National Wages Council (NWC) 2020/2021 Supplementary Guidelines

1. The National Wages Council (“NWC”) Guidelines for April 2020 to June 2021 was issued on 30 March 2020 in response to the significant challenges posed to our economy by the COVID-19 outbreak.

2. Since March 2020, the economic fallout from the COVID-19 pandemic has become more widespread. Given the recurring waves of infections around the world, the pace of recovery in the second half of the year is expected to be slow and uneven. In Singapore, the economy has entered a recession, with more slack in the labour market and mounting pressure on employers to retrench.

3. The 2020/2021 Supplementary Guidelines provides employers with updated guidelines to sustain businesses and save jobs under these challenging circumstances, and will apply to the period from 1 November 2020 to 30 June 2021.

Updated Economic Performance and Outlook

4. The International Monetary Fund (IMF) has estimated that the global economy is likely to contract by 4.9% in 2020, which would be the worst contraction since the Great Depression of the 1930s¹. Global trade is also projected to fall sharply by 11.9% in 2020². The steep decline in global economic activity is expected to have a severe impact on the labour market, with the unemployment rate in advanced economies projected to increase to 8.3% in 2020, from 4.8% in 2019. As countries around the world continue to grapple with the COVID-19 pandemic, global economic recovery is expected to be gradual.

5. For Singapore, the Ministry of Trade & Industry (“MTI”) and the Ministry of Manpower (“MOM”) indicated that the Singapore economy contracted by 13.2% on a year-on-year basis in the second quarter of 2020, worsening from the 0.3% contraction in the first quarter, while total employment (excluding Foreign Domestic Workers) contracted by 129,100 in 1H 2020. Foreign employment (excluding Foreign Domestic Workers) fell by 5.7% (-66,400), sharper than the 2.7% (-62,700) decline in local employment. The sharp fall in GDP and employment was due to the Circuit Breaker measures implemented from 7 April to 1 June 2020 to slow the spread of COVID-19 in Singapore, as well as weak external demand amidst the global economic downturn caused by the pandemic. The overall unemployment rate rose to 3.0% in July 2020, and retrenchments also rose sharply to 8,130 in 2Q 2020. The Government has dedicated about $100 billion to support our people and businesses. MAS estimates that the combined Budgets will prevent the economy from contracting by a further 5.6% of GDP in 2020, and 4.8% in 2021. Our economic support measures will also cushion the rise in resident unemployment rate by about 1.7% points this year. This could mean about 155,000 jobs saved over these two years, although we will still see job losses overall. More than half of the jobs saved come from the Jobs Support Scheme alone³.

6. For the rest of the year, the weak external economic environment is expected to pose a drag on several of Singapore’s outward-oriented sectors such as transportation & storage and wholesale trade. Moreover, the slow reopening of international borders as a result of the COVID-19 situation worldwide is likely to weigh on the outlook of sectors that are reliant on air travel and tourism, including air transport and aerospace, accommodation, MICE, and arts, entertainment & recreation. The downturn in the construction and marine & offshore engineering sectors is also expected to be protracted due to the slow resumption of activities at construction worksites and shipyards.

7. Nonetheless, there are several areas of strength in the Singapore economy, including the electronics, precision engineering and biomedical manufacturing clusters, as well as the finance & insurance and information & communications sectors. At the same time, selected segments within consumer-facing sectors like retail are also expected to continue to perform well, such as online retail and F&B, supermarkets, and mini-marts & convenience stores.

8. Taking into account the external and domestic situation, MTI expects the Singapore economy to contract by 5.0% to 7.0% for 2020 as a whole. Consequently, softness in the labour market is likely to persist with continued weakness in hiring and pressure on companies to retrench.

Emerging Stronger Together

9. COVID-19 has already begun reshaping the world. Global companies are reviewing and reorganising their production and supply chains, to shift from a focus on efficiency to one of resilience. For individuals, COVID-19 has also upended the way we work. Many businesses and their employees, as well as consumers have been pushed to embrace the digital world. This trend will only accelerate over time. Given the deepening and lasting impact of COVID-19, companies should take a longer-term view to position themselves and their employees to emerge stronger from the crisis.

