Managing Payroll for Your Company in Singapore: All You Need to Know in 2024
This article includes the following topics:
- What is Payroll in a Singapore Company?
- Overview of Key Payroll Legislation in Singapore
- Understanding Key Salary Components as Part of Payroll Process
- Key Payroll Management Rules for Singapore Companies
- Payroll Statutory Compliance Requirements
- Mandatory Employer Levies
- Common Payroll Management Challenges
What is Payroll in a Singapore Company?
Payroll in a Singapore company refers to the structured process of compensating employees for their work. This process includes paying out basic salaries, overtime, allowances, and bonuses, as well as complying with statutory contributions like the Central Provident Fund (CPF) and other mandatory levies.
Ensuring compliance with Singapore’s employment laws is essential in payroll management, as employers are required to follow specific procedures for record-keeping, reporting, and timely payments.
Overview of Key Payroll Legislation in Singapore
Payroll in Singapore is ruled by various employment laws. Modeled after the British legal system, Singapore’s employment laws are designed to strike a balance between protecting employees' rights and supporting employers' interests. The key employment legislation regarding payroll management includes the following acts:
The Employment Act is the primary legislation governing most employment-related matters in Singapore. It covers basic terms and working conditions such as salary payment, working hours, overtime pay, and rest days. However, certain provisions, particularly those related to work hours and rest days, apply only to non-managerial or non-executive employees and “workmen,” such as manual labourers. The Employment Act also plays a key role in payroll management, mandating employers to:
- Pay salaries at least once a month, within 7 days after the end of the salary period.
- Pay overtime (if applicable) within 14 days of the salary period.
- Provide employees with an itemized payslip (in soft or hard copy) that outlines the details of salary and deductions.
Employment of Foreign Manpower Act 1990 (EFMA)Â
The EFMA regulates the employment of foreign workers and sets the rules for obtaining work visas, such as Employment Passes and S Passes. It also ensures that Singapore citizens are given fair employment opportunities, with the Ministry of Manpower (MOM) enforcing these regulations.
Workplace Safety and Health Act 2006 (WSHA)Â
The WSHA focuses on maintaining a safe and healthy work environment. Employers are responsible for implementing safety measures to protect employees from accidents and occupational hazards.
Work Injury Compensation Act 2019 (WICA)Â
The WICA enables employees to claim compensation for work-related injuries or diseases, without filing a civil lawsuit. This ensures a quicker, more cost-effective method of resolving compensation claims.
Personal Data Protection Act 2012 (PDPA)Â
The PDPA dictates how employers manage personal data, ensuring that employee information is protected and handled with care in accordance with privacy laws.
Industrial Relations Act 1960 (IRA)Â
The IRA governs trade unions and their role in maintaining a harmonious relationship between employers and employees. It also provides a framework for resolving labour disputes through collective bargaining, arbitration, and mediation.
For more information you can review our comprehensive guide on Singapore Employment Law.
Guide to Paying Salaries - Key Part of the Payroll Process in Singapore
Paying salaries is a key part of the payroll management process. Let’s take a closer look at the definition of salary and what components it includes under Singapore's employment law.
What is Considered Salary Under Singapore Laws?
Under Singapore law, the terms "salary" and "wage" are used interchangeably. Salary refers to the remuneration an employee is entitled to receive from their employer under a contract of service. It is the agreed-upon payment for work completed, as outlined in the employment contract.
What is Included in Salary?
The salary of an employee typically includes:
- Basic pay: The core amount agreed between employer and employee.
- Allowances: Regular payments made to employees, such as transport or meal allowances.
- Bonuses: Usually annual bonuses.
- Commissions: Payments tied to sales or targets.
- Incentives: Rewards for meeting specific performance criteria.
Benefits Excluded from Salary
Certain payments and benefits are not considered part of an employee's salary, including:
- The value of accommodation, utilities, or other amenities provided.
- Contributions to pension or provident funds made by the employer (such as CPF contributions).
- Travel allowances.
- Reimbursements for expenses incurred during work.
- Gratuities or severance pay upon retirement or discharge.
- Retrenchment benefits.
These excluded items are considered additional benefits rather than part of the core salary.
Key Payroll Management Rules for Singapore Companies
Managing payroll in Singapore demands a high level of accuracy, especially as your company expands. Key aspects like salary amounts, payment frequency, handling incomplete work months, and overtime payments are critical for ensuring compliance. Below are some of the essential payroll management rules based on Singapore’s employment laws.
