As 2025 draws to a close, many Singapore businesses are reviewing their budgets and making difficult decisions about manpower.

A common question we receive from directors is: “Can I just terminate an employee with notice, or is this considered a retrenchment?”

The distinction matters. Getting it wrong can lead to disputes at TADM (Tripartite Alliance for Dispute Management) and scrutiny from the Ministry of Manpower (MOM).

In this guide, we clarify the rules for 2025, specifically focusing on the mandatory notification requirements that many employers overlook.

The Difference: Termination vs. Retrenchment

1. Termination (Performance or Misconduct)

This happens when you let an employee go due to poor performance, misconduct, or a breach of contract.

  • Requirement: You must follow the notice period stated in the employment contract.

  • Payout: Salary in lieu of notice (if applicable) and encashment of unconsumed annual leave.

2. Retrenchment (Redundancy)

Retrenchment applies when you dismiss an employee because the role no longer exists. This usually happens during cost-cutting, restructuring, or company closure.

  • The ” disguised retrenchment” trap: If you terminate an employee “for performance” but immediately hire someone else for the same role, it is termination. If you do not fill the role afterwards, MOM presumes it is a retrenchment.

The “5-Day” Mandatory Notification Rule

This is the most critical compliance update.

If you have a Singapore-registered business with at least 10 employees, and you retrench any employee (even just one), you are legally required to notify MOM.

  • The Deadline: You must submit the notification within 5 working days of notifying the employee.

  • The Consequence: Failure to notify is an offence. It can result in fines and may affect your company’s future work pass privileges.

How Much Retrenchment Benefit Must I Pay?

Unlike some countries, retrenchment benefits are not strictly mandated by law in Singapore unless stated in the employment contract or collective agreement (for unionised companies).

However, the Tripartite Guidelines (which MOM expects employers to follow) strongly recommend:

  • The Norm: 2 weeks to 1 month of salary for every year of service.

  • Eligibility: Employees with 2 years or more of service are generally eligible.

  • Small SMEs: If your financial position is weak, you can negotiate a lower amount, but you should still offer an ex-gratia payment to help the employee tide over.

Special Steps for Foreign Employees (EP/S Pass)

Retrenching a foreign employee involves extra compliance steps that must be timed perfectly.

1. Tax Clearance (Form IR21)

Before you pay the final salary or retrenchment benefit to a foreign employee (including PRs leaving Singapore permanently), you MUST seek tax clearance from IRAS.

  • The Rule: You must withhold all monies due to the employee and file Form IR21.

  • The Risk: If you release the money before IRAS gives the green light, the employer (you) can be held liable for the employee’s unpaid taxes.

2. Work Pass Cancellation

You must cancel the Employment Pass (EP) or S Pass.

  • Timing: The cancellation should only be done after the employee has served their notice (or you have paid salary in lieu).

  • Repatriation: Unless the employee finds a new job, you are responsible for their repatriation costs (flight ticket home).

How We Handle the “Exit” Process

Downsizing is stressful enough without worrying about the paperwork. At Excellence Singapore, we support businesses with the full “Exit” cycle:

  1. Payroll Calculation: ensuring final salary, leave encashment, and retrenchment benefits are accurate.

  2. IR21 Filing: We handle the urgent tax clearance with IRAS for your foreign staff.

  3. Work Pass Cancellation: Correctly terminating passes to avoid overstaying fines.

Ensure your restructuring is compliant. Contact our HR & Payroll Team for a confidential discussion on managing your manpower changes.