A Comprehensive Guide to Singapore Payroll Management

A Comprehensive Guide to Singapore Payroll Management

Managing a company’s payroll can be a daunting task, especially when your number of employees increases as your business grows. From processing and reporting payroll components to ensuring compliance with Singapore regulatory requirements and calculating and disbursing salaries, you must perform your business payroll procedure with utmost accuracy and care.

This article provides information on the critical elements involved in the payroll process and discusses various Singapore legal requirements that employers must comply with.

 

What is considered a salary and what is not?

According to the Employment Act, a “salary” or a “wage” is all remuneration paid to an employee in connection with their work, including benefits and bonuses. However, it does not include:

  • Value of accommodation, supply of light, water, medical care, or other facilities;
  • Pension or provident fund contributions paid by the employer;
  • Travel allowance;
  • Payments to finance special expenses incurred during assignments; and
  • Gratuities paid upon retirement or outstanding pension benefits.

Salary is subject to negotiation and mutual agreement between an employer and an employee. There is no salary or minimum wage in Singapore. However, employers who intend to hire foreign employees should consider the applicable minimum salary requirements to qualify for various Singapore work passes.

When should salaries be paid?

Salaries must be paid and payslips must be sent at least once or twice, thrice a month, or at shorter intervals. The salary disbursement depends on your discretion as one’s employer, but most preferably within 5-7 days after the end of the monthly pay period and no longer than that.

Employers must issue detailed payslips for all employees covered by the Employment Act; Appendix 8A and Appendix 8B. A payslip must state essential details, including base salary and benefits, payment date, salary period, overtime pay, annual leave, and all deductions made. 

 

Salary Calculations

Determining monthly wages

For incomplete work months, the employee’s salary and annual leave must be calculated on a prorated basis following the contract, where the employee is only entitled to a prorated share of their salary for the days of the month they worked. An incomplete month is a month in which the employee:

  • Starts employment after the first working day of the month;
  • Takes unpaid leave during the month;
  • Leaves before the end of the month; or
  • Is currently attending national reserve army training for a month.

When calculating the prorated portion of salary for incomplete months, the following formula should be used:

 

Monthly Gross Rate of Pay

      __________________________         x No. of days the employee worked in the month

No. of working days in the month

 

What is gross pay?

Gross pay refers to the amount used to calculate an employee’s wage (hourly) or salary (for salaried employees). It is the total amount of remuneration before removing taxes and other deductions such as medical care, social security, insurance, and contributions to pensions and charities. Gross pay does not include:

  • additional payments through overtime payments;
  • other payments through bonus payments or annual wage supplements;
  • any amount paid to an employee to compensate for particular expenses incurred during their tenure;
  • productivity incentive payments; and
  • travel, food, or housing allowances.

 

Overtime pay

Employers are expected to pay at least 1.5 to 2 times the basic hourly wage for overtime work, i.e., any work performed beyond regular working hours (excluding breaks). Employees can only work up to 72 hours of overtime in a month, and payment for overtime must be made within 14 – 18 days after the last day of the pay period.

The hourly rate is determined as follows:

 

12 x Monthly Basic Rate of Pay

___________________________

52 x 44

 

Salary calculations for unpaid leave and public holidays

If an employee takes unpaid leave during the month, the salary must still be calculated using the monthly gross pay calculation formula. In comparison, public holidays are still considered paid holidays. Therefore, if the employee is required to work on public holidays by the employer, the employee must be paid additional working days in addition to the monthly salary.

You may also want to read this related article:

A Comprehensive Guide to Singapore Employment Act

 

Statutory Contributions

Central Provident Fund (CPF) Contributions

The Central Provident Fund (CPF) is a comprehensive social security savings plan that has given many Singaporean workers a sense of security and confidence for their retirement. 

Employers must pay their employees’ CPF contributions each month if they earn more than $50 per month. In addition, employers have the right to recover the employees’ share from their wages if they make more than $500 per month.

CPF contributions are payable to Singapore Citizens (SC) and Permanent Residents of Singapore (SPR) who are:

  • working in Singapore under a service contract; and
  • employed on a permanent, part-time or casual basis.

Under the CPF Act, employees will receive a salary/wages in exchange for money in connection with their work. This includes:

  • overtime pay;
  • allowances;
  • cash awards;
  • commission; and
  • bonus.

 

Skills Development Levy

Skills Development Levy (SDL) is a mandatory levy that employers must pay for all their employees working in Singapore, in addition to CPF contribution and Foreign Worker Levy. Employees whose SDLs must be paid include:

  • permanent, part-time, non-permanent, and temporary employees; and
  • foreign workers holding work permits and employment passes.

The SDLs collected are channeled into the Skills Development Fund (SDF), which is used to support workforce development programs and to provide training grants to employers when they send their employees for training under the National Continuing Education Training system.

