The Payroll System in Singapore

The Payroll System in Singapore

Singapore established itself as a leading financial hub in South East Asia. The core resources in Singapore are in fact human resources. Government have spent top dollars to improve the knowledge and education system to enhance the capability of its people.

Human resources aka HR are part of the managing and recruitment function of a company. One of the predominant tasks for every organization is to timely prepare the payroll and payment of the salary to its employees. Payroll is also crucial as it is an expense which can directly affect a company’s cash flow during pay day. Employer should pay their workers the correct wages stated in the employment contract within seven days of the end of the month. Non-payment or late payment of salary is considered an offence. As per the Singapore Employment Act, it is necessary to issue the pay slip to all the staff either digitally or manually since first April 2016. It ought to embody details like the date of payment, basic wages, allowances, overtime pay, and any deduction such as CPF contribution for employee’s portion and final amount.

 

The Employment Act covers employees under a contract of service with an employer, with the exception of domestic workers, seamen, government employees and those in managerial and executive positions. Each contract of service must include the designation of the employee, job scope and hours of work, leaves, remuneration package, employee benefits and termination. Under the Employment Act, a foreigner must have a valid work pass to be able to work in Singapore. If an employer wishes to hire a foreigner, the company will have to apply for a valid work pass or work permit on his/her behalf before he/she can commence employment. However, there is a quota for how many foreign workers a company can employ and, depending on the pass or permit classification of their foreign workers, employers will need to pay the foreign worker levy.

Employers are expected to keep the records for all the employees for at least two years. Records of ex-employees must be kept for one year after they leave employment.  If an employee works for an incomplete month, he / she are only entitled to the pro-rated portion of the salary for the particular month he/she worked.

The standard number of working hours in Singapore are 8-hour a day and 40hours from Monday to Friday work week, though some companies operate 5.5 day week from Monday to Saturday. 

An employee can only work up to 72 overtime hours in a month. The employee will get compensate at least 1.5 times the hourly basic rate of pay. Payment should be made within 14 days after the last day of the salary period.

If the employee is required to work on a public holiday, the employer should pay to the employee an extra’s day salary or grant the employee off in lieu.

Severance pay is not required in Singapore, but the common practice is to pay between 2 weeks’ to one month’s salary per year of service. If an employee is a resident and if he/she is dismissed by an employer on grounds of misconduct, salary must be paid on the last day of employment. If the contract of service is terminated by an employer, salary must be paid on the last day of employment or within 3 working days from the date of termination.

Different rules apply for foreign workers. To facilitate tax clearance before a foreign employee leaves Singapore, a company is required to withhold all monies due to the employee and inform the Inland Revenue Authority of Singapore (IRAS) via Form IR21 at least 30 days before the date of cessation of employment.

 

The payment of net salary should either be through issuance of cheque or bank transfer. The main key deduction is CPF from the employee’s salary which is applicable to all the Singapore citizens and permanent residents. The CPF is a mandatory social security savings scheme funded by the contribution from employers and employees. It also addresses healthcare, home ownership, family protection, and asset enhancement. The CPF is deductible on the employee’s basic wages, bonuses, paid leave and allowances for the calendar month. The computation of CPF is 20% for the employee and 17% for the employer for all the Singapore citizens. It is the same computation for the 3rd year of permanent residents. There is a different percentage of CPF computation for the 1st and 2nd year of permanent residents. The capped amount for the CPF is $6000. The CPF contribution is submitted by 14th of every month by all the organizations. Besides CPF, employers are also required to make the following monthly contribution

  • Ethnic funds such as CDAC, ECF, MBMF and SINDA, which aim at helping the less privileged in the respective ethnic communities which is deducted from employee’s salary.
  • Skills Development Levy, which provides you with training grants when you send your employees for training. SDL is the compulsory levy that employers have to pay for their employees working in Singapore, on top of the CPF contribution and foreign worker levy. CPF board collects the SDL on behalf of the Skills Future Singapore Agency. SDL is computed at 0.25% based on basic wages or $2 which is higher. The capped amount for the basic wages is $4500 for the SDL.
  • CPF contributions for National Servicemen even if they undergo periodic NS trainings. Employers, however, do not have to pay NS men for the days they are away.
  • In addition, employers hiring foreigners with Work Permits or S Passes will have to pay monthly levies for each worker.

How does the payroll system works in Singapore?

Usually the HR executive will collect data like time-sheets, roosters, allowances, overtimes, other benefits, new joining, resignations, loans, and claims and review it. 

Pay the net salary to the employees after deductions within 7 days after the completing of the salary period.

Submit the CPF for all the local employees, SDL and donations by 14th of every month.

Employers are required to prepare an annual wage report Form IR8A and Appendix 8A, Appendix 8B, or Form IR8S (where applicable) for their employees and pass the documents along to employees by the 1st of March in the year following the employment year.

However, organizations with 15 or more employees are required to submit their employees’ income information electronically to the IRAS, and companies with less than 15 employees can enter this program voluntarily. Under the Auto-Inclusion Scheme, employers are not required to distribute hard copies of the tax form IR8A, as such information is included on pay slips or via their ‘Income, Deductions and Reliefs’ statement available from Singapore’s tax portal.

Under Singapore’s Income Tax Act and GST Act, employers are required to keep proper records of all employees’ income and deductions that have been submitted to the IRAS. Companies that fail to do so may be subjected to penalties or their expenses claimed can be disallowed. To help employers ensure compliance with its record keeping policies, the IRAS offers a comprehensive record keeping guide.

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