Fixed Allowance Cannot Replace Overtime Pay — What Singapore Employers Must Know

A recent High Court ruling has sent a clear message to employers in Singapore: you cannot use a fixed monthly allowance to cap or offset what you owe workers in overtime pay.

If your employees work beyond their contracted hours, they are entitled to overtime calculated on actual hours worked — no matter how you've labelled the components in their payslip.

What Happened

In April 2026, the Singapore High Court overturned an Employment Claims Tribunal ruling in the case of a migrant worker employed as a packer with a fresh produce wholesaler.

The worker's MOM In-Principle Approval letter showed a basic salary of $1,000 per month, a $200 housing allowance, and a $300 "others" allowance — giving a total fixed monthly pay of $1,500, with a declared overtime rate of $7.87 per hour.

The employer's position was that the $300 "others" allowance covered overtime regardless of how many hours were actually worked. The tribunal initially accepted this argument, reducing the worker's claim from $5,711.11 to $3,254.83.

The High Court disagreed. Justice Philip Jeyaretnam allowed the worker's appeal in full, reinstated the original claim of $5,711.11, and ordered the employer to pay $9,000 in costs.

What the Court Said

The ruling turned on how MOM defines the components of an employee's salary.

Under MOM regulations, "basic monthly salary", "fixed monthly allowances", and "fixed monthly salary" are distinct, defined terms. Fixed monthly allowances — by definition — must not include any form of overtime payment.

The court held that an employer cannot introduce a cap or fixed sum for overtime payment. Allowing the $300 "others" allowance to absorb overtime obligations would effectively reduce the worker's declared overtime rate below what was stated in the MOM letter — and that is unlawful.

The employer argued that the arrangement was administratively convenient. The court rejected this. Administrative convenience is not a valid reason to structure pay in a way that undermines workers' statutory rights.

What This Means for You as an Employer

This ruling has practical implications for any business that employs workers paid a fixed salary with allowance components.

1. Review your salary structures now. If any component in your employees' payslips — whether labelled "others", "transport", "miscellaneous", or anything similar — is being used informally to absorb overtime obligations, you are exposed to a claim.

2. Your MOM IPA letter is a commitment. The overtime rate declared to MOM must be honoured based on actual hours worked. It is not a notional figure that fixed allowances can soak up.

3. Labelling does not override the law. The fact that a payslip calls something an "allowance" does not make it legally permissible to treat it as overtime compensation. Courts will look at the substance of what the payment is for, not just its name.

4. Retrospective claims are real. This worker pursued his claim through two levels of proceedings over more than two years. Employment Act claims can go back up to two years. The financial exposure from getting this wrong can be significant.

A Note for Workers

If you are a migrant worker in Singapore and your employer has been telling you that your overtime is already "covered" by a fixed allowance — this ruling confirms that you have the right to proper overtime pay calculated on your actual hours worked. You can file a claim with the Employment Claims Tribunal if you believe you have been underpaid.

How Stagencies Can Help

At Stagencies, we work with employers across construction, F&B, and services to ensure employment contracts are structured in full compliance with the Employment Act and MOM requirements — from the outset.

If you are unsure whether your current salary structures are compliant, or if you are onboarding new workers and want to get the paperwork right, reach out to us for a review.

Getting it right from day one is always less costly than resolving a claim later.

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