End-User Companies Can Help Influence Good Employment Conditions When Contracting Third-Party Services

Tripartite Advisory on Responsible Outsourcing Practices provides tips on ensuring workers' entitlement to basic employment terms and conditions

The Tripartite Committee on CPF and Work-Related Benefits for Low-Wage Workers (Tricom) has unveiled a Tripartite Advisory on Responsible Outsourcing Practices to help end-user companies enhance the employment terms and conditions of employees of their service providers.

2. Low-wage contract workers involved in outsourcing arrangements are more vulnerable to a loss of basic employment terms and benefits, as compared to other groups of workers. MOM and CPFB have therefore been stepping up enforcement actions against errant employers for a breach of employment and CPF laws. A total of 35 employers were either fined or prosecuted by MOM for Employment Act offences in 2007, up from 18 in 2006. The CPF Board prosecuted 181 employers for CPF Act offences in 2007.

3. To complement these efforts, the Tricom is of the view that end-user companies, as buyers of services, can positively influence the workplace practices of their third-party service suppliers. Two activities, in particular, are widely outsourced - cleaning and security services. By adopting responsible outsourcing practices, end-user companies can help raise the employment terms and conditions of low-wage contract workers.

4. The Tripartite Advisory on Responsible Outsourcing Practices (see ANNEX) encourages end-user companies to take a more proactive role in ensuring that their service suppliers comply with employment laws and provide basic employment terms and conditions to their contract workers. Specifically, they should consider:

1. Including compliance with Singapore's employment laws as a condition in the service contract with their suppliers;
2. Encouraging written employment contracts between service suppliers and their contract workers;
3. Conducting checks on the financial standing of service suppliers;
4. Awarding contracts to service suppliers that are performance-based;
5. Retaining experienced workers; and
6. Helping workers qualify for employment benefits under the Employment Act.

5. Mr Stephen Lee, Chairman of the Singapore Business Federation (SBF) and President of the Singapore National Employers Federation (SNEF) said: “As responsible buyers of services, hosting companies that take an interest in the conditions and welfare of outsourced contract workers will help foster better relationships between the workers and their direct employers who are the service providers. Workers who have fewer grouses will naturally cause fewer disruptions in the companies where they have been deployed to carry out duties. This can only be good for the hosting company, where business operations are kept running smoothly.”

6. Mr John De Payva, President of the National Trades Union Congress said: “Contract workers, particularly the low-wage ones, are vulnerable to a loss of basic employment terms. This is a good initiative to ensure that the employment standards of such workers are protected and enhanced. Companies that encourage their contractors to provide fair and equitable work conditions for contract workers will eventually build a reputation for themselves as good employers.”

ANNEX

TRIPARTITE ADVISORY ON RESPONSIBLE OUTSOURCING PRACTICES

Objective

The Tripartite Committee on CPF and Work-Related Benefits for Low-Wage Workers (“Tricom”) believes that end-user companies, as buyers of services, can influence workplace practices adopted by third-party contractors, particularly for services that have been outsourced. These include office cleaning, logistic support, and security services. End-user companies should therefore adopt responsible outsourcing practices. In so doing, they can help to ensure that the workers employed and supplied by third-party contractors under service contracts receive basic employment terms and conditions, including CPF contributions and minimum employment benefits, such as annual leave, sick leave and overtime pay. End-user companies would also benefit from a more positive relationship between their third-party contractors and workers.

2. To help end-user companies when they outsource their business functions and buy services from third-party contractors, the Tricom has formulated the following Tripartite Advisory on Responsible Outsourcing Practices (“Advisory”).

Tripartite Advisory on Responsible Outsourcing Practices

3. End-user companies are encouraged to consider the following:

a. Include compliance with Singapore's employment laws a condition in the service contract.

End-user companies should work with their third-party contractors to ensure the basic well being of their workers.

They should do so by including the compliance of Singapore's employment laws, such as the Central Provident Fund Act, Employment Act and Workmen's Compensation Act, as a condition in their service contracts.

In the event of a breach of this condition by their third-party contractors, the Tricom encourages end-user companies, where possible, to: (a) not renew the existing service contracts; (b) not engage the third-party contractors concerned in the future; or (c) terminate the service contracts.

