Salary in Lieu of Notice (Singapore)

A Salary in Lieu of Notice in Singapore communicates a required notification and the action or deadline that follows from it.

The statutory notice periods under Section 10(3) of the Employment Act 1968 are minimum periods that apply when the employment contract is silent on notice: less than 26 weeks of service requires 1 day's notice; 26 weeks to less than 2 years requires 1 week's notice; 2 years to less than 5 years requires 2 weeks' notice; and 5 years or more requires 4 weeks' notice. Employment contracts frequently specify longer contractual notice periods — one month, two months, or three months are standard in Singapore — and salary in lieu of notice must be calculated based on the contractual period if it exceeds the statutory minimum.

The calculation of salary in lieu of notice follows the formula prescribed in the Employment Act 1968 and MOM's published guidance. For monthly-rated employees, one day's salary equals the gross rate of pay divided by the number of working days in the month. Gross rate of pay under Section 2 of the Employment Act includes the basic rate of pay plus any allowances paid to the employee, but excludes overtime payments, additional payments by way of bonus or annual wage supplement (AWS), reimbursements, productivity incentive payments, and travel or food allowances (unless expressly included in the contract).

The Central Provident Fund Act (Cap. 36) — administered by the CPF Board — requires employer CPF contributions on salary in lieu of notice paid by the employer to the employee. The CPF Board's published guidance confirms that salary in lieu of notice is treated as ordinary wages for CPF purposes, and both employer and employee contributions are payable at the applicable rates (17% employer, 20% employee for employees below 55). Conversely, when an employee pays salary in lieu of notice to the employer (by forfeiting their final salary payment), no CPF deduction applies to the amount forfeited.

The Inland Revenue Authority of Singapore (IRAS) treats salary in lieu of notice received by an employee as taxable employment income under Section 10(1)(b) of the Income Tax Act (Cap. 134). The employer must report the payment in the employee's IR8A form (Return of Employee's Remuneration) and deduct any applicable tax clearance obligations under Section 68(2) of the Income Tax Act for foreign employees departing Singapore — the employer must file Form IR21 at least one month before the foreign employee's cessation of employment or departure.

The Employment Claims Tribunals (ECT) — established under the Employment Claims Act 2016 (Act No. 21 of 2016) and housed within the State Courts — adjudicate disputes over salary in lieu of notice calculations, including disputes about whether specific allowances should be included in the gross rate of pay computation.

A Salary in Lieu of Notice letter is needed whenever an employer or employee in Singapore terminates employment with immediate effect instead of serving the full contractual or statutory notice period under the Employment Act 1968 (Cap. 91).

Employers terminating an employee immediately — whether due to business restructuring, redundancy, poor performance, or operational requirements — must issue a Salary in Lieu of Notice letter documenting the payment amount, the notice period being waived, and the employee's last day of employment. MOM's Tripartite Advisory on Managing Excess Manpower and Responsible Retrenchment recommends that employers provide clear written documentation of all termination payments, including salary in lieu of notice, retrenchment benefits, and encashment of unused annual leave.

Employees resigning with immediate effect who do not wish to serve their contractual notice period must pay the employer salary in lieu of notice. The Employment Act 1968 Section 11(1) permits this arrangement, and the payment is typically deducted from the employee's final salary. A written Salary in Lieu of Notice letter documents the deduction and protects both parties from subsequent disputes at the Employment Claims Tribunals (ECT).

Foreign employees on Employment Pass (EP), S Pass, or Work Permit whose employment is terminated must have their work pass cancelled within one week of the last day of employment under the Employment of Foreign Manpower Act (Cap. 91A). The Salary in Lieu of Notice letter serves as supporting documentation for the work pass cancellation application submitted through MOM's EP Online system.

Employers subject to the tax clearance process under Section 68(2) of the Income Tax Act (Cap. 134) must file Form IR21 with IRAS at least one month before the foreign employee's cessation date. The Salary in Lieu of Notice letter specifies the cessation date and the total salary in lieu payment, which IRAS requires for tax assessment purposes. Employers who fail to file Form IR21 or who release salary payments before obtaining tax clearance from IRAS can be held personally liable for the employee's outstanding tax.

Employers and employees in dispute over the notice period or the calculation of salary in lieu should first attempt mediation through the Tripartite Alliance for Dispute Management (TADM) before filing a claim at the ECT. The ECT has jurisdiction over salary-related claims up to S$20,000 (or S$30,000 if the claim is referred by TADM or a union).

A Singapore Salary in Lieu of Notice letter compliant with the Employment Act 1968 (Cap. 91), the CPF Act (Cap. 36), and IRAS reporting requirements must include the following elements. The forms-legal.com Salary in Lieu of Notice template covers all mandatory components required by MOM and CPF Board guidance.

Employer identification requires the company's full registered name, UEN as registered with ACRA, registered address, and the name and designation of the authorised signatory issuing the letter.

Employee identification requires the employee's full name, NRIC number (for Singapore citizens and permanent residents) or FIN number and work pass type (for foreign employees), job title, department, and date of commencement of employment.

Statement of termination must clearly state that employment is being terminated with immediate effect and that salary in lieu of notice is being paid (by the employer) or deducted (from the employee) in place of serving the contractual or statutory notice period. The letter must specify the notice period being waived (e.g., one month, two months) and the last day of employment.

Notice period calculation must reference the applicable notice provision — either the contractual notice period specified in the employment contract or the statutory minimum under Section 10(3) of the Employment Act 1968, whichever is longer. The letter should cite the specific contract clause or statutory section.

Salary in lieu computation must show the calculation: gross rate of pay (as defined in Section 2 of the Employment Act) multiplied by the number of working days in the notice period. The gross rate of pay should itemise the basic monthly salary and any fixed allowances included in the calculation. Variable components excluded from the computation (overtime, bonuses, AWS, reimbursements) should be noted.

CPF contributions statement must confirm whether employer and employee CPF contributions are payable on the salary in lieu amount. Where the employer pays salary in lieu to the employee, both employer and employee CPF contributions apply. The letter should state the applicable CPF contribution rates based on the employee's age bracket and the CPF Board's prevailing rates.

Final salary settlement must itemise all amounts due to the employee on termination: salary in lieu of notice, salary for days worked in the final month, encashment of unused annual leave (calculated at the gross rate of pay under Section 43A of the Employment Act), pro-rated AWS or bonus (if contractually entitled), and any other contractual payments. Deductions for employee CPF contributions, income tax withholding (for foreign employees under tax clearance), and any amounts owed by the employee to the employer must be separately stated.

Return of company property clause should list items to be returned — laptop, mobile phone, access cards, company documents, and any confidential information — and the deadline for return.

Post-employment obligations reminder should reference any confidentiality obligations, non-compete restrictions, or non-solicitation provisions that survive termination under the employment contract or a separate NDA.

Acknowledgment section should provide space for the employee to sign and date the letter, confirming receipt and acceptance of the salary in lieu payment and final salary settlement. The acknowledgment protects the employer against subsequent claims at the ECT or TADM.