Finance Smiths

Personal finance apprentices-in-training

Making a claim against an employer

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I ran into a good friend from my NS days last weekend whom I have not caught up with in a while. I really should make more of an effort to keep in contact with friends especially when it’s so easy to get sucked into your own life of wants and needs. We chatted briefly and will be meeting up for lunch or dinner next week.

However, what we discussed got stuck in my head over the weekend because I never imagined it would have happened to him. He had completed his undergraduate & postgraduate studies overseas and returned to Singapore to work in a small financial services firm around the same time as me.

I found out he had resigned from the firm recently because it failed to pay his salary for 1 month. On top of being jobless and applying for new roles, he has to try and claim back the 1 month of unpaid salary from the firm.

Since he lives at home with his parents, the financial consequences are not severe because his expenses are not high. However, it’s hard enough trying to find a new job in this economy and still attempt to work things out with the previous firm about the 1 month of unpaid salary.

This got me thinking about what resources or avenues do a Professional, Manager and Executive (PMET) have to resolve salary-related claims and how should he even approach this. It’s usually not something we consider until we are in the situation of having to make the claims i.e. got screwed by our employers. What would I do in his situation?

1. Making a claim against an employer on the Ministry of Manpower (MOM) website

First thing, I googled “salary claim employer MOM”. This useful search result on making a claim against an employer comes up on the MOM website. I clicked on the link and one of the first things the webpage says is you need to be covered under the Employment Act to make a claim against your employer.

WTF is the Employment Act? Okay, I’m thinking I should be covered since I work as a PMET in a full-time job. I click on the link to the Employment Act and this catches my eye:

You are not covered if you are employed as a manager or executive with monthly basic salary of more than S$4,500.

OMG. So I’m not covered by the Employment Act. Quick check with my friend and he was earning S$4,800 monthly (slightly above S$4,500) so he’s not covered too. Why in the world is there a threshold of S$4,500? Do these people never have to worry about making salary claims?

2. File claim with the civil courts

I’m stuck now. Can’t seem to find any useful information on these MOM webpages about what happens if you are not covered by the Employment Act and can’t make the claim via MOM. There is something about tripartite mediation for PMEs. Again, you have to be earning a monthly basic salary of up to S$4,500 to be eligible for this. Useless to me or my friend.

I go back to my Google search results and see something about the Employment Claims Tribunal (ECT). In the background provided, it says that the Labour Court currently provides adjudication services to resolve salary-related claims between employers and employees covered under the Employment Act. However, those who are not covered by the Employment Act would have to file their claims with the civil courts, which can be a lengthy and costly process.

WHAT? I have no idea how to file a claim with the civil courts and it sounds expensive. I keep reading the webpage and find out that MOM announced the plans to set up the ECT in 2014. It is to be established as a Tribunal under the State Courts, similar to the Small Claims Tribunal. Did you understand that? I didn’t. Plus it’s been 2 years and the ECT hasn’t been set up yet. You would think this is a high priority item.

I try to find something on the Small Claims Tribunal and the webpage mentions how to file the claim and something about employing mediation extensively in their proceedings. They seem to really like this idea of mediation and I have seen it mentioned so many times. Does it even work?

Even just writing this post is getting me frustrated. Because I seem to be reaching the conclusion that my friend will have to spend quite a bit of time and money to force his ex-employer to do the right thing and pay him the 1 month of salary owed. This is if the mediation fails, which is likely even if he spends a lot of time in the negotiations with his ex-employer.

There is not much I can do other than to offer support, help and my limited knowledge on making a claim against an employer. This post is for you my friend and I hope everything works out.

Average monthly passive income hits S$1,000

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I have decided to sneak this post in before it gets to Sep. After all, this is a long journey to financial independence and it’s important to celebrate milestones to keep ourselves going. Our average monthly passive income for the year has finally crossed S$1,000 at the time of writing. FYI, it’s going to drop below S$1,000 once Sep comes around but oh well. A win is a win.

Just thinking about what that means is putting a smile on my face! Somehow, our investment and cash management strategies are starting to work out after plugging away at them for so many years. We have been slowly increasing our interest and dividend income earned but it’s hard to see the progress on a month to month basis.