End-user companies should check that their contractors are in compliance with employment laws and refer any employment-related offences to MOM or CPFB.

b. Encourage written employment contracts between third-party contractors and workers.

Workers employed and supplied by third-party contractors would benefit from written employment contracts. Written employment contracts enable workers and the third-party contractors as their employers to understand their respective employment terms and obligations. They also facilitate the resolution of employment disputes. A written employment contract should minimally include:

• Commencement date of employment – The period of employment under the contract of service should be spelt out clearly, inclusive of any probation period.
• Appointment (i.e. job title and job scope)
• Working days, hours of work, overtime hours expected, rest days and breaks – The expected hours of work the employee has to fulfil, the designated rest day and rest breaks, should be stated clearly.
• Remuneration (e.g. salary amount, date/frequency of payment, payment for overtime work and work on rest days/public holidays) – The salary breakdown should be stated clearly into basic pay, allowances, CPF contributions, etc to avoid any ambiguity.
• Employee's benefits (e.g. sick leave, annual leave) – The quantum of leave and the qualifying period for the various benefits, should be stated clearly.
• Salary Deductions – Any possible salary deductions should be stated upfront in the contract, and should adhere to the authorised salary deductions allowed under the Employment Act.
• Termination of contract (e.g. notice period) – The notice period should be in accordance to the minimum stipulated in the Employment Act, and be the same for either employer or employee initiating termination of service.

End-user companies should encourage third-party contractors to enter into written contracts with their workers. They can assist by providing contractors with standard employment contracts. A sample of a written employment contract is provided in Annex A. Alternatively, should third-party contractors need help in drawing up written employment contracts between themselves and their workers, end-user companies could also advise the contractors to seek assistance from MOM, or the unions if they are union members.

c. Conduct checks on the financial standing of third-party contractors

It is advisable for end-user companies not to award service contracts solely based on price. End-user companies should conduct checks to ensure that the third-party contractors are not financially distressed before awarding contracts to them. Such third-party contractors are able to provide reliable and good services and are less likely to default on salary payments to their workers. End-user companies that take this extra precaution would avoid downstream problems for themselves, such as disruption to service provision and salary disputes.

d. Award third-party contractors performance-based service contracts.

End-user companies should use performance-based, and not headcount-based, service contracts, where possible.

A performance-based contract would, for instance, stipulate the performance standard expected of a third-party contractor but not the minimum number of workers required to fulfil the contract. With performance-based contracts, third-party contractors will compete on the basis of both cost and service standards. They will also enjoy more flexibility in managing and deploying their manpower and resources. In doing so, the system offers the contractors an incentive to improve productivity and service quality.

Headcount-based service contracts, on the other hand, are likely to lead to cost-based competition at the expense of service quality. In order to secure the tender, the employment terms and conditions of workers engaged to perform the job are also likely to be compromised by the third-party contractors.

To facilitate the skills upgrading of their workers, contractors can leverage on the courses and funding schemes offered by the Workforce Development Agency (WDA), the National Trade Union Congress (NTUC) or the Singapore National Employers Federation (SNEF), such as the ADVANTAGE! Scheme catered to older workers.

e. Retain experienced workers.

End-user companies should be mindful of the impact of their decision on the employment of workers when they outsource a previously in-house business function or change third-party contractors. End-user companies are encouraged to facilitate their third-party contractors to retain experienced workers who can continue to contribute positively¹.

f. Help workers qualify for employment benefits under the Employment Act.

Under the Employment Act, workers are entitled to paid sick leave and other employment benefits after a stipulated period of service². To help workers to qualify and enjoy such employment benefits, end-user companies should encourage third-party contractors to hire workers on a minimum of six-month employment contracts, where possible. This would help to improve the employment condition and well-being of workers.

¹ In 2001, MOM with the tripartite partners launched the “Tripartite Guidelines on Managing Excess Manpower” outlining alternatives for companies to consider when there are excess workers due to insufficient work instead of laying them off. The alternatives are to: (i) train and upgrade employees' skills under the Skills Redevelopment Programme (SRP); (ii) re-assign employees to other areas of work within the company; and (iii) use a flexible wage system to adjust wage cost.

² For example under Part IV of the Employment Act, a worker must be in continuous employment for at least six months before he can qualify for paid sick leave.