What does “monthly deduction for others” actually mean?

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, for many workers, the details tend to come as a bit of a surprise. Yet, 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.

In Mohatab’s case, his hourly basic rate is $1.50, calculated from the monthly rate of $286 by means of a formula provided in the Employment Act itself. Every extra hour thus 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. His hourly basic rate is $2.00, and his overtime rate 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;

(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 employer generally provide accommodation and therefore housing deductions are justifiable in the main even if the exact details may be contestable, the ‘Monthly deduction for others” is a lot more dubious.

Which sub-line of Section 27 (a) to (k) of the Employment Act does it spring from?

It is likely to be from item (i) — deductions made merely “with the written consent of the employee”. We can test our assumption that it is item (i) through a process of elimination.

The “Monthly deduction for Others” is clearly a fixed deduction — meaning that the amount does not vary from month to month.

Being a non-variable deduction, it cannot be deductions described in lines (a) and (b) for absence from work and damage, since these must surely be variable, depending on how many absences or much how damage there was in a month.

“Monthly deduction for Others” cannot be lines (d) and (e) either since housing, amenities and services are already part of “Deductions for Housing, amneities and services”.

As for (f) — deductions for the recovery of any advance or loan — these must depend on advances or loans taken, and thus must be a variable deduction.

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 written into the IPA, it constitutes written consent, but if one considers how IPAs are generated (described in the opening of this article), that argument is a stretch. The worker has no part to play in the application or approval of the IPA.

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 impudence. If employers take the view that such deductions cannot be withdrawn — see also the discussion about motive below — then they cannot be classed as an item (i) deduction.

Furthermore, on its own website, MOM advises that “other deductions” are meant for services that “would benefit the employee”. Among the countless cases that TWC2 has come across, no worker with such a deduction stated in his IPA could tell us what service or benefit he got in return from his employer. A screen capture of the MOM advisory (https://www.mom.gov.sg/employment-practices/salary/salary-deductions) is imaged here:

We hold the view that “Monthly deduction for others”, or at least the way it is used, represents a subversion of the social protection intent of the Employment Act.

Motive

As with all gripping crime mysteries, we should ask what the motive is. It lies in the government’s monthly foreign worker levy.

MOM and the Building and Construction Authority (BCA) have a scheme to encourage employers to hire more skilled and experienced workers in the interest of productivity improvement in the construction sector. Workers are classed as either R1 (higher-skilled) or R2 (basic-skilled). Hiring an R1 worker will mean a lower monthly foreign worker levy for employers. As at December 2020, these are the levy rates:

There are several ways in which a worker can be classed as an R1. Sending him for training and getting him CoreTrade-certified is one. TWC2’s observation however is that many, if not most, employers are unwilling to sponsor an employee for training; they prefer to enjoy the benefit of a lower levy without having to invest in the employee.

Consequently, we see many instances of employers taking advantage of another route to R1, called the Market-Based Framework. This simply says that if a worker has had six years’ experience in the construction industry and is “paid” a fixed monthly salary of at least $1,600, then he too can be classified as an R1 worker.

We can thus suspect that both Mohatab’s and Khabir’s employers wanted to reduce their payable levies without actually having to pay 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.

Here is an IPA issued in March 2013 for a worker named Firuzuzzaman Miah, joining Jit Guat Marine Pte Ltd:

Fizruzuzzaman had a basic monthly salary of $506 and faced a $100 monthly housing deduction. For allowances, it was zero, and for the only other possible deduction permitted by the format of the IPA (food deduction), it was zero too — meaning that he would have to bear the cost of his own meals.

Here is another IPA, issued in August 2013, for a worker named Sohag joining RadhaMadhab Engineering Services Pte Ltd:

Sohad had a basic salary of $550 per month, with no allowances and no deductions. His nett salary was thus $550 per month.

As can be observed from the format in both the 2013 examples, there wasn’t even an input box available to the employer to enter this legally-dubious thing called “Monthly deduction for Others”.

It was regressive for MOM to create, after 2013, this line item in its IPA format, and as we can see from the first two IPAs imaged in this article (Mohatab’s and Khabirul’s), it is being used to cheat the government of levy revenue while still not paying higher salaries to higher-skilled and experienced workers, as intended by policy.

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. Three simple changes are needed:

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.

Require that the basic salary should be at least a certain level so that overtime rates are not exploitatively low. Since these $1,600 workers are also supposed to have at least six years’ experience, we can set the minimum basic salary level at a premium above 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 around $600 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 $800 or $1,000 per month.

The input box “Monthly deductions for others” in the IPA application form should be eliminated. Currently, it’s just an invitation to employers to subvert the intent of legislation.

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;

(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;

(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.

This article was amended in December 2020 with the addition of the levy table, the images of Firuzuzzaman’s and Sohag’s 2013 IPAs, the table showing respective overtime rates of pay, and corresponding edits to sentences surrounding these additions.