It becomes significant when you make the comparison on a 2 year basis from the time we spent working in Melbourne, Sydney then Singapore. In 6 years, we have committed several errors, learnt many lessons and made much progress financially.

Which is why our advice has always been not to be afraid of taking risks and making mistakes. They come hand in hand with moving forward in your life because you can’t make progress otherwise. We should also try to encourage each other because financial freedom is a goal we can all achieve in our own way.

Anyway, May and August are our big dividend months due to us owning a lot more Singapore Exchange (SGX)-listed semi-annual dividend paying stocks. It results in spikes in our average monthly passive income thus allowing me to write self-congratulatory posts like this.

We have been trying to smooth out our dividend income by investing in some SGX-listed quarterly dividend paying stocks and London Stock Exchange (LSE)-listed quarterly distribution index ETFs. We would prefer the dividend income to be more regular and it’s already starting to show with a small jump in passive income every alternate month.

I also realised our monthly interest income is starting to increase slightly. This makes sense as we have been building up our cash positions from consistently saving a portion of our monthly salary income. The Singapore and global equity markets have been quite flat recently and there aren’t many buying opportunities.

The same goes for the Singapore property market. Rents have fallen but prices are sticky downwards. Although the employment market is worsening in Singapore, there are still enough jobs around to provide people with holding power to support the prices for now.

This actually works out for us. With each month, the overexposure to real estate (real property and REITs) gets corrected slightly from the allocation of our savings to cash and ETFs. Our housing loan is tied to the 3-month SOR, which has fallen slightly and the payments continue to remain manageable.

By the way, we track our entire net worth (all of our assets, liabilities, income, expenses and associated website links to pull in relevant information) on Google Sheets. Essentially, we have one spreadsheet with many tabs full of data, charts and analysis that is maintained online. That’s how we track our overall financial progress in case you are wondering.

I just remembered I started a series on why you should use Google Sheets and how you should use Google Sheets for personal finance management. Really should get back to working on it. Anyway, it’s a fine balancing act now and we just have to wait for time to pass for rebalancing to happen. I hope everyone had a good weekend and is ready for the new work week!

Is it easier to build wealth in Singapore?

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Since August is a big dividend month, our average monthly passive income has been inching close to S$1,000. We might get there just for August before it falls back below S$1,000 in September. I’m not sure whether this counts as meeting my goal since it will only be for a brief period of time.

Anyway, it’s still something to be excited about and I’m patiently waiting for the last week of August to pass before doing the monthly financial update to see how we fared. After all, we should be receiving some distributions/dividends this week that might make all the difference.

Recently, I had a chat with my wife about how fast time has passed since we moved back to Singapore in Jan 2014. Between getting married, adjusting to working & living in Singapore and making new friends, I can’t believe it’s been 2.5 years.

What triggered the conversation was that my wife’s colleagues/friends from Australia are starting to plan for their move back there. They are usually families with young kids or couples looking to settle down. We have gotten close to some of them since we all get along well and have similar interests.

Talking to them about their job, money and lifestyle concerns from making the move back to Australia was reminiscent of the same discussions we had with our colleagues/friends in Sydney when planning our move back to Singapore.

Although it’s nice to have some stability in our life and not have to worry about these things, this also made us wonder whether this means we are not likely to make such a move anytime soon. I can’t deny that we have made more financial and career progress in the past 2.5 years in Singapore compared to the 4 years before that in Sydney/Melbourne.

I want to see for myself why this is the case and hence the motivation for this post. Is it really easier to build wealth in Singapore and will greater financial progress make our life better off here? I must stress that this is written from the perspective of a dual-income couple with no kids for now and this could change drastically in the future.

1. Low personal income tax rates in Singapore

If you don’t already know, Singapore has one of the lowest personal income tax rates for a tax resident here. For illustration purposes, a Singapore tax resident individual with S$80,000 of taxable income (assessable income – allowable tax reliefs/deductions) has a tax payable of S$3,350 i.e. a personal income tax rate of about 4.2%. The tax payable can even be paid in twelve interest-free monthly instalments to the Singapore Tax Authority after the year of assessment.

The personal income tax return can be easily filed electronically using the online portal with most of the data automatically pre-filled or rolled over from the prior year. The assessable income and allowable tax reliefs/deductions are also more easily understood and identified. Hence, it becomes a much less costly and painful annual process to go through than filing a personal income tax return in Australia.

