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Singapore firms may cut wages temporarily to protect jobs: NWC

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In making temporary pay cuts, businesses should seek the support of workers and make reductions only to the extent needed to minimise retrenchements, according to the latest guidelines.

SINGAPORE'S National Wages Council (NWC) has set out six principles in its supplementary guidelines for temporary wage cuts, with the goal of saving jobs and helping businesses emerge stronger from the current crisis.

The cuts are to made only after businesses have exhausted all non-wage saving measures and government support, according to the wage guidelines which will apply to the period from Nov 1, 2020 to June 30, 2021.

At the same time, while the consensus among NWC's tripartite members have rejected the call for cuts in employers' contributions to the Central Provident Fund (CPF), the guidelines issued on Friday noted an urgent need for businesses that have not implemented the flexible wage system (FWS) to do so.

A FWS enables wages to go up and down with the business cycle, and protects jobs and helps business to recover quickly from a downturn, the NWC says.

But even though the FWS was introduced in 1986 after the 1985 recession, as at last year, only 29.3 per cent of employees have a monthly variable component (MVC) and an annual variable component (AVC) built into their wages, the council pointed out.

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In its second set of guidelines this year, drawn up in response to a deeper recession sparked by the Covid-19 pandemic, NWC continued to make a special plea for low-wage workers, calling on businesses to spare such workers from pay cuts.

Specifically for those earning a basic monthly wage of up to S$1,400, it recommended a pay freeze instead of a reduction.

And for low-wage workers making above S$1,400, the council said that any pay cuts should be "reasonable", and employers ought to avoid cutting basic wages to below S$1,400.

NWC's first set of wage guidelines were introduced in March. The government has accepted the latest supplementary guidelines.

In making temporary pay cuts, businesses should seek the support of workers and make the reductions only to the extent needed to minimise retrenchements, according to the latest guidelines.

"The wage cuts should depend on the sector and company's performance and outlook," NWC noted. The burden of wage cuts also should not fall excessively on any one group.

"Management should lead by example and employers should consider varying wage cuts to take into account the ability to cope with such cuts at different salary tiers, while keeping the extent of cuts bearable for all employees," the council added.

These temporary reductions that are accepted in good faith by employees are to be restored when business conditions allow.

The six principles for temporary cuts are:

  1. Businesses with a FWS are to use the range of flexibility provided for in the variable components of the wage structure. Thus, for rank-and-file staff, it should be up to 30 per cent of the total annual wage package - 10 per cent for the MVC and 20 per cent for the AVC, including the Annual Wage Supplement (AWS). For middle management, the variable components should comprise 40 per cent of the total package; and for senior management, 50 per cent. If necessary to save jobs, businesses can also consider temporarily lowering basic wages after the variable components have already been adjusted. "Such a temporary reduction is an exceptional cost-saving measure necessitated by the Covid-19 pandemic," the NWC said.
  2. Employers with no FWS can also cut wages to the extent needed to minimise layoffs and keep the business going, but should implement the FWS immediately by treating any wage cuts as adjustments to a new variable component, in line with the FWS principles.
  3. Management ought to lead by example, and take earlier and deeper cuts to their salaries "to effect the desired extent of cost savings", said the NWC.
  4. For employers who already pay an AWS, commonly known as the 13th month payment, this can be considered as part of the AVC. If the AWS is regarded as deferred basic wages - that is, it's not variable - businesses must build up the AVC separately. Those that have been paying the AWS should try to continue to do so, to help staff with their seasonal expenses as well as low-wage workers who have little to no discretionary savings, the NWC noted.
  5. In arriving at a reasonable level of wage cut, it's suggested that businesses take into account their sector's and company's performance and outlook, the level of government support, as well as the cumulative effect of prior wage cuts and other cost-saving measures that have already been taken. Such measures include reduced allowances and commissions, shorter work weeks, temporary layoffs and no-pay leave.
  6. Unionised businesses should, where applicable, negotiate and agree on wage adjustments and FWS implementation with the union.

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