Payroll Management for Singapore Businesses
Successfully managing a modern payroll system in Singapore relies on a number of factors. Fundamentally, there must a constant and seamless flow of information between both the HR department and the finance department. Fundamentally, the goals a payroll system should be striving for protecting the interests of the organisation while ensuring employee contentment. The former is ensured through a combination of accurate processing and regular scheduled maintenance and reporting. Staff are kept content through timely disbursement of funds, the appropriate making of deductions and the issuing of proper and accurate statements.
This guide has been created by Ottavia for the purposes of providing current and potential business owners in Singapore with a basic, high-level understanding of the core elements that go into managing a payroll system in Singapore. As your business grows and evolves beyond a sole proprietorship, the regulatory requirements governing your payroll processing with grow in complexity and will very soon require expert resources to meet.
While larger corporations can afford to devote an entire department to payroll and can afford the overheads involved in staffing and equipping it with the right people and software, the majority of small to medium-sized enterprises (SMEs) will not be able to afford a dedicated in-house team and will either have to do it themselves or outsource it to an external service provider. Doing it yourself can be a risk that exposes to you to compliance breaches, potentially costing you money and time you can’t afford in the long-run. To ensure that your company is effortlessly in full compliance with the law, consider Ottavia for the cost-effective, reliable provision of payroll services in Singapore.
Under Singapore’s Employer Act, the term ‘salary’ refers to any remuneration payable to an employee in respect of work done under a contract of service, including allowances. The employer is not required to meet a minimum salary requirement as this is generally based on a mutual agreement made between employee and employer. The following is not included under salary or gross rate of pay:
- Any additional payments including:
- Overtime payments
- Bonus payments
- Annual wage supplements
- Reimbursement made for expenses incurred by the employee in the course of their employment
- Payments made as productivity incentives
When calculating an employee’s salary, a complete month refers to any calendar month within a calendar year. A month is considered to be an incomplete month where an employee has:
- commenced their employment after the first day of the month
- left their employment before the end of the month
- taken one or more days of no-pay leave during the month or
- is on reservist training at some point in the month (national service training)
Where the employer needs to calculate wages for an incomplete month, they take the gross rate of pay and divide by the number of working days in the month, then multiply the product by the number of days the employee worked in the month. Illustrated here:
(Monthly gross rate of pay/no. of working days) x no. of days worked = wages for incomplete month
Statutory payroll requirements
Central Provident Fund
The total CPF contribution amount is comprised of an employee and an employer contribution? Employees who are either Singaporean citizens or permanent residents of the country as well as employers of such persons are required to make CPF contributions at a rate prescribed by the Central Provident Fund Board. When computing CPF, wages are classified as Ordinary Wages (OW) or Additional Wages (AW), and contributions are calculated based on both forms.
The term ‘ordinary wages’ refers to wages granted or due exclusively and wholly in respect of an employee’s employment that month, to be paid prior to the due date for payment of CPF contributions in that same month. ‘Additional wages’ refers to payments such incentives or bonuses that are made at intervals greater than a month.
CPF contributions have ceiling; the maximum amount of CPF payable is calculated on a monthly salary ceiling of $6,000 for OW. The maximum amount of AW on which CPF is payable is determined using a formula. Employers are required to pay both the employer’s share of monthly CPF contributions and the shares of all employees within 14 days after the end of the relevant month (i.e. CPF contributions for February are due by March 14).
Per the employee’s ethnic group, the relevant ethnic fund must be contributed to by the employee. The amount of the contribution is deducted from the employee’s monthly salary and this fund contributes to the welfare of the relevant ethnic group.
Skill Development Levy
Employers are required to contribute a Skills Development Levy for every employee including casual, part-time, full-time, foreign and temporary workers who render services partly or wholly in Singapore. The SDL is not to be deducted from the employee’s monthly remuneration. The resulting Skills Development Fund in turn provides grants to employers sending providing training for employees.
The amount of levy payable varies depending on the relevant employee’s salary. Subject to a minimum of S$2, levy rate of 0.25 per cent is applicable to the first S$4,500 of gross monthly remuneration. Whichever is the higher amount will be payable. Gross monthly remuneration refers to salaries, wages, commissions, bonuses, overtime or leave pay, allowances (including housing allowances and similar payments) and any other payment made in cash. Where monthly remuneration totals more than S$4,500 a levy of S$11.25 will be paid.
Foreign Workers Levy
Employers are required to pay monthly levies to hire foreigners as employees with S Passes or Work Permits. The Foreign Workers Levy was imposed by the Government of Singapore through the Ministry of Manpower to administer foreign workers with work permits, and forms a mechanism to control the total number of foreign workers in Singapore.
