Salary Deduction Rules in Singapore: Excess MC & Legal Limits

Under the Employment Act 1968, an employer cannot deduct money from your salary simply because the company believes it is owed. Every deduction has to fall into a category the law specifically allows, follow the correct process, and stay within a legal cap.

This guide sets out exactly what a Singapore employer can and cannot deduct from an employee’s pay, using a real workplace scenario, excess medical leave (MC), as a worked example.

What the Employment Act Says About Salary Deductions

Salary deductions in Singapore are governed by Part III of the Employment Act 1968. Section 26 sets the default position: no deduction may be made from an employee’s salary except as authorised under the Act. Section 27 then lists the specific categories of authorised deductions, and Sections 28 to 32 set out the process and the caps that apply to each category.

This means a clause in an employment contract or staff handbook does not, by itself, make a deduction lawful.

If the reason for the deduction does not fall within one of the categories in Section 27, the employer needs the employee’s written consent, and even then, the deduction must genuinely benefit the employee rather than the company. A generic “the company may deduct any amount owed to it” clause will not convert an otherwise unauthorised deduction into a lawful one.

Ilustration of How Excess MC Becomes a Salary Deduction

One of the most common salary deduction disputes in Singapore involves medical certificates. The following exchange between Idris and his legally trained friend Muthu illustrates how this plays out in practice.

To put a number on what Muthu is talking about: an employee covered by the Employment Act who has served at least three months is entitled to up to 14 days of paid outpatient sick leave a year, or up to 60 days of paid hospitalisation leave a year (the 60 days already includes the 14 outpatient days, they are not stacked on top of each other).

Employees with three to six months of service get a pro-rated entitlement. If Idris has already used his full 14 outpatient days and takes more MC on top of that without being hospitalised, his employer is not required to pay for those extra days.

If the employer pays anyway and later realises the mistake, recovering that amount through a salary deduction is treated as recovery of an unearned benefit under Section 27, not an unauthorised deduction.

Also Read: Can Employers Reject Annual Leave Requests in Singapore?

Types of Authorised Salary Deductions

Beyond the MC scenario, the Employment Act allows a limited, specific list of deduction categories. Each comes with its own process and cap, summarised below.

How Much Employer Can Deduct in Total

Even where several of the categories above apply at once, Section 32 caps the total deductions from a salary period at 50% of the employee’s total salary payable for that period. This overall cap excludes deductions for absence from work, recovery of advances, loans, overpaid salary or unearned benefits, and consented payments to a co-operative society, so those items can push actual take-home pay below 50% in a given month.

The one exception is termination of employment. When a contract of service ends, the 50% cap no longer applies, and the employer may deduct the full amount owed against the final salary payment.

Unauthorised Salary Deductions

Just as important as knowing what is allowed is knowing what is not. Poor performance, missed sales targets, or general “the company is unhappy with your work” are not valid grounds for a salary deduction under the Employment Act, no matter what the employment contract says.

• Deducting pay for underperformance, missed KPIs, or productivity shortfalls.
• Charging employees for tools, uniforms, or equipment the employer is required to provide.
• Deducting for cash register or till shortfalls, unless deliberate misconduct or gross negligence is proven.
• Recovering the cost of mandatory training, unless the employee signed a valid training bond agreeing to it.
• Deducting “liquidated damages” or contractual penalty amounts that do not fall within an authorised category.
• For migrant workers specifically, deducting or recovering the foreign worker levy, security bond, medical insurance, repatriation costs, compulsory training, or work pass renewal fees. Employers of Work Permit, S Pass, and Employment Pass holders also need written consent and must notify MOM before reducing salary or introducing new deductions.

What to Do About an Unauthorised Deduction

If a deduction does not fit any of the categories above, or the process was not followed correctly (for example, no inquiry was held before a damage-related deduction), the employee can raise the matter with the Tripartite Alliance for Dispute Management. TADM mediates salary-related disputes before they proceed to the Employment Claims Tribunal (ECT), which can order repayment.

A few practical points on timing and limits matter here. An employee still with the company generally has one year from when the dispute arose to file a claim, while a former employee has six months from their last day of employment, and the amount that can be recovered is capped at one year’s worth of arrears counted back from the filing date.

Claims are currently capped at S$20,000, or S$30,000 where a union files on the employee’s behalf. Payslips, the employment contract, CPF statements, and any written correspondence about the deduction all help establish the claim.

For disputes that cannot be resolved through mediation, or where the amount or legal question is more complex, speaking with an employment lawyer before filing can help clarify whether the deduction was in fact authorised.

Also Read: Know Your Employee Rights in Singapore

Talk to an Employment Lawyer at RBN Chambers

Salary deduction disputes rarely come down to a single clause. Whether it involves excess MC, a damaged piece of equipment, or a deduction that was never explained, the outcome depends on whether the employer followed the specific process the Employment Act requires for that category of deduction, and whether the amount stayed within the legal cap.

If you are an employer trying to structure a deduction correctly, or an employee who believes a deduction from your pay was not authorised, Ramesh Bharani Nagaratnam and the employment disputes team at RBN Chambers can review the facts against the Employment Act and advise on the strongest path forward, whether that is a TADM claim, a response to one, or a broader dispute over your employment terms. Get in touch with RBN Chambers to discuss your situation.

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