The knives are out for workers’ wages

Before a foreign worker can take up a job in Singapore, the employer has to apply to the Ministry of Manpower (MOM) for a Work Permit for him. In applying, the employer has to submit to MOM a number of salary details. The intent might be that these details should have been previously agreed between the parties, and in submitting the details to MOM, employers would merely be notifying the ministry what had been agreed as the terms of employment.

For low-wage workers, this is not how it works. There may be some discussion through recruitment agents (licensed or unlicensed) about the overall salary (e.g. $1,600 per month), but in TWC2’s experience talking to workers, no one reports any discussion about the minute details of allowances and deductions within that overall figure.

When MOM issues approval in the form of a document called the In-Principle Approval for a Work Permit (IPA), and the document states those details as submitted by the employer, the details tend to come as a bit of a surprise to the worker. Even if they are unpleasantly surprised, few workers will seriously challenge the details on the IPA. Would they stand their ground and risk losing the job altogether? Or would they think it wiser to seize the job and hope for salary increases later?

The weak bargaining power of workers from overpopulated countries being what it is, most workers would choose the latter.

It is precisely the recognition that low-wage workers, whether local or foreign, have weaker bargaining power that motivated Singapore to have in place social protection legislation such as the Employment Act. But that same recognition requires us to constantly monitor how employers may be abusing the provisions of the law to workers’ disadvantage. Loopholes must be closed otherwise the law becomes just “for show”.

Deductions by the truckload

The item on the IPA labelled ‘Monthly Deduction for Others’ is one such loophole. Some employers drive trucks through it. Take a close look at example B. It is an IPA issued to a Bangladeshi named Mohatab. If the details seem a bit too florid, don’t worry, there will be a summary table below simplifying the information for you.

Below is another IPA (example C), this one for a worker named Uddin Khabir:

In case readers are confused by the various numbers on the two documents, here’s a summary of their key details:

Low basic pay, low overtime pay

Readers may have noticed how low the basic salaries are relative to what Singaporeans may consider a living wage. Although partially buffered by fixed monthly allowances, the effect of putting so few dollars in the basic salary is that overtime pay becomes absurdly low. The hourly overtime rate as laid down by the Employment Act is 1.5 times the hourly basic rate.

For Mohatab, every extra hour he works earns him only $2.25. Imagine having to toil for 2 – 3 extra hours after a hard day’s work just to earn enough for a meal which he can finish off in 20 minutes. For Khabir, it’s not much better. The implied overtime rate from his basic salary is $3.00 per hour.

Ridiculous though this may be, it isn’t the primary point of this article. We’ll leave a discussion of this for another day.

What does the law say about deductions?

Coming back to deductions, what does the law say?

A small clarification may be needed before we go there. It is that the two kinds of deductions in the IPA are essentially fixed monthly deductions even though the word ‘fixed’ does not appear in them. We can infer this from the fact that both are named “monthly….deductions”. If it’s “monthly”, it means it’s supposed to be the same amount each month.

Sections 27 to 30 of the Employment Act list the allowable deductions:

(a) deductions for absence from work;

(b) deductions for damage to or loss of goods expressly entrusted to an employee for custody or for loss of money for which an employee is required to account, where the damage or loss is directly attributable to his neglect or default;

(c) [Deleted]

(d) deductions made with the written consent of the employee for house accommodation supplied by the employer;

(e) deductions made with the written consent of the employee for such amenities and services supplied by the employer as the Commissioner may authorise;

(f) any deduction for the recovery of any advance, loan or unearned employment benefit, or for the adjustment of any overpayment of salary;

(g) [Deleted]

(h) deductions of contributions payable by an employer on behalf of an employee under and in accordance with the provisions of the Central Provident Fund Act

(i) any deduction (other than a deduction mentioned in paragraphs (a) to (h), (j) and (k)) made with the written consent of the employee;

(j) deductions made with the written consent of the employee and paid by the employer to any cooperative society registered under any written law for the time being in force in respect of subscriptions, entrance fees, instalments of loans, interest and other dues payable by the employee to such society; and

(k) any other prescribed deductions.