 

Foreign Workers Levy

Foreign worker levy (FWL) is a pricing mechanism to regulate the number of foreign workers in Singapore. The levy liability will take effect when the Temporary Work Permit or Work Permit is issued, whichever comes first. It expires when the permit is canceled or expires.

The levy employers have to pay generally depends on two factors:

  • The worker’s qualifications.
  • The number of Work Permit or S Pass holders hired.

 

Self-Help Group Funds

Self-help groups (SHGs) were formed to uplift less privileged and low-income households in Chinese, Eurasian, Muslim, and Indian communities. The SHGs funds are as follow:

  • Chinese Development Assistance Council (CDAC) Fund, administered by CDAC.
  • Eurasian Community Fund (ECF), administered by the Eurasian Association (EA).
  • Mosque Building and Mendaki Fund (MBMF), administered by Majlis Ugama Islam Singapura (MUIS).
  • Singapore Indian Development Association (SINDA) Fund, administered by SINDA.

 

Statutory Filing and Reporting Requirements

Reporting employee earnings with IRAS

The Inland Revenue Authority of Singapore (IRAS) requires employers to report employee earnings no later than March 1 every year by submitting the applicable forms, namely Form IR8A and Attachment 8A, Attachment 8B, or Form IR8S.

Below is the description of each tax form for employers.

Form IR8A for YA 2022

This form must be completed for:

  • Full-time resident employees;
  • Part-time resident employee;
  • Non-resident employees, including those who are based overseas and are required to provide services in Singapore during the year (excluding details of employment income for which a permit has been applied);
  • Company directors (including non-resident directors);
  • Board members who receive Board/Committee Rewards;
  • Pensioners; and
  • Employees who have left the organization but received income in 2021 (for example, stock option gains).

Appendix 8A for YA 2022

Employers must complete this form for employees who were provided with benefits-in-kind.

 

Appendix 8B for YA 2022

Employers must fill out this form for employees who benefit from an Employee Stock Option Plan (ESOP) or other forms of Employee Stock Ownership (ESOW) plans.

 

Form IR8S for YA 2022

This form must be filled out if employers have made excess CPF contributions on their employees’ wages and/or have claimed or will claim a refund on excess CPF contributions.

 

Tax clearance for employees

Tax clearance is a process to ensure that non-citizen foreign employees have paid all remaining taxes. Employers are required to notify the IRAS via Form IR21 and at least one month in advance if their non-citizen foreign workers are:

  • going to stop working with them;
  • placed on an overseas posting; or 
  • intending to leave Singapore for more than three months. 

Note that tax clearance applies to all work permit holders, including Personalized Employment Pass (PEP) holders.

 

Keeping proper records

From Year of Assessment (YA) 2008 onwards, employers are obliged to keep proper records of all employees’ income and deductions submitted to the IRAS for five years.

 

Filing personal income tax return

It is the employee’s responsibility to file their personal income tax returns. Employees will receive notification from IRAS to file an income tax return for the YA (based on income earned in the previous year).

 

Payroll management mistake every employee should avoid

Success in payroll management doesn’t just involve accurate processing. It also requires proper care, timely disbursement, as well as strict compliance with regulations. For these reasons, many Singapore companies have decided to outsource their payroll-related tasks to trusted corporate service providers.

To ensure smooth payroll management procedure in your company, read these common mistakes you should avoid as an employer.

1. Inability to keep accurate and updated employee details

Incorrect employee account numbers or any changes to employee records such as names or addresses that are not immediately updated in the database can lead to costly errors that may take time to correct and ultimately confuse employees.

 

2. Untrained payroll staff and human error

The human element involved in a payroll processing system (or any management system, for that matter) mostly results in costly errors such as miscalculations and non-standard computational procedures. Even a simple minor mistake can take a lot of time and effort to fix. To avoid such occurrences, consider engaging a corporate service provider that uses the latest technology to handle payroll-related work. 

 

3. Delayed or irregular salary disbursement date

Failure to manage deadlines and perform accurate calculations, as well as pay your employees’ salaries and allocate CPF on time, can cause unnecessary issues and negatively affect your employees’ spending plans or GIRO arrangements.

 

4. Failure to keep and maintain employees’ payroll records

As mentioned above, every company is obliged to keep relevant employees’ records and employment forms whenever necessary. Keeping proper records of employees’ salaries will be helpful when there is a dispute over payments made or when questions arise from the IRAS or other tax regulatory agencies. 

 

5. Compromising employees’ personal and confidential information

Salaries, service contracts, work benefits, and other personal data of employees must be kept confidential. However, with the involvement of the manual process performed by someone incompetent in payroll processing, there is a risk of the employees’ personal information being shared and made accessible to unwanted parties.

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