10. The NWC encourages employers to evaluate their existing business situation and the outlook for their sector, including the impact on the future of work that the COVID-19 pandemic has either brought about or accelerated. Employers should carefully consider the enterprise and workforce capabilities needed to support their business strategy going forward and which are critical for the company to preserve or build up for the post-COVID-19 economy, as well as which parts of the business need to be restructured. Companies should take maximum advantage of Government support measures during the downturn to accelerate business and workforce transformation. As far as possible, employers should retain existing employees through appropriate cost-saving measures, retrain and redeploy employees in restructured business units to new jobs within the company, and continue to equip them with skills for the future, especially the Singaporean core.

11. Where the above is not possible, for example, due to business downsizing, employers may consider retrenchment as a last resort. Where retrenchment is necessary, employers are reminded to adhere to the updated Tripartite Advisory on Managing Excess Manpower and Responsible Retrenchment (“the Tripartite Advisory”), which the NWC has endorsed, and retrench their employees in a fair, responsible and sensitive manner.

12. Employees should support and work closely with their employers on the implementation of appropriate cost-saving measures, including reasonable wage cuts, as well as redeployment opportunities and training programmes to preserve and upgrade critical capabilities or to enable business restructuring. Retrenched employees should also take advantage of training support schemes to upgrade themselves and be flexible in accepting new job opportunities.

Minimising Retrenchments To The Greatest Extent Possible

13. Besides causing hardship to affected employees, retrenchments may also impair companies’ capabilities that can help them emerge stronger from a downturn in business activities. Therefore, both employers and employees should work together closely to minimise retrenchments with a view to helping each other move towards the recovery phase. The NWC therefore strongly encourages all employers to retain their employees in areas of critical capabilities or to take on new jobs in restructured business functions. If employers have already exhausted non-wage cost-saving measures and Government support and still face significant cost pressures and poor business prospects, these employers should seek employees’ support to implement temporary wage cuts to the extent needed to minimise retrenchments. The wage cuts should depend on the sector and company’s performance and outlook. In the spirit of solidarity, the burden of wage cuts should not fall excessively on any one group. At the same time, 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. Wage cuts accepted in good faith by employees should also be restored when business conditions allow.

14. The NWC deliberated issuing quantitative wage reduction guidelines and concluded that such recommendations would not be meaningful, given the uneven impact of COVID-19 and the significant variation in business conditions across and within industries as well as between companies. To give clear guidance to employers on implementing appropriate wage cuts, the NWC sets out the following key principles:

a. Employers that have adopted the Flexible Wage System (“FWS”) should utilise the range of flexibility provided for in the variable components of the wage structure. Under the FWS, the variable components should comprise 30% of the total wage package on an annual basis (10% for the Monthly Variable Component and 20% for the Annual Variable Component, inclusive of the Annual Wage Supplement) for rank-and-file employees, 40% for middle management and 50% for senior management. However, if necessary to avoid retrenchments, employers can also consider temporary reduction of 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.

b. Employers that have not adopted the FWS can also cut wages to the extent needed to minimise retrenchments and keep the business going. These employers should implement the FWS immediately by treating any wage cuts as adjustments to a new variable component, in line with FWS principles.

c. Management should lead by example and take earlier and deeper cuts to their wages to effect the desired extent of cost savings.

d. For employers who already pay an Annual Wage Supplement (“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, i.e. it is not variable, then employers will need to build up the AVC separately. The NWC encourages employers that have the practice of paying the AWS to endeavor to continue doing so. This is as the payment of the AWS helps employees with their seasonal expenses and is particularly useful for low-wage workers who have little or no discretionary savings.

