Paying Out Unused Annual Leave in Singapore: When It Is Required, CPF and Tax

Short answer: When employment ends for any reason other than dismissal for misconduct, a Singapore employer must pay for the employee’s earned but unused annual leave, at the gross rate of pay based on the last drawn salary. CPF contributions are payable on the leave payout, and IRAS taxes it as employment income in the year the employee becomes entitled to it.

An unused annual leave payout Singapore employers make is the cash paid in place of leave that an employee has earned but not taken, usually in the final salary when someone resigns or is let go. Getting it right avoids disputes over final pay. This guide covers when a payout is required, how to calculate it, and how CPF, income tax and Form IR8A apply.

Raffles Corporate Services works with a panel of experienced Singapore law firms who offer cost-effective and efficient legal service and advice. This article is general information only and is not legal advice.

When must a Singapore employer pay out unused annual leave?

Whenever the employment ends, unless the employee is dismissed for misconduct. While employment continues, there is no general duty to pay cash for unused leave; whether leave is carried forward, encashed or forfeited depends on the Employment Act category the employee falls into and on the contract.

The Ministry of Manpower (MOM) sets out the position on its termination with notice page: if employment is terminated except for misconduct, the employer must pay for unused annual leave at the gross rate of pay based on the last drawn salary. That covers an employee who resigns and an employee whose contract the company ends with notice.

For the statutory entitlement table, see our guide to annual, sick and childcare leave entitlements in Singapore.

What happens to unused leave while the employee is still employed?

For lower-paid employees covered by Part 4 of the Employment Act, unused statutory leave must be allowed to be carried forward to the next 12 months. For everyone else, and for any leave above the statutory minimum, the employment contract decides whether leave is encashed, carried forward or forfeited.

MOM’s annual leave in special situations page describes Part 4 employees as workmen earning a monthly basic salary of S$4,500 or less, and non-workmen earning a monthly basic salary of S$2,600 or less. Leave carried forward under this rule can be forfeited if it is still unused at the end of that following 12-month period. MOM also lists two other cases where statutory leave can be forfeited: absence without permission or reasonable excuse for more than 20% of the working days in the month or year, and dismissal for misconduct.

The leave clause should therefore say whether leave above the statutory minimum can be carried forward or encashed, and how it is treated on exit.

How do you calculate the unused annual leave payout Singapore employers owe?

Work out the leave earned in the final leave year, subtract leave taken, and multiply the balance by the daily gross rate of pay. Add any leave validly carried forward from earlier years that has not lapsed.

1. Take the annual entitlement for the current year of service: the contract figure, which cannot be lower than the statutory figure.
2. Count completed months of service in the current leave year up to the last day of employment. MOM includes the notice period and excludes approved unpaid leave.
3. Pro-rate: (completed months / 12) x annual entitlement. MOM rounds a fraction of less than half a day down, and half a day or more up to one day.
4. Subtract the days already taken this year and add any unexpired carried-forward days.
5. Work out the daily gross rate: (12 x monthly gross rate of pay) / (52 x average number of working days a week).
6. Multiply the unused days by the daily gross rate.

MOM defines the gross rate of pay as including allowances the employee is entitled to under the contract, but excluding overtime, bonuses and the annual wage supplement (AWS), reimbursements of special expenses, productivity incentive payments, and travel, food and housing allowances. Its salary calculation guidance confirms the same gross rate is used for salary in lieu of annual leave.

If the employee had taken more leave than earned, MOM treats the excess as unpaid leave and allows the employer to deduct salary for it.

Can an employee use unused leave to offset the notice period?

Only if the employer agrees. Offsetting brings the last day forward and the leave used is not paid; taking approved leave during notice keeps the original last day and the employee is paid for the full notice period.

MOM explains the two routes on its termination page. With an offset, the employee is paid only up to the new, earlier last day, the leave used to cover the remaining notice is not paid, and the employee can start a new job straight away. With approved annual leave during the notice period, the employee remains employed until the end of notice and is paid for the whole period. Record which route was agreed in writing.

