How to Reduce Business Cost in a Difficult Economic Situation?
Leaders of companies have a tough choice to make when deciding which areas of a business they can reduce costs in without affecting regular business operations. Before retrenching employees, businesses in Singapore should contemplate the following alternatives to help employees cope during this difficult period.
Furloughs – Temporarily laying off staff for a short period can help you cut costs but also keep your workforce for when business normality resumes goes back to normal. Employers must continue to pay at least 50% of an employee’s gross salary, with the layoff period not exceeding 1 month.
Shorter Work Week – Implement a shorter work week, reduced by no more than 3 days a week. This should last no longer than 3 months.
Redeployment – Employees can be redeployed to other positions within the company after restructuring.
Provide Training – Employers can receive absentee payroll subsidies by enhancing your employee’s skills through training programs.
Other Cost-Saving Measures – Outsourcing your HR services can be an option to reduce costs. Allowing professional companies to take care of your payroll and other HR services can save you time and money.
Retrenching Staff in a Responsible Manner – If your business has been severely impacted and retrenchment is the only option, you should consider these things before exercising the process.
Be Fair – Ensure your decision is solely based on your business’ future. Do not discriminate against employees or groups in making your conclusion but evaluate their ability to contribute to your company.
Take a Long-Term View – Analyse your manpower needs if business returns to normal. Have a long-term view and reduce the need to recruit and train new employees in the future.
Treat Employees with Dignity – Understand that this is a difficult time for your employee. Always treat terminated staff with the utmost respect to reduce negativity and protect your employer branding. Try to provide a longer notice period when possible.
Complete Payment – On the final day of work, ensure all salaries, unused annual leave, and other outstanding payments are compensated.
Provide Outplacement Service – Help your affected employees transition into alternative jobs. Offer them outplacement service assistance so professionals can help update their resume, prepare them for interviews, and connect them to new positions. Outplacement is essential for your employer brand and strong company culture.
DOWNLOAD: Links’ Employee Outplacement Guide
There is a list of factors that affect the decision of a business’ closure. The procedures can differ based on whether the company is a local one or a foreign company based in Singapore.
Here is a closer look at how to close a company in Singapore and handle the transition of outgoing employees.
1. Closing a local company
Shutting a company down is a natural component of the business cycle. These reasons range from a court order (compulsory winding-up) or the owner’s preference (voluntary winding-up).
Compulsory closures are commonly associated with businesses that are not able to pay their debts or, in other words, are insolvent. When a company is not able to pay its debts, the Court can order the closure of the company and appoint a liquidator who winds up the company’s affairs. If the Court does not appoint a liquidator, the Official Receiver becomes the liquidator. Apart from the inability to pay debts, the other circumstances for the Court to order closure can include:
- The company does not commence operations within a year of its incorporation.
- The directors are determined to have furthered their own interests or have been unfair to the members.
- The closure is in the best interests of the shareholders, the public, or the creditors.
- The company engaged in fraudulent or unlawful activities that hamper public welfare or are against national security.
A solvent company in Singapore can also be liquidated voluntarily by its creditors or members.
This decision of winding up a company voluntarily can be taken either by the members of the company or by its creditors.
Winding up by members: When the directors determine that the company can pay its debts within a year of starting the process of winding up, they can decide to wind up the business voluntarily. To do this, a majority of directors need to make a Declaration of Solvency and file this with the Registrar. After this, the directors have to convene an Extraordinary General Meeting to pass a Special Resolution regarding winding up. In this meeting, the liquidators will also need to be appointed.
Within seven days of passing these resolutions, the company must file a printed copy of the same with ACRA (Accounting and Corporate Regulatory Authority). The company also has to publish the resolution in newspapers. After three months of filing the resolution copy, the business will be dissolved.
Winding up by creditors: A company can also be closed if its directors determine that the business cannot be continued because of the company’s liabilities. Similar to the members’ voluntary winding-up process, the company will need to appoint a liquidator for this purpose and file the notifications with ACRA.
Striking off your company
Another way to close a company in Singapore is to strike your company’s name off the ACRA register. To do this, you will have to apply to ACRA under the Companies Act. To have the name struck off the register, your company must:
- Have ceased trading
- Not be subject to court proceedings
- Have no liabilities or assets when applying
- Not have penalties or tax liabilities outstanding
- Not have a summons from ACRA
- Obtain shareholders’ consent for company closure.
What’s the difference between winding up and striking off a company: Which one is right for your business?
The key difference is that winding up is an option available for companies actively engaged in business. Striking off is suited for companies that have no liabilities or assets and are not active. If your company has debts or is insolvent, it cannot be struck off but can be voluntarily wound up.
2. Closing a foreign company
A foreign company’s branch in Singapore has to stop its business if its head office is in liquidation or has been dissolved.
If the local branch of the foreign company in Singapore has stopped its business activities, the “Notification by Foreign Company of Cessation of Business” has to be filed by the branch through BizFile+.
The company can also apply to be struck off to ACRA if:
- The sole representative is not able to resign as a replacement has not been appointed.
- No instructions have been sent from the company regarding the continuance of operations.
- There is no authorized representative.
What is the alternative to closing a company?
If you plan to use your company in the future or wish to take a break, a great option is to keep your company dormant. In Singapore, a dormant company is one that is registered but has no transactions or income. There is a slight difference between how ACRA and IRAS define dormant companies. Per ACRA standards, dormant companies can receive nominal sums up to S$5,000 whereas, for IRAS, any income earned will make a company ineligible for the dormant criteria.
Links outplacement services: Designed to streamline the transition
Regardless of how your business closes, you will need to notify your employees of the impending company shutdown and pay them their owed salary and benefits. Poorly handled layoffs can cause many problems for business owners. Employers face a high risk of legal disputes and a possible impact on brand reputation, while employees suffer from low morale and face difficulties transitioning to the next role.
To mitigate these possible problems, more business leaders are turning to outplacement services to offer outgoing employees:
- Counselling for individuals through career management support.
- Developing resumes and cover letters.
- Hosting job search training and empowering individuals with the skills to find their next role.
- Helping individuals identify a new career path.
By taking care of your displaced employees, you prevent legal and reputation risks to your brand. Get in touch with us to know more about our curated outplacement programmes and in the meantime, learn more from our Employee Outplacement Guide!
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Links International is an industry leader in innovative HR outsourcing with services such as payroll outsourcing, visa application, PEO/EOR Secondment, outplacement, recruitment and more! Contact us for more information on how we can help leverage your HR function.