Payroll in Singapore: A comprehensive guide for businesses
Starting a business is easier said than done, even in Singapore. Compliance and payroll in Singapore can be significant pain points for any entrepreneur who is looking to start and run a business in the country.
You need to pay particular attention to Singapore payroll compliance requirements if you want your business to succeed in the country.
Payroll workflow for a business
The amount of money that a business owes to its employees for work done over a given period of time is what constitutes payroll and the management of the same is known as payroll management.
The payroll of any organization is typically the responsibility of human resources or the accounting department of a company.
For small businesses, however, payroll management can be done directly by an associate or the owner themselves.
Even though payroll management is a relatively simple process it can become taxing and requires a good amount of attention to detail.
Payroll in Singapore requires companies to contribute towards CPF and other social security schemes, the Foreign Workers Levy and Skill Development Levy.
Singapore’s employers usually do payroll processing by taking into consideration year-end bonuses, performance evaluations, statutory claims, medical leave, etc.
Typically, a payroll management workflow contains the following processes:
• Setting up of payroll
• Collecting and cleaning data collected on and from employees
• Processing payroll itself
• Churning out payment of payroll and associated payslips
• Submission of statutory requirements
• Making a yearly report for the income tax of individual employees.
Good payroll management is a necessary part of running a business. Not only does it keep employees happy with the company but it also helps keep the company’s finances in check and books on the right side of the law.
Process for payroll compliance in Singapore
The Singapore statutory and payroll compliance process basically covers two main aspects, the Employment Act and what you need to know about minimum wage policy in Singapore:
Employment Act
The primary and main governing law of payroll in Singapore is the Employment Act of Singapore. It covers and stipulates the working conditions and basic terms for all employee types, of course, with some exceptions.
This law essentially governs all things related to the relationship between employers and employees in Singapore. Some of the primary tenets of the Employment Act of Singapore are:
• The Act states that salary must be paid to employees at least at a minimum once a month. The salary must be paid within 7 days after the end of the salary period.
• The Act also states that within 14 days of the salary period overtime owed to the employees must also be paid where applicable.
• The Employment Act does not state a requirement for a bonus payment to employees.
• The Employment Act also requires an itemized payslip, i.e. a written statement of pay must be given to all employees and the document can be formatted in soft or hard copies.
The minimum wage policy in Singapore
Unlike many other highly developed countries, Singapore does not have any provisions or laws that make it compulsory for employers to pay any minimum wages to their employees.
Some key points to note on minimum wages for management of Payroll in Singapore, however, include but are not limited to the following:
• It has been stated by the Ministry of Manpower that the best determinants for wages in the country are demand and supply for labour in the market.
Skills, capabilities and competencies should decide what Employees should thus be paid based on.
• However, the Progressive Wage Model (PWM) is used in Singapore. For certain economic sectors, this model does specify minimum wages.
• The basic monthly salary is what is referred to by the PWM as “wage”. This is the amount without factoring in bonuses, overtime pay or any other extra compensation that employees receive from their employers.
• Minimum wage to be paid under PWM is to be raised as employees upgrade their skills and increase productivity - this is another mandate by the PWM.
Wages had stagnated due to widespread practices of hiring cheap labor in certain sectors. Low-wage workers, thus, are able to enjoy a decent living wage and salary growth under the PWM.
• Given that workers become incentivized to upgrade their skills and increase their productivity, which potentially leads to increased business profits, employers can also stand to benefit from the PWM.
Mandatory levies and statutory requirements for employers
Primarily, the levies and statutory requirements for employers in Singapore cover four aspects - social security, CPF, Skills Development Levy or SDL and Foreign Worker Levy or FWL.
These 4 provisions are mandatory and must be provided by all employers as a part of Singapore payroll regulations.
Social security
All the advantages that the government of Singapore makes available to its residents with the aim of promoting welfare amongst the population through various insurances or schemes are called Statutory Benefits for Social Security.
So, in Singapore, payroll in Singapore’s social security system has three aspects:
• Healthcare
• Retirement
• Social welfare where in Singapore’s comprehensive social security system, CPF (Central Provident Fund) plays an important role.
What is CPF?