e. In deciding what is a reasonable level of wage cut, employers should carefully take into account their sector’s and company’s performance and outlook, and the level of Government support to employers to offset business costs and employees’ wages, as well as the cumulative effect of prior wage cuts and other cost-saving measures that have already been implemented to-date on employees, such as reductions in allowances and commissions, shorter work weeks, temporary lay-offs and no-pay leave. Employers should also consider varying wage cuts to take into account the ability to cope with such cuts at different salary tiers. Any wage cuts implemented should be fair and reasonable, bearing in mind that employees will still have basic expenses to upkeep.  Furthermore, where employees continue to contribute their full working hours, or even take on longer working hours, despite the business downturn, employers should take this into account in deciding the appropriate wage cut.

f. Unionised companies should, where applicable, negotiate and agree on wage adjustments and FWS implementation with the union. In addition, to facilitate wage negotiation, employers of unionised companies should share relevant information, such as company performance and business prospects, with unions in advance. Transparency is crucial so that sound decisions can be made for mutual interests and trust. For non-unionised companies, employers should take a proactive and transparent approach in communicating with employees on cost-saving measures to be implemented. Employees should support non-wage cost-saving measures and work closely with the Management to identify cost-saving opportunities.

15. Wage cuts should be restored in tandem with business recovery, taking into account both the sector’s as well as the company’s performance. Employers should have regular reviews, in discussion with the unions (if applicable), so as to restore cuts to wages in a timely manner. Guidelines on how wage restoration will be done should be clearly specified and communicated to employees, including any applicable criteria such as the extent of recovery of the economy and market conditions, as well as the company’s recovery and the impact of the wage adjustments on the company’s sustainability.

Wage Recommendations for Low-Wage Workers

16. The NWC reiterates its recommendation that employers give special consideration to low-wage workers. It welcomes the additional support that the Government has provided low-wage workers via the Workfare Income Supplement⁴ and Workfare Special Payment⁵ and calls on employers to also do their part to uplift our low-wage workers.

a. For employers implementing a policy of wage reduction, they should implement a wage freeze instead for low-wage workers earning a basic monthly wage of up to $1,400.

b. For low-wage workers earning a basic monthly wage above $1,400, employers should ensure that any wage reductions are reasonable. In addition, employers ought to avoid a situation where employees fall below a basic monthly wage of $1,400 after wage adjustments.

Responsible Retrenchment

17. Retrenchment should be a last resort for employers who continue to have a viable business plan post-COVID-19. It should be considered only after exhausting other options such as retaining employees in critical capability areas, or retraining and redeploying employees to new jobs in restructured business units.

18. Employers who have to retrench employees as a last resort should adhere to the updated Tripartite Advisory, which calls on employers to carry out retrenchment exercises in a respectful manner, and with compassion. This includes the manner in which affected employees are notified and the type of support they receive thereafter. For example, employers should provide a longer notice period where possible and provide affected employees time and space to adjust to the news before requesting them to exit the workplace. Managers notifying the retrenched employees should also be properly prepared and supported to manage the process well.

19. Employers should also take a long-term view of their manpower needs, including the need to maintain a strong Singaporean core. This can be achieved by putting in effort to build up and facilitate transfer of niche or business-critical skills to their local employees and retaining more locals during a retrenchment exercise. Employers who subsequently experience a pick-up in business activities should make a deliberate effort to strengthen their local workforce by hiring locals when they are able to do so.

20. As there are job vacancies in various industries, retrenched employees should also be proactive, flexible and mobile to join other industries, to re-skill and to be part of the transformation of the economy.

Emerging Stronger with a More Pervasive Flexible Wage System

21. The NWC carefully considered whether to call for a reduction in employers’ CPF contributions, and the tripartite consensus is not to do so. The tripartite partners note that CPF contribution cuts negatively impact the retirement adequacy of affected cohorts of Singaporeans. In addition, a reduction in employers’ CPF contributions is a blunt move which would not take into account the varying circumstances of individual companies and employees. At the same time, reducing employers’ CPF contributions would have a disproportionate impact on local employees.