Housing deductions

Deductions (d) and (e) would be represented by the IPA item “Monthly housing, amenities and services deductions”. Even here, it is arguable whether Mohatab’s and Khabir’s employers are in compliance with the law which (in Section 30 of the Employment Act) says that deductions for housing, services and amenities “shall in no case exceed one-quarter … of the salary payable to the employee in respect of that period.”

What is the salary payable in a (monthly) period? Is it line 3 or line 6 of our summary table, which is reproduced here with lines showing the housing deduction as a percentage.

If it is Line 6, then both employers are in non-compliance with the one-quarter rule.

Monthly deductions for others

While the point about housing deductions is at least contestable, the ‘Monthly deduction for others” is quite clearly outside the law. We can see this by examining whether the allowable deductions are fixed or variable.

Deductions (a) and (b) for absence from work and damage must surely be variable, depending on how many absences or much damage there was in a month. As a fixed deduction, the “Monthly deduction for others” cannot possibly be for these reasons.

Likewise, (f) — deductions for the recovery of any advance or loan — must depend on advances or loans taken.

Deductions (h) for contributions to the Central Provident Fund can only be justified if employees are supposed to pay into it; foreign workers are not. Ditto with (j) cooperative societies.

That leaves only (i) — deductions “made with the written consent of the employee”. Employers may try to argue that since it is into the IPA, it constitutes written consent, but if one considers how IPAs are generated, that argument is a stretch.

Moreover, we can test the fit between “Monthly deductions for others” with item (i) by referring to Sections 27 (1A)  and 27(1B) of the Employment Act. Here, the statute says that written consents may be withdrawn by employees giving written notice at any time and employees cannot be penalised for withdrawing consent.

Imagine if a foreign worker were to write to his boss withdrawing the supposed written consent of “Monthly deductions for others”. Do we seriously think employers would remain unruffled? The employee would likely be fired forthwith for his imprudence. If employers take the view that such deductions cannot be overturned or withdrawn — see also the discussion about motive below — then they cannot be classed as an item (i) deduction.

We hold the view, with good grounds, that “Monthly deductions for others” is in contravention of the law. It does not accord with any of the permissible deductions set out by the Employment Act.

Motive

As with all gripping crime mysteries, we should ask what the motive is.

The clue lies in the “Fixed monthly salary”. Employers pay a lower foreign worker levy (a sort of monthly tax) if an employee’s fixed monthly salary (which also means gross monthly salary) is above $1,600, subject to a few other skill or experience conditions. See this page from MOM’s website. We can thus suspect that both Mohatab’s and Khabir’s employers wanted to reduce their payable levies while not actually paying their workers anything near $1,600 per month.

So, in each case, nett salaries were slashed with the help of hefty “monthly deductions for others”.

It is particularly illuminating when we think back a few years, before the introduction of the stepped-down levy. There being no incentive to declare to MOM a gross salary of $1,600 or higher, it was uncommon for IPAs in those years to have either fixed monthly allowances or deductions. They usually had just basic salaries and housing deductions. That fixed monthly allowances and deductions “for others” came into play after the stepped-down levy came into effect tells us that the main motive was to cheat the government of levy revenue while still not paying higher salaries to higher-skilled and experienced workers.

Another interesting trend is the depression in basic salaries. Once (some) employers learned to use “Fixed monthly allowances”, they used it with abandon. It wasn’t only used to pad up the gross salary to reach the $1,600 mark, they used it in substitution of basic salary — cutting the basic salary down. The result was a reduction in overtime wage rates.

Recommendations

The loophole must be closed immediately to restore the intent of the rules in support of rewarding skilled and experienced workers. A simple way would be

  1. amend the rule about qualifying for stepped-down levies to say that the “Monthly salary after taking into account fixed monthly allowances and deductions” should be at least $1,600; and
  2. basic salary should be at least a certain level.

We can set the minimum basic salary level with reference to market wages for workers who do not have the skill or experience qualification of the “$1,600 workers”. TWC2’s observation is that such less-skilled workers earn $600 to $800 a month in basic salary. Thus, for the higher-skilled and more experienced workers for which employers wish to enjoy lower levies, a suitable minimum basic salary could be $1,000 or $1,200 per month.