Singapore's Minimum Wage Policy
Singapore does not have a universal minimum wage. Instead, salary levels are determined through negotiation between the employer and the employee, or via collective bargaining with trade unions where applicable. However, there are specific industries (like cleaning and security) where progressive wage models are applied, ensuring a minimum level of pay.
How Often Should Salary Be Paid?
Under the Employment Act, salary must be paid at least once a month. Employers are allowed to pay at shorter intervals if they prefer. According to the law:
- Salary must be paid within 7 days after the end of the salary period.
- Overtime payments must be made within 14 days of the salary period.
For final salary payments in cases such as resignation or dismissal, the timelines vary:
- Resignation with notice served: Final payment on the last working day.
- Resignation without notice: Payment within 7 days of the last working day.
- Dismissal due to misconduct: Payment on the last working day, or within 3 working days if immediate payment is not possible.
- Employer-initiated termination: Final payment on the last day, or within 3 working days if necessary.
Handling Incomplete Work Months
When an employee does not work a full month, such as in cases of starting mid-month or leaving before the month ends, their salary must be prorated accordingly. If the employment contract does not provide specific guidance on prorated payments, the following formula should be used:
Prorated Salary Calculation: (Monthly gross rate of pay / Total number of working days in the month) Ă— Number of days worked in the month.
Overtime Pay
Overtime work refers to any work performed beyond the standard working hours, excluding breaks. Employees in Singapore are entitled to overtime pay if they meet certain criteria based on their job category and salary.
Who is Eligible for Overtime Pay?
- Non-workmen earning a monthly basic salary of S$2,600 or less are entitled to claim overtime pay.
- Workmen (employees engaged primarily in manual labour) earning a monthly basic salary of S$4,500 or less are also eligible for overtime compensation.
Overtime Rate
The rate for overtime pay is typically 1.5 times the hourly basic rate of pay, calculated for every hour worked beyond the normal hours stipulated in the employment contract. The exact amount of overtime pay can be determined using the Ministry of Manpower’s Overtime Calculator.
Payroll Statutory Compliance Requirements in Singapore
Beyond salary payments, payroll management in Singapore involves adhering to several statutory requirements, including issuing payslips, maintaining employment and salary records, and fulfilling employee income reporting obligations. Let's look more closely at these key compliance areas.
Issuing Payslips under Payroll Statutory Compliance Requirements
As of 1 April 2016, all employers in Singapore are required to issue itemized payslips to employees covered under the Employment Act. This ensures that employees receive clear and transparent documentation of their salary and deductions, promoting compliance with the law and fair labour practices.
Who must receive payslips?
All employees covered under the Employment Act must receive an itemized payslip.
When to issue?
- Payslips should be issued together with the salary payment.
- If it’s not possible to issue them immediately, payslips must be provided within three working days of payment.
- In the case of termination or dismissal, the payslip should be issued along with any outstanding salary.
- Format: Payslips can be issued in either soft copy or hard copy, including handwritten formats.
Items to Include in Payslips
Please refer to the Ministry of Manpower website for the complete list of items that must be included in every payslip.
Employment and Salary Record-Keeping as a Payroll Statutory Compliance Requirement
As of 1 April 2016, all employers in Singapore are required to maintain detailed employment and salary records for employees covered by the Employment Act. Accurate record-keeping is essential for compliance with Singapore’s employment laws and helps ensure that employees are compensated fairly and transparently. Below are the key requirements for maintaining employment and salary records.
Who must maintain records?
All employers must maintain records for employees covered under the Employment Act.
In what format records should be maintained?
Records can be maintained in either soft or hard copy, including handwritten formats.
What is the duration to keep records?
- For current employees: Employers must maintain records for the most recent two years.
- For ex-employees: Employers must keep records for one year after the employee leaves, covering the last two years of employment.
What to Record
Records are categorized into two types: employee records and salary records.
Employee Records
Employers must maintain the following details for each employee:
- Address.
- NRIC number (for Singapore citizens); for non-citizens, the work pass number and its expiry date.
- Date of birth.
- Gender.
- Date of employment commencement.
- Date of employment termination (if applicable).
- Working hours, including meal and break durations.
- Dates and details of public holidays and leave taken.
Salary Records
Salary records should include all the information required for itemized pay slips. Key details include:
- Full name of the employer.
- Full name of the employee.
- Payment date (or dates, if multiple payments are consolidated).
