Employment contract guide for employers in Singapore
In this guide, we'll unpack everything you need to know about employment contracts in Singapore, from their key components to legal requirements and best practices. Whether you're drafting a contract for a local or foreign employee or simply seeking to enhance your understanding of employment law, this guide has got you covered. Let's embark on a journey to demystify employment contracts and empower you to navigate the hiring process with confidence.
What is an employment contract?
An employment contract is a legally binding agreement between an employer and an employee that outlines the terms and conditions of the employment relationship. It establishes the rights and obligations of both parties and serves as a crucial document for clarifying expectations and responsibilities.
What are the key employment terms to include in an employment contract?
Employers in Singapore are required to issue Key Employment Terms (KETs) to all employees, provided the following conditions are met:
Contract Date: Employees who enter into a contract of service on or after 1 April 2016.
Coverage by Employment Act: Employees who fall under the purview of the Employment Act. This includes part-time employees, casual workers, and even senior executive employees (e.g., CEO, CFO, CHRO).
Duration of Employment: Employees who are employed for a period of 14 days or more. This duration is determined by the length of the employment contract, not by the number of working days.
Key terms ensure clarity and transparency in the employment arrangement, protecting the interests of both the employer and the employee. The key terms are as follows:
Number
Item description
1
Full name of the employer
2
Full name of the employee
3
Job title, main duties, and responsibilities
4
Start date of employment
5
Duration of employment (if the employee is on a fixed-term contract)
6
Work arrangements, such as: 1. Daily working hours (e.g., 8.30 am – 6 pm) 2. Number of working days per week (e.g., six) 3. Rest day (e.g., Saturday)
Use the KETs verification tool to check if work arrangements meet the Employment Act requirements.
7
Salary period
8
Basic salary For hourly, daily, or piece-rated workers, employers should also indicate the basic rate of pay (e.g., $X per hour, day, or piece).
(Optional) Place of workUsed if the work location is different from the employer’s address.Although optional, you are strongly encouraged to include this information.
What’s the difference between a contract of service and a contract for service?
A contract of service refers to an employment relationship where the employee works under the direction and control of the employer. On the other hand, a contract for service involves engaging an independent contractor to provide services to the employer. The distinction lies in the degree of control and independence exercised by the worker.
This table summarises the main differences between the two:
Contract of service
Contract for service
Has an employer-employee relationship
Has a client-contractor type of relationship
Employee does business for the employer
Contractor carries out business on their own account
Includes terms of employment such as working hours, leave benefits, etc.
Statutory benefits do not apply
Are there any differences between employment contracts for locals and foreign workers?
Yes, there are differences in employment contracts for locals and foreign workers. Thus, employers must adhere to relevant regulations and ensure compliance with laws governing the employment of foreign workers.
Work Permits and Validity: Foreign employees typically necessitate relevant permits, such as the S Pass, Work Permit, or Employment Pass, to work in Singapore. The employment contract typically delineates the terms concerning the validity and renewal of these permits.
Benefits and allowances: While medical benefits, annual leave, and sick leave are standard for all, some allowances or benefits might be exclusive to foreign workers, such as housing allowances or relocation benefits.
Tax implications: Foreign employees might have different tax considerations, which can be detailed in the employment agreement to ensure compliance with Singapore’s tax regulations. Stay up to date and compliant to Singapore’s tax regulations with our “IR21 & Tax Clearance Guide for Foreigners in Singapore.”
What are other terms that I should include in the employment contract as an employer?
As an employer, it's important to carefully review various terms within employment contracts to protect your company's interests and ensure smooth operations. Here are key considerations from your perspective:
Restrictive covenants: Pay close attention to clauses such as non-compete, non-solicitation, and non-disclosure agreements. These clauses safeguard your company's confidential information post-employment and may impact your employees' future career options. Understanding these terms is crucial for both protecting your intellectual property and avoiding potential conflicts of interest.
Termination terms: Terminating an employment contract requires careful handling. Review the terms related to notice periods and severance pay outlined in the contract. While the Employment Act provides general guidelines, it's essential to understand the specific provisions within your contracts to ensure compliance and manage potential liabilities effectively.
Penalties for breach of contract: A critical aspect of the employment agreement is the section outlining penalties for breaching the contract. Being informed about these penalties can help prevent unexpected complications down the line.
Dispute resolution mechanisms: Establish clear procedures for resolving disagreements or disputes within the employment contract. Whether through arbitration, mediation, or legal action, having defined mechanisms in place can expedite conflict resolution and minimise disruptions to your business operations.
What's the difference between an employment contract and a letter of employment?
While both documents confirm the offer of employment, notable discrepancies exist between an employment contract and a letter of employment:
Scope of information
Employment contract: Provides extensive details about job responsibilities, working hours, salary, benefits, termination clauses, etc.
Letters of employment: Offer basic information like job descriptions, start date, and salaries without delving into specifics.
Legal binding
Employment contract: These are usually legally binding agreements governing the employment relationship.
Letters of employment: It may not always be legally binding, but they confirm the job offer.
Comprehensiveness
Employment contract: Contracts cover various aspects of the employment relationship comprehensively.
Letters of employment: Letters are succinct and focus on conveying the job offer and essential terms briefly.
Purpose
Employment contract: Contracts outline rights, responsibilities, and expectations throughout employment.
Letters of employment: Letters formally acknowledge the job offer and serve as a precursor to the contract.
Can I make amendments upon a signed employment contract?
Employers only have the right to amend certain terms and conditions with the employee's consent. If the terms and conditions of an employment contract need to be changed, both employers and employees should negotiate and try to reach an acceptable agreement, taking into consideration business needs and the employee’s concerns.
A new contract with the new terms and conditions clearly stated should then be signed. This helps to prevent misunderstandings or disputes.
Should I include employee’s rights upon termination in the employment contract?
It is advisable to include provisions regarding employee rights upon termination in the employment contract. This ensures that both parties understand the terms and conditions governing termination, such as notice periods, severance pay, and entitlements upon termination. Clear termination clauses can help prevent disputes and protect the interests of both the employer and the employee.
Is it mandatory for employers to provide a written employment contract?
Employers are required to provide Key Employment Terms (KETs). While employment agreements can take various forms, including verbal, expressed, or implied, it is highly advisable to have Key Employment Terms (KETs) documented in writing. This not only ensures clarity but also minimises the potential for disputes and misunderstandings in the employer-employee relationship.
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