The levy will be determined by a combination of:
- The worker’s qualification
- The employer’s sector of operation
Every male Singaporean citizen and male second-generation permanent resident (son of a person granted permanent residency) who are 18 or older are required by law to enrol for national service. Upon completion of full-time service, conscripts are deemed operationally ready and referred to as NS reservists. NS reservists may be called upon for periodical training and NS duties. Employers do not pay reservists for the days they are away on NS duties; appropriate deductions are made from monthly wages for these days. However, employers are required to pay the CPF contribution of employees on national service.
Payroll Statutory Reporting
The Inland Revenue Authority of Singapore’s (IRAS) Auto Inclusion Scheme requires employers who have either 15 or more employees for the entire year or have received a “Notice to File Employment Income of Employees Electronically”, to submit employees’ income information to IRAS by March 1 each year. Information that has been submitted electronically will be reflected in the employee’s income tax return and will be utilised to assess their tax liability.
Employers will be required to prepare and file the following documents by March 1 each year:
- Form IR8A (for all employees)
- Appendix 8A (for payments of benefits-in-kind)
- Appendix 8B (gains made from Employee Stock Options), or
- Form IR8S (where excess CPF payments were made)
Employers participating in the Auto Inclusion Scheme are not required to issue Form IR8A to employees, however doing so can still be useful for the employees’ personal records.
Tax clearance is a measure to ensure that all foreigners rendering services in Singapore fulfil all of their tax obligations. Employers must notify IRAS and seek tax clearance for all foreign employees by preparing and filing Form IR21 a minimum of one month before the relevant employee:
- ceases work for the employer in Singapore; or
- leaves for an overseas posting; or
- leaves Singapore for any period in excess of three months
Where tax clearance for an affected employee is pending the employer is required to withhold all payments of salary, bonuses, overtime and leave pay, gratuities, allowances, lump sum payments, et cetera that are due to the employee from the day that:
- the employee makes known their intention to depart Singapore or cease employment or
- the employer makes the decision to terminate their employment or
- the employer decides to provide the employee with a posting to an overseas location.
Payments are required to be withheld for a period of 30 days beginning from the day the employer notified IRAS via Form IR21, or until such time as IRAS issues the tax clearance directive, whichever is earlier.
Beginning from Year of Assessment 2008, employers are required to keep full and proper records of every employees’ income and the deductions submitted to IRAS for a period of five years.
Mandatory Itemised Payslips
Beginning from 1 April 2016, all employers have been required to issue both an itemised pay slip and a list of key employment terms (KETs) to employees who are covered under the Employment Act.
These payslips are to be issued once a month and are required to contain the following information:
- The employer’s full name
- The employee’s full name
- The date payment was made
- The employee’s basic salary
- The start and end date of each salary period
- Fixed and ad-hoc allowances paid
- Additional payments such as rest day pay, public holiday pay or bonuses
- Overtime hours worked
- Overtime pay
- The start and end date of each overtime payment period where overtime payment periods are different from the start and end of the salary period
- Net monthly salary paid
These amendments have been implemented to reduce the misunderstandings resulting from previous, more complex payslips and to minimise the chance of a resulting workplace dispute. They enable employees to better understand how their salary is calculated and gives them a better idea of their employment terms and benefits.
Failure to provide these itemised payslips will attract a fine of between S$100 and S$200 per employee per occurrence.
Other Considerations Relevant to Employee Compensation
This guide is not exhaustive; there are many other considerations that business owners need to factor in that are relevant to an employee’s total overall compensation. These can include:
- Whether payment for overtime is offered to employees depends on your business and on the contract between an individual employee and their employer. Work extending outside normal hours (normal hours are not to exceed 44 hours every week) will be paid at 150 per cent the normal hourly rate. Where applicable, an hourly rate may need to be determined to calculate overtime based on a formula provided by Section 38(6)(a) of the Employment Act.
- When an employee is granted no-pay leave, Section 20A(c) makes a provision for calculating salary.
- In most cases, public holidays are to be considered paid holidays. Where an employee is requested to work on a public holiday, an additional day’s pay will be provided alongside their usual monthly pay.
- Where an employee has provided minimum service of three months with their employer, that employee is entitled to paid annual sick leaves.
- Similarly, an employee serving for a minimum of three months is entitled to annual leave.
As your business develops and the number and types of employees you have multiples, dynamically processing payroll will naturally require more time and effort; a burden which many companies cannot afford. If you’re a small or medium-sized enterprise in Singapore managing between 1 and 25 employees, you may wish to avail yourself of the payroll management services provided by a professional firm such as Ottavia.
Our cost-effective and streamlined services take the stress out of process payroll, allowing you to focus on your business’ core aspects and develop it further. Ottavia offers our clients a team of experienced staff equipped with the latest business software and infrastructure, ensuring accurate and timely salary calculation. Our company can assist you with the generation of prompt financial reports, fast online notifications to government agencies and automated, precise deposits of salaries and statutory contributions.
If you wish to discuss your options with Ottavia, please get in touch with our team today and allow us to provide the personalised service you need.