Salary in lieu of notice is a cash payment that replaces serving your notice period. If you resign and want to leave before the notice runs out, you pay your employer this amount. If your employer wants you gone early, they pay you instead. The sum is whatever salary would have been earned across the remaining notice days, calculated on your gross rate of pay. The part most people get wrong: notice in Singapore is counted in calendar days, not working days, and the payment skips CPF even though your normal salary does not.
When you resign or get terminated, the employment contract sets a notice period that both sides are meant to serve. Salary in lieu of notice (sometimes written as compensation in lieu of notice, or just "notice pay") is the option to buy your way out of that period with money instead of time.
It cuts both ways. If you resign and want to start a new job next week, you can pay your current employer the salary you would have earned over the unserved notice, and walk. If your employer would rather you leave immediately, they pay you that same amount and your last day moves up. Either party can trigger it, and the figure is identical whichever direction the money flows.
The Ministry of Manpower is explicit that this is "money equivalent to the salary that you would have earned during the required notice period." It is not a penalty, a bonus, or a severance package. It is simply your pay, paid out as a lump sum for days you will not be working. If you are still weighing whether the early exit is worth the cost, run the after-tax numbers through our take-home salary calculator before you commit.
First work out the notice period, because that is what the payment is based on. Your contract wins if it states a period (one to three months is normal for PMETs). If the contract is silent, the Employment Act sets a statutory minimum that scales with how long you have been there.
One rule trips up almost everyone: notice runs in calendar days, not working days. MOM counts the day notice is given, then every day after it including public holidays, rest days and non-working days. A four-week notice given on a Monday ends four calendar weeks later, weekends and any public holidays included.
| Length of service | Minimum notice (either side) |
|---|---|
| Less than 26 weeks | 1 day |
| 26 weeks to less than 2 years | 1 week |
| 2 years to less than 5 years | 2 weeks |
| 5 years or more | 4 weeks |
There are two ways the sum gets worked out, and which one applies depends on how your notice is expressed.
If your notice is in whole months (say, one month), the calculation is simply that many months of salary. One month's notice equals one month's gross salary. No daily-rate maths needed.
If your notice is in days or weeks, or you are paying for a part-month, you convert to a daily rate first. The gross daily rate MOM uses is twelve times your monthly gross salary, divided by fifty-two times your average working days per week. Multiply that daily rate by the number of notice days outstanding.
Take someone on $5,000 a month gross, working a five-day week, with two weeks of notice left to serve. The gross daily rate is (12 x 5,000) / (52 x 5) = $230.77.
Two weeks of notice is 10 working days. Salary in lieu = $230.77 x 10 = $2,307.70. That is what the employee pays the employer to skip the remaining two weeks. On a six-day week the daily rate drops to $192.31, because the same monthly salary spreads across more working days.
This is where salary in lieu behaves differently from your normal pay, and where the real money is won or lost.
CPF is not payable on compensation in lieu of notice. The CPF Board confirms that when an employee does not work the notice period and the payment replaces it, no CPF contributions apply on that sum. The flip side matters too: if you do work through your notice, that salary is ordinary wages and full CPF applies right up to your last day. So a month worked and a month paid in lieu are not financially identical once CPF is in the picture.
One trap to avoid: if your employer offsets what you owe against wages they still owe you, CPF is still payable on those wages before the offset. You cannot dodge CPF by netting the two off. To see how the contribution split would have looked on worked salary, our CPF contribution calculator breaks down the employer and employee shares by age.
For tax, IRAS treats salary in lieu of notice as taxable employment income at your normal rates, the same as any salary. There is no special exemption. Estimate the bill with our marginal tax rate in mind, or model the year with the income tax calculator.
These two payments often land in the same final payslip, so people lump them together. They are not the same, and the CPF treatment is the opposite.
Leave encashment converts your unused annual leave into cash when you leave. It uses the same gross-daily-rate formula, so 10 days of unused leave for our $5,000 / five-day-week employee is also $230.77 x 10 = $2,307.70. The difference: leave encashment is treated as additional wages and CPF is payable on it (subject to the Additional Wage ceiling). Salary in lieu of notice attracts no CPF.
| Feature | Salary in lieu of notice | Leave encashment |
|---|---|---|
| What it pays for | Unserved notice days | Unused annual leave days |
| Formula | Gross daily rate x notice days (or months x salary) | Gross daily rate x unused leave days |
| CPF payable? | No | Yes (additional wages, AW ceiling applies) |
| Taxable income? | Yes | Yes |
| Who can pay | Either employer or employee | Employer pays employee |
There is a third route that often saves the most money: agreeing to use your remaining annual leave to offset the notice period rather than paying cash in lieu.
If both sides agree, your leave is consumed to bring forward your last day. MOM allows this, but note the catch: leave used to offset notice is not separately paid out. You are spending leave you already have rather than handing over cash, which is usually the better deal if you have a healthy leave balance. Compare it to taking approved leave during notice, where the full notice is still paid and your last day does not move.
Run the comparison before you decide. If you have 10 days of leave left and 10 days of notice to serve, offsetting costs you nothing out of pocket, while paying salary in lieu would cost you $2,307.70 in our example. Sort out your wider exit cash flow with a personal budget calculator so a gap between jobs does not catch you short.
Final pay, including any salary in lieu owed to you, must be settled on your last day of employment, or within three working days of termination if paying on the day is not practicable. If your employer is the one paying you in lieu, that money should land fast, not weeks later.
Disputes over salary owed go to the Tripartite Alliance for Dispute Management (TADM) for mediation, and claims must be filed within a defined window after your last day. If termination compensation is in play, the Employment Claims Tribunals cap is $20,000, rising to $30,000 where the matter went through TADM mediation.
No. CPF contributions are not payable on compensation in lieu of notice, whether you pay it to your employer or they pay it to you. CPF only applies to salary for notice days you actually work, right up to your last day of employment.
Yes. IRAS treats salary in lieu of notice as taxable employment income at your normal income tax rates, the same as ordinary salary. There is no special exemption, so it gets added to your assessable income for the year you receive it.
For whole-month notice, multiply the number of months by your monthly gross salary. For days or weeks, find your gross daily rate using (12 x monthly gross) / (52 x average working days per week), then multiply by the outstanding notice days. Gross means basic pay plus fixed allowances.
Notice period runs in calendar days. MOM counts the day notice is given plus every following day, including public holidays, rest days and non-working days. The daily-rate formula for the payment, however, divides by working days per week, so do not mix the two up.
Yes, if both you and your employer agree. Your remaining annual leave is consumed to bring forward your last day, and that leave is not separately paid out. With a healthy leave balance this is usually cheaper than paying salary in lieu in cash.
This is general financial information for Singapore, not personal financial advice. Figures change — verify current rates against the official sources above before acting. See our full disclaimer.