The Singapore government gives an extensive social security savings plan to the country’s employees, this savings plan is what is referred to as the CPF or Central Provident Fund.
The CPF is a mandatory social security benefit that must be contributed by both employers and employees via salary deductions and fulfills the retirement, housing, and healthcare needs.
Under the law, it is the obligation of the employer to remit any mandatory CPF contributions to the CPF Board. You need to make the CPF contributions for staff who are,
• Singapore Citizens
• 3rd Year and Onwards Singapore Permanent Residents (SPRs)
• 1st and 2nd Year SPRs jointly applied with their employer(s) to contribute at total employer-full employee rates.
Eligibility
Where there is an employer-employee relationship, i.e. a contract of service, only then CPF contributions are payable in Singapore.
Both the employer and employee’s share of CPF contributions is required to be paid by the employer every month. From the employee’s wages, employers are entitled to get the employee’s share.
CPF is payable only for Singapore Citizens (SC) & Singapore Permanent Residents (SPR) who are:
• Working in Singapore under a Contract of Service (including Directors under a paid salary on top of any fee received)
• Employed under a permanent, part-time or casual basis.
Basis of calculating CPF contribution
CPF is calculated on an employee’s total wages for a calendar month and there are different contribution rates for different age groups and SPR status. The rates are as follows:
- [ "Up to 55 years" ]
- [ "55 to 60 years" ]
- [ "60 to 65 years" ]
- [ "Above 65 years" ]
What type of allowances & payments attract CPF contributions?
Under the CPF Act, wages are defined as “remuneration in money, including any bonus that is due or granted to a person in respect of his employment”.
The types of payments and allowances that CPF contributions can be made on include the following:
• Basic Wages or Salary payable to an employee for work done
• Overtime Pay for employees (basic monthly salaries not exceeding SGD 4,500 & SGD 2,600, respectively)
• Cash Incentives; an example would include productivity incentives
• Allowances; like meal or transportation allowances
• Bonuses; payments made to employees, like performance bonuses
• Commission; examples include sales commissions
What is Skills Development Levy (SDL)?
The SDL is a compulsory levy that is a part of payroll in Singapore. All employers have to pay SDL for all their employees working in Singapore, including foreign employees.
SDL is added to the contribution of the Foreign Worker Levy & CPF. SDL is collected by the CPF Board acting on part of the SkillsFuture Singapore Agency. The Skills Development Fund is where the contribution from SDL collected is channeled.
This fund is used to support programs that upgrade the workforce and to provide training grants to employers sending employees to the National Continuing Education Training system for training purposes.
Typically, all employees of your company will fall under the SDL payable category, however, exceptions are still there:
• Employees who are locally hired, but are working outside the country of Singapore
• Employees who are hired outside of Singapore
• Directors’ fee payments
• Persons who are self-employed
• Interns
• Employees hired by individuals
What is Foreign Worker Levy (FWL)
Commonly known as “levy”, the foreign worker levy (FWL), is a mechanism of pricing used as a form of regulation for the number of foreigner workers in Singapore.
A monthly levy is mandatory to be paid for all Work Permit holders. From the day the Temporary Work Permit or Work Permit is issued levy liability will start, whichever is earlier. Similarly, upon cancellation or expiry, the liability ends.
Understanding the individual tax system in Singapore
A progressive income tax system is followed in Singapore payroll regulations. It is not the obligation of Singaporean employers to withhold taxes from an employee’s salary on a monthly basis.
This means that paying their own taxes is the responsibility of the employees themselves. However, employee remuneration returns must be provided by employers to their employees.
The range of Personal Income Tax in Singapore ranges between 0% – 22%. Incomes above SGD 320,000 are where the highest tax bracket comes into effect. Only Singaporean residents, however, fall under the application of this.
A flat tax rate of 22% is charged for Non-residents (24% from the assessment year of 2024), except that employment income is taxed at resident rates with personal reliefs or at a flat rate of 15%, with whichever a higher tax is yielded.
The remuneration of a non-resident director is not qualified for the reduced rate, and 22% withholding tax (WHT), 24% from the year of assessment 2024, must be deducted from a non-resident director’s payable remuneration.
If employees do not work the full year in the country, the “Not Ordinarily Resident” scheme of Singapore allows these individuals tax relief.