At the same time, MOM should remove the input box “Monthly deductions for others” from their IPA form. Being legally dubious, this item shouldn’t even be there.

The relevant parts (Sections 27 to 30) of the Employment Act (as at end 2019) are quoted here for easy reference:

Authorised deductions

27.—(1) The following deductions may be made from the salary of an employee:

(a) deductions for absence from work;

(b) deductions for damage to or loss of goods expressly entrusted to an employee for custody or for loss of money for which an employee is required to account, where the damage or loss is directly attributable to his neglect or default;

(c) [Deleted]

(d) deductions made with the written consent of the employee for house accommodation supplied by the employer;

(e) deductions made with the written consent of the employee for such amenities and services supplied by the employer as the Commissioner may authorise;

(f) any deduction for the recovery of any advance, loan or unearned employment benefit, or for the adjustment of any overpayment of salary;

(g) [Deleted]

(h) deductions of contributions payable by an employer on behalf of an employee under and in accordance with the provisions of the Central Provident Fund Act (Cap. 36);

(i) any deduction (other than a deduction mentioned in paragraphs (a) to (h), (j) and (k)) made with the written consent of the employee;

(j) deductions made with the written consent of the employee and paid by the employer to any cooperative society registered under any written law for the time being in force in respect of subscriptions, entrance fees, instalments of loans, interest and other dues payable by the employee to such society; and

(k) any other prescribed deductions.

(1A) A written consent of an employee for any deduction mentioned in subsection (1)(d), (e), (i) or (j) may be withdrawn by the employee giving written notice of the withdrawal to the employer at any time before the deduction is made.

(1B) An employee cannot be penalised for withdrawing a written consent for any deduction mentioned in subsection (1)(d), (e), (i) or (j).

(2) For the purposes of subsection (1)(e), “services” does not include the supply of tools and raw materials required for the purposes of employment.

(3) In subsection (1)(f), “employment benefit” —

(a) means any benefit that an employee derives from being employed, other than salary; and

(b) includes (but is not limited to) benefits such as the following:

(i) any annual leave in excess of the annual leave to which the employee is entitled under section 88A;

(ii) any flexible employment benefit (such as an allowance that can be utilised, at the employee’s discretion, for any of certain purposes specified in the employee’s contract of service).

Deductions for absence

28.—(1) Deductions may be made under section 27(1)(a) only on account of the absence of an employee from the place where, by the terms of his employment, he is required to work, the absence being for the whole or any part of the period during which he is so required to work.

(2) The amount of any deduction referred to in subsection (1) shall in no case bear to the salary payable at the gross rate of pay to the employee in respect of the salary period for which the deduction is made a larger proportion than the period for which he was absent bears to the total period, within such salary period, during which he was required to work by the terms of his employment, and in the case of a monthly-rated employee the amount of deduction in respect of any one day shall be the gross rate of pay for one day’s work.

(3) If any employee absents himself from work otherwise than as provided by this Act or by his contract of service, the employer may, subject to any order which may be made by a court or by the Commissioner on complaint of either party, deduct from any salary due to the employee the cost of food supplied to him during his absence.

Deductions for damages or loss

29.—(1) A deduction under section 27(1)(b) shall not exceed the amount of the damages or loss caused to the employer by the neglect or default of the employee and except with the permission of the Commissioner shall in no case exceed one-quarter (or such other proportion prescribed in substitution by the Minister) of one month’s wages and shall not be made until the employee has been given an opportunity of showing cause against the deduction.

(2) All such deductions and all realisations thereof shall be recorded in a register to be kept by the employer in such form as may be prescribed.
Deductions for accommodation, amenity and service

Section 30

30.—(1) [Deleted]

(2) Any deduction under section 27(1)(d) or (e) shall not exceed an amount equivalent to the value of the house accommodation, amenity or service supplied, and the total amount of all deductions under section 27(1)(d) and (e) made from the salary of the employee by his employer in any one salary period shall in no case exceed one-quarter (or such other proportion prescribed in substitution by the Minister) of the salary payable to the employee in respect of that period.

(3) In the case of a deduction under section 27(1)(e), the deduction shall be subject to such conditions as the Commissioner may impose.