In this page, you will learn about the Singapore payroll process. We will guide you through the regulatory requirements that Singapore employers must align with, as well as other major considerations in payroll management.
Payroll Management Services
Managing your payroll can become a rather onerous process, especially when your employee headcount begins to grow, along with your business. To ensure compliance with the regulatory requirements, computing and disbursing salaries, as well as calculating, processing and reporting payroll components such as government remittances, benefits, allowances and deductions must be done with care.
This article provides information on the key elements involved in the payroll process and discusses the various Singapore statutory requirements companies are required to align with.
Salary/Wage
The Employment Act defines “salary” or “wage” as all remuneration payable to an employee with respect to his employment, including allowances and bonuses. However, it excludes:
- The value of accommodation, the supply of light, water, medical attendance or other amenities;
- Pension or provident fund contributions paid by the employer;
- Traveling allowance;
- Payments to defray special expenses incurred in the course of duty; and
- Gratuity paid on retirement or any retrenchment benefits payable.
Salary is subject to negotiation and mutual agreement between the employer and the employee. There is no minimum salary or wage in Singapore. However, an employer who intends on hiring foreign employees must consider the minimum salary requirements applicable to qualify for the various Singapore employment passes.
Salary Computation
If an employee works for an incomplete month, he is only entitled to the pro-rata portion of his salary for that part of the month he worked. An incomplete month is a month in which the employee:
- Commenced employment after the first working day of the month;
- Takes any unpaid leave during the month;
- Leaves before the end of the month; or
- Is on national service reservist training during the month.
Note that ‘month’ refers to any calendar month in the calendar year.
When calculating the pro-rata portion of the salary for an incomplete month, the following formula must be used:
Monthly Gross Rate of Pay
_______________________________________ x No. of days the employee worked in the month
No. of working days in the month
Gross Rate of Pay is defined as the total amount of money including allowances to which an employee is entitled under his contract of service either for working for a period of time, that is, for one hour, one day, one week, one month, or for such other period as stated or implied in his contract of service, but does not include:
- additional payments by way of overtime payments;
- additional payments by way of bonus payments or annual wage supplements;
- any sum paid to the employee to reimburse her for special expenses incurred by her in the course of her employment;
- productivity incentive payments; and
- travelling, food or housing allowances.
For example, if an employee who earns a salary of $3000 per month plus a travel allowance of $500 per month took 3 days unpaid leave during the month of April, the employee’s pro-rata salary for April would be $2591. This is computed as follows:
$3000
_____________ x 19 = $2591
22
Statutory Contributions
Central Provident Fund Contributions
The CPF enables working Singaporeans to set aside funds for retirement. CPF contributions are payable to Singapore Citizens and Permanent Residents, and the employer is required to pay the employer’s and employee’s share of CPF contributions monthly for all applicable employees. The CPF contribution is determined according to the rates set out in the CPF Act and are based on the employee’s actual salary earned for that month. The employer may deduct the employee’s share from his salary.
The CPF Act defines salary/wages as remuneration in money due or granted to an employee with respect to his employment. This includes:
- overtime pay;
- allowances;
- cash awards;
- commissions; and
- bonuses.
Wages are classified into 3 categories, namely Ordinary Wages (OW) and Additional Wages (AW). OW are wages due or granted wholly and exclusively in respect of an employee's employment in that month; while AW is wages which are not granted wholly and exclusively for the month. AW examples include annual bonus, leave pay, incentive and other payments made at intervals of more than a month. Total Wages (TW) is the total amount of an employee’s wages for any calendar month, i.e. OW + AW.
CPF contributions are computed based on the employee’s total wages for a calendar month, subject to a maximum ‘ceiling’. The current OW Ceiling is $5000 and the AW Ceiling is computed on a per employer per year basis.
Skills Development Levy
The SDL is used to fund the Skills Development Fund which supports workforce upgrading programs and provides training grants to employers.
