Understanding Payroll in Singapore: What Global Companies Need to Know About Singapore Payroll
Feb 5, 2017 | Topic: Country Payroll
Southeast Asia is home to some of the world’s most rapidly growing economies, making it a desirable place to expand business operations and achieve key organizational goals. In the heart of the APAC region is Singapore, a highly developed, trade-oriented nation with the third highest per-capita GDP in the world in terms of purchasing power parity.
Singapore’s 5.4 million population enjoys low unemployment and robust activity across a number of sectors, including consumer electronics, information technology products, medical and optical devices, pharmaceuticals, transportation, and financial services.
Singapore offers multinational companies a transparent and friendly business environment, a strong free market economy, and a relatively low complexity for executing payroll operations in-country. In addition to a low corporate tax rate of 17 percent, Singapore’s high standard of living and its position as a gateway to the rest of Asia enable this small nation to offer big benefits to companies of any size!
To take advantage of those benefits, companies should first understand the laws, guidelines, and requirements of payroll in Singapore.
Singapore’s commitment to free trade has created an easy and efficient place for more than 7,000 international companies to do business. Multinational organizations can easily register their businesses, including foreign branch offices, online at the Bizfile site of Singapore’s Accounting & Corporate Regulatory Authority (ACRA). Government approval is generally not required for foreigners to do business in Singapore and 100 percent foreign ownership is permitted (except for banks and other financial institutions, which require approval from the Monetary Authority of Singapore and must obtain certain special licenses).
It is not mandatory to use an in-country bank account in Singapore to make payments to employees or authorities. Depending on the type of business structure you plan to register in Singapore – subsidiary, branch office, representative office, incorporated company, or otherwise – you will need a Singapore office address, at minimum. To set up a branch office, one must appoint two local agents to act on the organization’s behalf.
Singapore’s Employment Act details the rights and duties of an employee under a contract of service with an employer, with the exception of domestic workers, seamen, government employees and those in managerial and executive positions. According to the Act, each contract of service must include the designation title and job scope, hours of work, probation clause, remuneration package, employee benefits, code of conduct and termination. (Note: Companies that fail to comply with any aspect of the Employment Act can face severe fines and possible jail time.)
Singapore offers a strong talent pool, but most companies in Singapore hire foreign employees to supplement their local workforce. Under the Employment Act, a foreigner must have a valid work visa to be able to work in Singapore. If you wish to hire a foreigner, you will have to apply for a valid work pass or work permit on his/her behalf before he/she can commence employment with you. 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 may need to pay a foreign worker levy.
Singapore is one of few developed nations without any set minimum wage, though it is an area of policy that is frequently debated by the country’s leaders. The standard in Singapore is an 8-hour day and 40-hour Monday to Friday work week, though some companies work a 5.5 day week from Monday through to Saturday. Pay is typically monthly and Singapore requires itemized payslips to be issued to all employees, including details of employment such as date of payment, basic salary amount, deductions made, and net monthly salary.
Under the Employment Act, overtime for managers and employees making over 2,000 SGD per month is stipulated via the employment contract. For workers making less than 2,000 SGD per month, there is a maximum of 72 hours of overtime per month paid at 1.5 times of the basic hourly rate.
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 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.
Tax & Social Security Considerations
As for compliance with tax measures, Singapore follows a progressive tax rate starting at 0% and ending at 22% above S$320,000 There is no capital gain or inheritance tax and individuals are taxed only on the income earned in Singapore. 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.
Singapore’s Central Provident Fund (CPF) is the country’s a comprehensive social security savings system that also addresses healthcare, home ownership, family protection, and asset enhancement. Employers are required by law to pay monthly contributions to the CPF for their workers, with the contributions determined by an employee’s wages for a calendar month. Employers must also contribute (on behalf of their employees) to the Skills Development Fund (SDF) at a levy rate of 0.25 percent up to the first $4,500 SGD of gross monthly remuneration. The SDF provides grants to employers who send their employees for training.
All employees who have worked for the employer for at least three months are entitled to paid leave. They receive seven days of annual leave for their first year of service, gaining an additional day for each year of service, up to 14 days after eight years. Employees in Singapore are also entitled to six days of paid childcare leave 14 days of paid sick leave and 60 days of paid hospitalization leave (if certified by a company or government doctor).
Female employees are entitled to take 16 weeks of maternity leave, four weeks taken before delivery and 12 weeks after she gives birth. The employer must pay the usual salary for the first eight weeks of maternity leave, and any pay after that period is voluntary and subject to contractual agreement. If the employee qualifies for government-paid maternity leave, the employer can claim reimbursement from the government, capped at $10,000 per every four weeks of leave.
|Date||Singapore's Public Holiday Schedule|
|January 1st||New Year's Day|
|1st 3 days on the 1st lunar month||Chinese New Year|
|Friday before Easter Sunday||Good Friday|
|May 1st||Labor Day|
|May 10th||Vesak Day/Birth of Buddha|
|June 25th and 26th||Hari Raya Puasa|
|August 9th||National Day|
|September 1st||Hari Raya Haji/Feast of the sacrifice|
|December 25th||Christmas Day|
Though Singapore’s business, employment, and payroll guidelines are fairly transparent, they do involve many nuances not outlined here. By becoming familiar with all of Singapore’s policies and working with a trusted, experienced global payroll service, employers can be sure they are in compliance with all of Singapore’s many requirements and obligations.
This article is for informational purposes only and not intended to convey or constitute legal or any other advice. It is not a substitute for advice from a qualified professional.