For eligibility criteria to be met, the individual in question must qualify non-Singapore tax resident requirements for 3 years first before they can become a tax resident of Singapore.
They must also be employed by a company incorporated in Singapore, spend upwards of 90 days in a year outside of Singapore for business purposes, and earn at least SGD 160,000.
Eligible individuals can also enjoy tax relief or even a total exemption through the Area Representative Scheme, which apportions time spent working in Singapore to the amount of tax paid.
Even though there is no income tax withholding at source, companies must withhold salary (foreign employees, i.e., non-Singapore citizen employees (including Personalised Employment Pass Holders) under the following circumstances:
• Ceases to work in Singapore
• On overseas posting
• They leave Singapore for any period exceeding 3 months
What are Singapore payroll regulations?
Payroll management Singapore must be done with a good degree of accuracy, this will only be true as the size of your company continues to grow.
Processing, calculating, reporting, and maintaining components of payroll such as allowances, benefits, government remittances, and deductions are all considerations that are extremely essential.
We know there are no minimum wage requirements in Singapore that are explicitly mentioned. However, some key pointers to keep in mind with regards to payroll in Singapore include.
Suggested read: 8 best payroll software in Singapore for small businesses
What is included in the salary?
Salary is the agreed upon remuneration that is owed to an employee by their employer. Salary includes
• Basic pay
• Allowances
• Bonuses
• Commissions
• Incentives
Other benefits that are excluded from salary include
While the aforementioned points are what is included in Salary the ones given below, however, do not make up a part of salary
• Housing
• Medical
• Traveling
• Utilities, etc
Variable components
The 13th-month bonus or Annual Wage Supplement (AWS), bonus, and variable payments can include the variable portion of employees’ wages. Unless these payments are in the employee’s contract these payments are not compulsory:
• Also known as the "13th-month payment", AWS is apart from the total annual wage of an employee, it is a single annual payment. It is not a payment that is compulsory.
Depending on your collective agreement or employment contract, payment is made accordingly. Employers are encouraged to give AWS to their employees for contributing in the company's performance, as a reward.
The amount paid for AWS to employees cannot be paid for more than a salary of 1 month, and if they do not pay any AWS before 26 August 1988.
• A bonus paid one-time is the reward given to the employees for the contributions that they have made toward the success of the company. It is given at the end of the year.
Unless it is specified in the employment contract or collective agreement, giving bonus payments is not compulsory.
• A variable payment is an incentive paid to the employees as a reward for their contributions or to increase productivity. Unless it is specified in the employment contract/collective agreement, it is not a payment that is compulsory.
Authorised deductions
Employers are eligible to impose salary deductions only for a reason or court orders, as per the Employment Act, e. Given below are authorized deductions that can be made by an employer:
• For work absences of an employee (without any valid notifications or reasons)
• For loss or damage of money or goods that the employee was made to be accountable for.
But it must be noted that such deduction is allowed only after an inquiry is held and the deduction must not exceed 25% of the monthly salary of the employee. Impositions such as these can be made as deductions that are one-time only.
• When supplied at the request of the employee, the amount paid for the cost of meals.
• For the cost of accommodation, amenities, and services agreed upon and accepted by the employee, such a deduction cannot exceed the value of the supplies made and cannot be more than 25% of the monthly salary.
• For recovery of loans, advances or salary overpaid. In the case of loans and advances, deductions made can be divided into installments. These installments can be spread throughout a period that does not go over 12 months.
The deduction amount, again, cannot be more than 25% of the monthly salary for each deduction. In the case of salary overpaid, the amount overpaid can be deducted fully from the employee.
• For CF contributions
• For approved schemes
• For payment to any registered cooperative society, with the employee's consent.
• For any other purposes but they must be first approved by the Ministry of Manpower.
Key factors to consider for calculation of payroll
1. Monthly basic rate
This is the basic wage that an employee is entitled to according to the employment contract. The monthly basic rate does not include bonuses, allowances, reimbursements or incentives to be paid.
The basic pay rate is used to compute the pay for working on a rest day or public holiday and overtime pay.
2. Monthly gross rate
Monthly gross rate is the money payable, including allowances, to an employee for one month. However, this does not include reimbursements, incentives, bonuses, and allowances paid for traveling, food, and housing.
