any unutilized annual leave, and CPF contributions. Employees may be entitled to bonuses and/or commissions depending on the bonus/ commission type, as stipulated in their employment contract. If the bonus is guaranteed or contractual (and the conditions have been met), employees will be entitled to it. However, if the bonus is phrased as a discretionary clause, it will be up to the employer to determine. Employees should also ensure their final payslip is provided and that it clearly documents the various payments for the avoidance of doubt.
Employees that are retrenched or made redundant and have worked in the company for at least two years may also receive severance pay. This amount is typically negotiated between the parties or based on industry practices to reflect the employee’s length of service.
Work pass
Employees who are work pass holders should also be aware of when their work pass is cancelled by the company and request for a short-term visit pass (STVP) if required. Under Singapore’s Employment of Foreign Manpower Act 1990, the employer is also liable for the repatriation cost of the employee, unless otherwise stated in the employment contract or mutually agreed in writing.
Wrongful dismissal claim
Employees who believe they have been terminated without just or sufficient cause may file a wrongful dismissal claim with TADM. These include:
- Dismissal on discriminatory grounds based on age, race, gender, religion, marital status and family responsibilities or disability.
- Dismissal to deprive an employee of benefits or entitlements, e.g. to deprive an employee of her maternity benefits.
- Dismissal to punish an employee for exercising an employment right, e.g. dismissing employee after employee submitted a mediation request to TADM for salary-related claims.
A wrongful dismissal claim must be filed within one month from the last day of employment. If this matter cannot be resolved at TADM, it will be referred to the ECT. If the ECT judges decide that an employee’s dismissal was indeed wrongful, they can order the employer to:
- Reinstate the employee and pay for any income loss due to the wrongful dismissal; or
- Pay the employee a sum of money as compensation.
While the parties must represent themselves in both TADM and ECT proceedings, the parties can seek legal advice to help build their case and organise the necessary filings.
Recommended employee practices
To ensure they are fully aware of the conditions and restrictions that they will be subjected to, employees should review their employment contract and the employee handbook thoroughly before signing. Employees should also conduct active documentation and record-keeping of their contributions to the company (performance review, awards, etc.). Employees can then easily access and refer to them should the need arise. This is particularly pertinent in cases where the employee believes they have been wrongfully dismissed and intends to file a claim to TADM and/or ECT.
Singapore employment tax considerations
When employment ends, employees often focus on the immediate questions – what am I entitled to? When will I be paid? Should I sign the separation agreement? These are important questions, but the tax treatment of the final package should not be overlooked.
It is often assumed that termination payments are exempt from Singapore tax. Whilst it is true that a retrenchment payment made to compensate for loss of office is not taxable, it is important to look at the way a payment is described, documented and reported. This is to understand exactly what each element of a termination payment is made of as all of these aspects can affect whether it is treated as taxable employment income, compensation for loss of employment, a retrenchment benefit, or another type of payment. This can also affect CPF treatment, tax clearance and the timing of when monies are released.
This is particularly relevant where the exit is framed as a retrenchment, mutual separation, redundancy, restructuring, relocation of roles, or termination during probation. Employees should therefore ask for a clear breakdown of each payment and understand how the employer intends to report it. Below are five key considerations from a Singapore employment tax perspective.
Understand what each termination payment represents
Not all payments made when employment ends are treated the same for Singapore tax and CPF purposes. Employees should ask for a clear breakdown of all final and post-termination payments, including salary, notice pay, unused annual leave, bonus, commission, retrenchment benefit, ex-gratia payment, goodwill payment, non-compete payment, relocation support, outplacement support, and any deferred or equity-related compensation.
Payments that represent remuneration for services, such as salary, contractual notice pay, accrued bonus, commission and unused annual leave, are generally taxable as employment income. CPF may also apply depending on the nature of the payment and the employee’s CPF status.
Payments that are genuinely made to compensate for the loss of employment may be treated differently from regular remuneration. However, the tax treatment does not depend only on the naming convention used. Employees should consider why the payment is being made, what it is intended to compensate, and how it is documented in the termination letter, retrenchment notice, separation agreement or payslip.
In restructuring situations, employees may be offered a retrenchment package, a mutual separation agreement, or an opportunity to apply for another role. From a tax perspective, the terminology used in the documents is relevant, but it is not the only factor. Employees should understand whether the payment is intended to compensate them for loss of employment, reward them for past services, secure a release of claims, compensate them for relocation or non-compete obligations, or provide other support such as outplacement assistance.
This distinction matters because different components may have different tax and CPF outcomes. Employees should therefore request a payment breakdown and, where necessary, seek clarification on how each component will be reported to IRAS and whether CPF will apply.
Timing of taxation
Employees should note when income is considered taxable. For Singapore tax purposes, income is generally taxable in the year it is received.
Employers must report all employment income in Form IR8A or Form IR21 for the relevant Year of Assessment.
Tax clearance
For employees who are non-Singapore citizens, the employer is required to file a Form IR21 (Tax Clearance) and withhold monies due to the employee until tax clearance is completed.
Key points for employees:
- The employer must file the IR21 at least one month before the cessation or departure date.
- The employee’s final salary, bonus, or benefits should not be released until the tax authority confirms clearance.
- Employees who leave without tax clearance may face difficulties re-entering Singapore or obtaining future passes.
If the employee has Singapore Permanent Resident (PR) status and will remain in Singapore – they may be exempt from tax clearance subject to certain conditions being met.
Employees should ask HR or payroll early whether tax clearance will be required, what amounts will be withheld, and when any balance is expected to be released after IRAS issues the tax clearance directive. Employees should also consider whether future travel, relocation or change in residency plans may affect the tax clearance position.
Tax implications for equity-based compensation
Employees with equity-based compensation (e.g. share options or restricted share plans) should consider how termination affects their tax position:
- For unvested awards, benefits may lapse upon termination.
- For vested but unexercised options, gains are typically taxable when exercised (for stock options) or when the restrictions are lifted (for share awards).
- If the employee is subject to tax clearance the unexercised stock options and/or unvested share awards will usually be subject to the deemed exercise rule. This can create a cash-flow issue where tax is payable before the employee has received cash or sold shares.
Employees should clarify with HR whether any deferred or outstanding equity will be reported to IRAS upon termination and whether deemed gains are triggered and how these will be reported.
Post-termination tax obligations and record keeping
After employment ends, employees remain responsible for:
- Filing their individual income tax return for the Year of Assessment covering their employment income.
- Ensuring that all termination and final payments are properly reflected in their tax filing.
- Retaining supporting documents (e.g. termination letters, IR8A, IR21, equity statements) for at least five years, in line with IRAS record-keeping requirements.
Employees who continue to receive income from the company post-termination should also review whether additional tax reporting is required.
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Termination of employment – The employer’s perspective