22. Just as in past crises, the depth of this recession has underscored the importance of a flexible and responsive wage system to help employers manage costs and save jobs. The FWS was introduced in 1986⁶ following the 1985 recession. The NWC’s main recommendation at the time was to implement a wage structure that included an Annual Variable Component (“AVC”). Subsequently in its 1999 Guidelines, after the Asian Financial Crisis, the NWC noted that most companies still did not have a wage system that was flexible enough to respond to a recession. For this reason, the tripartite partners proposed that companies introduce a Monthly Variable Component (“MVC”), on top of an AVC, in their wage structure to allow employers to make more timely wage adjustments in response to changes in business conditions. This would minimise the need to resort to CPF contribution rate reductions, which employees depend on to service mortgage repayments, as well as medical and old age needs.

23. In 2003, there was renewed urgency to enhance Singapore’s wage flexibility following the SARS outbreak. In response to the NWC’s call for wage restructuring, the Tripartite Taskforce on Wage Restructuring developed a comprehensive set of recommendations⁷ in 2004 on implementing the FWS. However, in 2019, only 29.3% of employees had both the MVC and AVC in their wage structure⁸.

Employers who have yet to Implement the Flexible Wage System

24. There is strong tripartite agreement that as part of emerging stronger, every employer who has not done so should urgently implement the FWS, in particular the MVC and AVC, and for all employees to support this effort. A flexible and competitive wage structure will enable employers to continue to make quick adjustments amidst economic uncertainty so as to sustain their businesses, and maintain their capacity for eventual business recovery. In turn, the FWS will provide greater job security for employees and ensure that wages are fairly and more quickly restored in tandem with eventual business recovery.

25. Employers who have yet to implement the FWS can treat any wage cuts already made as adjustments to a new MVC or AVC, as shown in the illustrations in Annex A. If further build-up is necessary to achieve the proportion of variable wage components recommended under the FWS, this can be done through the transfer of part of basic wages or through future wage increases. As building up the MVC and AVC through future wage increases alone in the present economic climate is likely to be slow in many sectors, the NWC recommends employers to do both (see Illustration 1 in Annex A).

26. As a general principle, wage cuts should be made by adjusting the MVC and AVC and not the basic wage component. However, given the exceptional circumstances of COVID-19, employers may consider temporary reduction of basic wages after the variable components have already been adjusted, if necessary to save jobs. Any reduction of basic wages should be restored first, in tandem with business recovery (see Illustration 2 in Annex A).

27. For advice and support on implementing the FWS, employers may approach the National Trades Union Congress (“NTUC”) and its affiliated unions, and the Singapore National Employers Federation (“SNEF”).

Other Updates to NWC 2020/2021 Guidelines

28. Progressive Wage Model (“PWM”). In the cleaning, security and landscaping sectors with mandatory PWM, some employees have undertaken additional work and tasks during the pandemic, including the implementation of safe management measures. The NWC believes that the previously agreed PWM wage increments are well-justified and supports their continuation even during this time, and will leave discussions on continuing wage progression to the respective tripartite committees. In addition, service buyers and providers should continue to abide by tripartite advisories ensuring the sustainability of the PWM sectors and other outsourced sectors in view of COVID-19.

29. Self-employed Persons (“SEPs”). The NWC notes that the income of several groups of SEPs have been impacted by COVID-19. Service-buyers and intermediaries should support SEPs by:

a. Avoiding cancellation of projects, where possible;

b. Providing advance or timely partial payments for work done or costs incurred for projects deferred or interrupted by COVID-19; and

c. Encouraging SEPs to tap on the various employment facilitation services available.

30. Employers that have done well and have good business prospects. Such employers should bring forward their hiring plans and also tap on the Jobs Growth Incentive which provides wage subsidies to hire locals. They should also upgrade jobs through job redesign, taking into account the need for long-term manpower planning in view of international restrictions on the movement of people. Such employers should also consider rewarding employees fairly through variable payments.

Implementation of Recommendations

31. The NWC reiterates the call for employers, unions and employees, and the Government to stay united and work together to mitigate the impact of COVID-19. The current uncertainties in the economic and labour market outlooks make it all the more important for employers, unions and employees, and the Government to have mutual trust, and be willing to adopt a constructive give-and-take approach to help businesses succeed and save jobs. In this way, Singapore can emerge stronger from this crisis.