- Basic salary: For hourly, daily, or piece-rated workers, the basic rate (e.g. S$X per hour), and the total number of hours worked, days worked, or pieces produced.
- Start and end date of the salary period.
- Allowances paid: Fixed allowances (e.g. transport), and ad hoc allowances (e.g. uniform allowance).
- Any other additional payments, such as bonuses or holiday pay.
- Deductions made: Fixed deductions (e.g. CPF contributions) and ad hoc deductions (e.g. unpaid leave).
- Overtime hours worked.
- Overtime pay earned.
- Start and end date of the overtime payment period (if different from the salary period).
- Net salary paid in total.
Employee Income Reporting
By 1 March each year, under the Income Tax Act, employers in Singapore are required to prepare and submit specific income reporting forms, including Appendix 8A, Form IR8A, Appendix 8B, and Form IR8S, to the Inland Revenue Authority of Singapore (IRAS) for all employees employed in their company. These forms ensure accurate reporting of employee earnings and benefits for tax purposes. For detailed information on these forms and their filing requirements, please refer to the IRAS website.
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Mandatory Employer Levies in Singapore
In addition to the statutory requirements outlined above, employers in Singapore are also responsible for paying mandatory levies. These levies contribute to various national funds aimed at supporting employee welfare and workforce development.
- CPF Contributions. The Central Provident Fund (CPF) is a mandatory social security savings scheme in Singapore. Both employers and employees contribute to the CPF, which helps employees build savings for retirement, healthcare, and housing. The percentage of CPF contributions varies based on factors like the employee’s age, salary, and residency status. Employers are required to contribute a portion of the employee's salary into the CPF and must make these contributions in a timely manner to avoid penalties.
- Skills Development Levy (SDL). The Skills Development Levy (SDL) is a mandatory contribution that employers must make to support workforce training programs aimed at enhancing employee skills in Singapore. Employers are required to pay the SDL for all employees, including foreign workers. The levy is calculated at 0.25% of the monthly total wages, with a minimum payment of S$2 for employees earning less than S$800 a month, and a maximum of S$11.25 for those earning more than S$4,500 a month. The SDL funds are used to subsidize training programs provided by the SkillsFuture Singapore Agency (SSG) to encourage continuous skill development.
- Foreign Worker Levy. The Foreign Worker Levy is a fee imposed on employers who hire foreign workers on work permits or S Passes. It is part of Singapore’s efforts to regulate the number of foreign workers in the labour market. The levy rate depends on the sector in which the employee works, the worker’s qualifications, and the employer’s foreign worker quota. Employers must factor this levy into their overall payroll expenses when hiring foreign staff.
Common Payroll Management Challenges in Singapore
Payroll management comes with challenges, and even small mistakes can lead to serious consequences. Below are some of the most common issues employers face:
1. Payroll Miscalculations
Errors in payroll calculations, such as incorrect salary, can lead to underpayment or overpayment. This not only creates administrative headaches but also requires financial corrections, which can damage employee trust and lead to potential penalties.
2. Missed Deadlines
Late payments or delayed filings of required forms can result in fines or even legal disputes. For example, if an employer makes a late CPF payment, there will be a late-payment charge of 18% per annum (1.5% each month) or the minimum interest payable, at $5 per month.
3. Complex Payroll Requirements
Managing payroll for a diverse workforce—whether full-time, part-time, or foreign workers—can be overwhelming. For each employee type, there are specific statutory requirements, levies, and entitlements, and this increases the likelihood of errors if not managed properly.
4. Maintaining Payroll Compliance
Singapore’s payroll regulations, including CPF contributions, levies, and mandatory payslips, are subject to change. Keeping up with the latest laws and ensuring payroll is compliant is a continuous challenge for employers. Non-compliance can result in significant fines and legal issues.
5. Lack of Automation
Relying on manual processes for payroll increases the risk of human error and missed deadlines. Implementing payroll software with features like time tracking, automated calculations, and reminders for CPF submissions can reduce these risks and ensure payroll accuracy.
To overcome these challenges, companies should employ experienced payroll professionals and modern payroll solutions to stay compliant and maintain strong employee relationships.
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How We Can Help
At CorporateServices.com, we offer comprehensive support for Singapore company incorporation and compliance, ensuring your business is set up smoothly and in line with all local regulations. Beyond incorporation, we provide payroll management solutions to help you manage payroll efficiently, minimizing risks like miscalculations, missed deadlines, and non-compliance with statutory requirements.
Contact Us today to learn more about how we can assist with launching and supporting your Singapore business!
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