The monthly gross rate is used for computing payment for paid holiday/leave, and salary instead of notice of termination and absence from work.
3. Incomplete month and wages
Any month of a calendar year is referred to as a ‘complete month’ for salary. The working days of the Month exclude rest days and non-working days but include public holidays.
A situation to compute wages for an incomplete month may arise in the following scenarios, when an employee.
The employee records must contain the below information
• Employee Address
• Employee NRIC / Work Pass number and date of expiry
• Gender
• Date of joining of employment
• Employment date of leaving
• Working hours (including breaks duration)
• Public holidays & dates of leave taken
Interesting read: 7 MOM approved payroll software for businesses in Singapore
Process of issuing payslips after payroll
Payslips are an integral part of payroll in Singapore. A mandatory ruling by The Ministry of Manpower announced the compulsory issuing of a statement that is written of pay under Singapore’s Employment Act 2016.
This legislation dictated that employers are required by law to provide a payslip that is itemized to all employees. This payslip may be formatted in hard copy or soft copy.
Together with necessary payments, payslips are to be provided by employers. When the two are not provided together the deadline for providing the payslip is within three working days of the employee’s payday.
Payslip together with salary outstanding must be provided for leavers. Payslips are bound by law to give a full description of a comprehensive breakdown of the salary of an employee.
This means that it must include details related to employment such as basic salary amount, date of payment, allowances, deductions made and bonuses, and net monthly salary.
Given below is a comprehensive list of items that are compulsory to be included in a payslip in Singapore:
• Full name of employer
• Payslip item description
• Date of payment
• Full name of the employee
• Basic salary: for hourly, daily, or piece-rated workers
• Allowances paid for salary period (All fixed & ad-hoc allowances)
• Start and end date of the salary period
• Any other additional payment for each salary period like (Bonuses, rest day pay, public holiday pay)
• Deductions made for each salary period
• Overtime pay
• Start and end date of the overtime payment period
• Overtime hours worked
• Net salary paid in total
Reporting employee earnings statutory requirements for employers
By 1 March every year, The Income Tax Act requires employers to prepare Appendix 8A, Form IR8A, Appendix 8B, or Form IR8S for all employees they have who are at that time Singapore-employed.
IR8A
This form is a document that is mandatory in Singapore. It contains the employee’s earnings details. The government also mandates who this form can be prepared for and who cannot:
Do prepare IR8A for
• Full-time resident employee
• Part-time resident employee
• Non-resident employee including those who are based overseas and are required to render service in Singapore during the year (exclude details of employment income where clearance has been filed)
• Company director (including a non-resident director)
• Board Member receiving Board/Committee Member fees
• Pensioner; and
• Employee who has left the organisation but was in receipt of income in 2020 (e.g. stock options gains)
Do not prepare IR8A for
• Foreigners posted overseas after clearance has been filed and did not render any employment service in Singapore for the rest of the calendar
• Foreigners who are contracted by a Singapore employer to be based overseas and rendered their employment services wholly outside Singapore for the whole calendar year; and
• Foreigners who have left the organisation where the filing of Form IR21 is required
Appendix 8A
If any kind of benefits-in-kind are offered by you to your employees, outside of salary all perks that you offer them: a French class, Gym membership, medical insurance, etc, then the Appendix 8A form must be filled out by you.
Unless the benefits-in-kind are exempted from Income Tax or granted an administrative concession, in Appendix 8A, employers need to declare the benefits-in-kind.
Appendix 8B
If you are an employer who derives gains and profits from ESOPs or Employee Stock Option Plans or other forms of ESOW or Employee Share Ownership Plans, this Appendix form must be completed.
In cases where a particular employee has ESOW or ESOP plans, he can either own or buy shares in that company. Any profits and gains will be taxed from the option of the share.
IR8S
If you are an employer and in case you have claimed a refund on excess CPF contributions or have made an excess CPF contribution on the wages of your employee, you need to complete an IR8S form.
Garner the trust and satisfaction from your employees by ensuring that their salaries arrive on time with the best payroll software in Singapore. In turn, you can guarantee that they’ll be motivated and give their best work performance.