Where an employee walks out without serving notice, the company’s claim for salary in lieu of notice and the employee’s claim for unused leave both affect the final payment. We cover recovering notice pay in employee resigns without serving notice.

Is CPF payable on an unused annual leave payout?

Yes, for employees who are Singapore Citizens or Permanent Residents. CPF Board states that contributions are payable on cash given to an employee for encashment of leave, and its list of payments that attract CPF marks “payment in lieu of leave” as payable.

The payout must still be classified as Ordinary Wages (OW) or Additional Wages (AW). CPF Board’s test is that wages are OW for a month only if they are given for employment in that month and payable by the 14th of the following month; anything else is AW. The classification decides which wage ceiling applies. Our article on CPF on bonuses and the Additional Wage ceiling shows how the AW ceiling is worked out for a final month.

Do not confuse leave pay with notice pay. MOM states that CPF contributions are not required for salary in lieu of notice, and CPF Board lists compensation in lieu of notice among termination benefits that do not attract CPF. Show them as separate lines on the final payslip.

How is a leave payout taxed and reported to IRAS?

It is taxable employment income, taxed in the year the employee becomes entitled to it rather than the year it is paid. Report it in Form IR8A under “Gross Salary, Fees, Leave Pay, Wages and Overtime Pay”.

IRAS’s guidance on other payments lists encashment of unutilised leave as taxable and gives a cessation example: an employee leaves on 24 December 2025, the leave is converted to cash on the last day of service and paid on 5 January 2026. The amount is taxable in Year of Assessment (YA) 2026, because entitlement arose on the last day of service in 2025. If company policy only allows encashment in the year after cessation, the amount becomes taxable a year later, in YA 2027.

Two further points for employers:

• Foreign employees: MOM notes that when a foreign employee leaves, the employer must withhold all monies due, including salary and leave pay, for tax clearance for up to 30 days after notifying IRAS of the cessation. The leave payout goes into the tax clearance figures rather than being released on the last day.
• Accounts: under FRS 19, leave that can be carried forward or encashed is accrued as employees earn it, not only when someone leaves. See our guide to FRS 19 leave and bonus accruals for the year-end entries and the tax deduction point.

When must the final payout be made?

The leave payout is part of the final salary, so it follows MOM’s final salary deadlines. The deadline depends on how the employment ended.

MOM states that non-payment of salary is an offence, and an employee who is not paid can file a claim with the Tripartite Alliance for Dispute Management (TADM). Our free tools help with routine compliance deadlines. Where misconduct is alleged and leave is being withheld on that basis, the dismissal itself must stand up; see dismissing an employee for misconduct. If the amounts are large or the facts are contested, speak to a lawyer before finalising the payment.

Frequently asked questions

Do we have to pay unused leave if the employee resigns?

Yes. Resignation is not misconduct, so MOM’s rule applies: earned but untaken annual leave must be paid at the gross rate of pay based on the last drawn salary, unless the parties agree to use it to offset the notice period instead.

Can the contract say that unused leave is forfeited when an employee leaves?

Not for statutory leave on a termination other than for misconduct, because MOM states the employer must pay for it. A contract can set the treatment of leave above the statutory minimum, so the clause should be clear on that point.

Is the payout calculated on basic salary or gross salary?

On the gross rate of pay, which includes contractual allowances but excludes overtime, bonuses, AWS, productivity incentives, reimbursements and travel, food and housing allowances.

Do we pay CPF on leave pay for a foreign employee?

No. CPF Board requires contributions for employees who are Singapore Citizens or Singapore Permanent Residents earning total wages of more than S$50 a month; foreigners are exempt. The leave pay of a foreign employee is still taxable and is included in the tax clearance process.

Last reviewed: 10 November 2026. The Editorial Team, Raffles Corporate Services.