Since last year’s Parliamentary Sitting, the DPM and MOF have been asked to review the Act which allows employees to claim a cap of 5 months’ salary or $7,500, whichever is lower, in the event that a company goes bust.
While the purpose of the cap is to strike a balance between the rights of employees and creditors, what many people don’t realise is that this cap puts the priority of employees ahead of creditors when it comes to receiving claims.
During the recent Parliamentary Sitting, Nee Soon GRC MP Patrick Tay raised the question of raising workers’ salary claim limits in line with rising median salaries.
This request remains highly relevant since the last amendment of the Act was made in 1993, and is thus outdated since monthly salaries were significantly lower back then!
By September of this year, MOF will be consulting with its tripartite partners (NTUC and SNEF) and seeking public feedback to determine the cap of priority payments and whether it should be updated more regularly.
In the United Kingdom, when a company becomes insolvent, employees are entitled to claim up to three months’ pay from the employer, but are treated as other creditors (no particular priority). If the business doesn’t have enough money to pay its debts, employees can still claim the outstanding amount from the government’s National Insurance Fund – limited to £430 a week, which may leave a dent in high-earners’ daily lives.
In Australia, employees are also able to get help through the Fair Entitlements Guarantee (FEG) or the General Employee Entitlements and Redundancy Scheme (GEERS) in the event that businesses don’t have enough funds to pay them.
In Singapore there are no existing national funds for retrenched employees to draw money from and the Employment Act only stipulates that an employee’s (who has served for a minimum of three years in the company) retrenchment benefits are subjected to negotiation between the employee and employer.
That’s why the review of Section 328(2) of The Companies Act will serve to strengthen employees’ financial protection if and when their company becomes insolvent.
Employees can also refer to career services such as WDA and e2i who will help employees take a proactive role in quickly securing their next job instead of relying on their saving or finite government support.
Of course the ideal situation would be for companies to never go out of business, but in a world of highly-competitive global markets, it’s always better to be safe than sorry!