Employers are required to make SDL contributions for all employees -- i.e. all local and foreign employees, including casual, part-time and temporary employees. The SDL contribution rate is of 0.25% of an employee's gross monthly remuneration up to the first $4,500, or $2, whichever is higher. Where the employee's gross monthly remuneration is more than $4,500, the SDL is fixed at $11.25.
The SDL must be paid by the employer and cannot be deducted from the employee’s salary.
Check the Frequently asked question on Skill Development Levy
Community-related Funds
Certain members of communities are required to contribute to respective funds. For example, all working Chinese Singapore Citizens and Permanent Residents contribute monthly to the Chinese Development Assistance Council Fund and all working Indians in Singapore who are Singapore citizens, PR or EP holders and from certain ethnic origins in the Indian sub-continent must contribute to the SINDA fund. These amounts may be deducted from the employee’s salary.
Foreign Workers Levy
The Foreign Worker Levy (FWL) is a pricing mechanism implemented by the Government in order to regulate the number of basic skilled foreign workers in Singapore and is applicable to all employees who hold Work Permits or S Passes. The Employer is required to pay the levy, and cannot deduct the amount from the employee’s salary. When computing the levy, MOM will consider the employee’s qualifications and the dependency ratio ceiling (DRC).
National Service
All male Singapore citizens and second-generation PRs from the age of 18 are liable for two years of national service (NS), unless they are exempt. Once this full-time service has been completed, he will become an NS Reservist and may from time to time be called up to perform NS duties and undergo training. The employer is not required to pay the employee his salary during this period; however, the employer must continue to make the CPF contributions.
Statutory Filing and Reporting Requirements
Inland Revenue Authority of Singapore - Income reporting
The IRAS requires employers to report employee earnings by March 1st of each year by submitting the applicable forms, namely Form IR8A and Appendix 8A, Appendix 8B or Form IR8S.
Employers who have 15 or more employees for the entire calendar year or who have received the "Notice to File Employment Income of Employees Electronically" will fall within the scope of the Auto-Inclusion Scheme (AIS) for Employment Income and must submit their employees' income information to IRAS electronically by 01 March of each year.
Companies which don't fall within the aforementioned scope are still encouraged to join the AIS and submit the information electronically.
Withholding Tax for Tax Clearance Purposes
Tax clearance is a process of ensuring that non-citizen foreign employees have paid all outstanding taxes. The employer is required to notify the IRAS via FormIR21 and at least 1 month in advance if a non-citizen foreign employee will cease employment with the employer, be placed on an overseas posting, or intends to leave Singapore for more than 3 months. Note that this obligation applies to all work pass holders including PEP holders.
The employer must withhold all monies, including salary, bonus, overtime pay, leave pay, allowances, and gratuities etc. due to the employee. The monies should be withheld for a period of 30 days from the day the employer notified the IRAS, or until the tax clearance directive is issued, whichever is earlier.
Proper Records
From Year of Assessment 2008 onwards, employers are required to keep proper records of all employees' income and deductions submitted to IRAS for 5 years.
Income Tax Returns
It is the employee's responsibility to file their own personal income tax return. Employees will receive a notification from the IRAS to file an income tax return for the Year of Assessment (based on income earned in the previous year).
Other Payroll Elements to Consider
Unpaid Leave
If an employee takes any unpaid leave during the month, the salary will need to be calculated using the aforementioned formula.
Overtime
Payment of overtime is only a statutory requirement if the employee falls within the scope of the Employment Act. For all other employees, payment for overtime will depend on the Employer’s policy and any agreement between the employee and the employer.
The Employment Act provides that any time worked in excess of 44 hours a week shall be paid at one and a half times the hourly rate. The hourly rate is determined as follows:
12 x Monthly Basic Rate of Pay
_____________________________________
52 x 44
Public Holidays
Public holidays are typically considered to be paid holidays. If the employee is requested to work on a public holiday by the employer, the employee should be paid an additional days pay on top of the monthly salary.
Managing your payroll can become a time-consuming and complicated process. By outsourcing your payroll management to InCorp, you can be assured of an unparalleled service experience. Have some peace of mind, knowing that your company’s payroll is managed in the most efficient manner.
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