Most importantly, low personal income tax rates provide us with the incentive and motivation to work hard at increasing our salary income. This facilitates the journey to financial independence for salaried employees like us and makes it a more viable wealth-building route to take.

2. Singapore-sourced dividend and interest income are not taxable

Dividends paid by a Singapore resident company and interest paid by approved banks/finance companies & debt securities are not taxable in the hands of a Singapore tax resident individual. Can you imagine how useful this is to wealth-building by investing in shares, funds, REITs, Business Trusts and bonds in Singapore?

By constructing a large enough investment portfolio of such equity & bond instruments in Singapore, it’s possible to live off the non-taxable passive income and capital withdrawals for the rest of your life. If you are worried about concentration risk, you can diversify into global financial assets but they will have more complex tax considerations.

3. Costs of living can be low or high

This is a lot less straightforward. It’s actually possible to keep your costs of living low in Singapore, especially for a couple, if you follow these steps:

  • Buy a 4-room HDB BTO flat in a non-mature estate for housing

  • Don’t buy a car and take public transport

  • Cook at home

  • Eat out at coffeeshops & hawker centres instead of cafes & restaurants

  • Don’t drink alcohol or smoke

  • Travel to Asia-Pacific destinations for leisure instead of Europe or US

Reasons are simple:

  • Affordable housing loan payments from CPF without using cash

  • A new Toyota sedan car can cost S$110,000 and you can get to most places using train, bus or taxi/Uber/Grab

  • Having home-cooked meals can be cheaper than eating out depending on the dishes you cook and the number of people you are cooking for (impacts the type and amount of groceries bought)

  • It’s possible to eat a meal (rice, 1 meat dish and 1 veggie dish) for S$3 or less at coffeeshops & hawker centres but you are going to pay a lot more at cafes & restaurants. This is how eating out can sometimes be cheaper than cooking at home

  • Wines, beers and cigarettes cost 1.5x to 2x as much here

  • Due to Singapore’s geographical location, travel trips to Asia-Pacific destinations are less expensive than Europe or US due to the availability of budget flights. Shorter trips with stays at budget hotels during off-peak periods are more feasible that way too

Sounds easy yeah? The problem is having to do the above consistently here in Singapore. Just using us as an example, we failed to complete most of the steps because of a higher propensity to spend here compared to Australia.

It could also be because we tried to replicate aspects of our lifestyle in Melbourne/Sydney but the fact is our costs of living are higher here. Essentially, necessities cost less but luxuries cost more and it’s how you differentiate the two that makes all the difference.

4. Lower childcare/helper/nanny costs

We hear this often from our colleagues with kids who have lived in Australia, UK and US. The childcare/helper/nanny costs are lower here and this allows for both parents to work full-time jobs. The secondary income can sometimes accelerate wealth-building more than investing can ever do so. However, this might not be as feasible in those countries due to the high childcare/helper/nanny costs and personal income taxes there.

5. Healthcare costs can be low or high

This is a tricky one. If you have medical insurance at your full-time job and only fall sick with minor but not major illnesses that don’t require hospitalisations, it’s possible to see a doctor at the clinic and get the medicine for free i.e. costs are borne by your employer. Without medical insurance, the medical costs are still reasonable for the quality of healthcare you receive.

The problem is when you require hospitalisations. Even with subsidised healthcare available (e.g. visit public instead of private hospitals), the costs can quickly escalate. This is made worse by the lack of a universal public health insurance scheme and you have to bear these costs yourself. However, it is possible to rely on your CPF – MA and external medical insurance to defray the costs.

For your information, this is a useful article from MoneySmart on how Singaporeans should make sure they don’t get crippled by healthcare costs. Which means it is possible to keep your healthcare costs affordable.

These are just some of the factors that have contributed to our greater financial progress on wealth-building in Singapore. And it does look like we have a higher chance of attaining financial independence here if we stay on our current path. That being said, living in Singapore is not without its compromises and trade-offs, which is something we deal with every day.

Things can always change and it might be that our financial goals become less important over time. The pursuit of financial freedom should never come at the expense of our happiness and personal well-being. We just have to keep working on balancing these objectives in our lives.