Understanding payroll regulations is crucial for businesses to avoid penalties and maintain a good reputation. For businesses operating in Singapore, there are several key regulations and requirements to be aware of:
Employment Act
This is the main legislation governing employment practices, including payroll. It outlines the minimum terms and conditions of employment, such as salary payment, working hours, and overtime.
Central Provident Fund (CPF)
Employers are required to contribute to the CPF for their employees. Contributions cover various schemes, including retirement, healthcare, and housing. It’s essential to know the correct contribution rates and deadlines.
Income Tax
Employers must ensure accurate withholding and submission of income tax for employees. Singapore has a progressive tax system, and proper tax calculations and submissions are vital.
Annual Leave and Public Holidays
Employers must adhere to regulations regarding annual leave entitlement and public holidays. This includes ensuring that employees receive their entitled leave and compensation.
Work Injury Compensation Act
This act covers compensation for employees who suffer from work-related injuries or diseases. Employers must be aware of their responsibilities under this act, including making the necessary contributions.
Employee Leave Entitlements
Familiarize yourself with the types and amounts of leave employees are entitled to, such as sick leave, maternity leave, and paternity leave.
By outsourcing payroll processing to professional service providers, you can ensure accuracy and compliance. The following is the key regulations relating to payroll in Singapore.
The Employment Act (EA) applies to employees (irrespective of nationality) who are working under a contract of service. It does not include seamen, domestic workers and persons employed by statutory boards and government. All employees under a contract of service with an employer are covered under the Employment Act, with the exception that provisions in Part IV of the Act do not cover managers or executives. From 1 April 2019, wrongful dismissal will be heard by Employment Claims Tribunals instead of the Ministry of Manpower (MOM)
Salary
Singapore does not have a general minimum wage law, there are specific regulations and structures for different sectors and categories of workers. Here’s a detailed breakdown of salary considerations and exceptions in Singapore:
Salary Overview
- Definition: Salary encompasses all forms of remuneration, including basic pay, incentives, commissions, bonuses, and allowances. This sum is mutually agreed upon in the employment contract between the employer and employee.
- Negotiation: Since there is no overarching minimum wage law, the salary is negotiated directly between the employer and the employee. This flexibility allows for various compensation packages based on job roles, industry standards, and individual agreements.
Exceptions and Sector-Specific Regulations
- Work Pass Holders:
Minimum Salary Criteria: Foreigners working under Work Passes (Employment Pass, S Pass, Work Permit) must meet the minimum salary requirements set by the Ministry of Manpower (MOM) for their respective passes. These requirements vary depending on the pass type and the employee’s qualifications and experience.
- Progressive Wage Model (PWM):
Cleaning Sector: The PWM applies specifically to the cleaning sector. It is designed to improve wages and job standards in this industry. As of July 2021, the basic monthly wage for cleaning sector workers was S$1,274, rising to S$1,312 by July 2022. The PWM includes three wage ladders, each corresponding to different job levels and responsibilities within the sector.
Security and Landscape Sectors: Similar frameworks are being implemented for other sectors, such as security and landscaping, to ensure fair wages and career progression opportunities.
Frequency of Payment
An employee must be paid at least once a month and it must be paid within seven days from the end of the salary period. Payments for overtime work must be made within 14 days from the end of salary period. However, there are a few exceptions as below:
| Situation | Salary Payment |
|---|---|
| Dismissal/ Termination of Employee | On the last day of employment or within 3 days from the date of dismissal or termination |
| Resignation by the employee and serves the notice period | On the last day of employment |
| Resignation by the employee and does not serve notice period | Within 7 days from the last day of employment |
Method of Payment
Salary must be paid on a working day and during working hours at the place of work, or at any other mutually agreed place. It may also be paid into an employee’s personal/joint bank account.
Itemised Pay Slips
From 1 April 2016, the requirement to issue itemised pay slips is an important aspect of ensuring transparency and fairness in payroll management in Singapore. Here’s a detailed breakdown of what’s required and best practices for compliance:
- Name of employer and employee
- Date of payment
- Basic salary
- Salary Period – start and end date
- Allowances
- Any other pay such as, bonuses, rest day pay, public holiday pay etc
- Deductions made
- Overtime hours worked
- Overtime pay
- Start and end date of overtime pay period (if different from salary period)
- Net Salary paid
Record Keeping
The employer must keep records of the pay slips in either a soft or hard copy. In the case of current employees, records must be kept for the latest two years and in the case of former employees, the records for the last two years must be maintained for a period of one year after the employees leave the employment. In addition to the salary records, the employer must also keep records of employees. Employee records must contain the following information.
- Address of employee
- NRIC number / Work Pass number and expiry date
- Gender
- Date of commencement of employment
- Date of leaving employment
- Working hours – including duration of breaks
- Dates of leave taken and public holidays
Effective record-keeping is crucial for compliance with employment regulations and for maintaining accurate payroll records. Here’s a detailed overview of the record-keeping requirements for employers in Singapore:
Authorised Deductions
Employers may deduct salary only for reasons allowed under the act, or if ordered by the court. Such authorised deductions can be made for the following:
- For absence from work (without valid reasons or notifications)
- For damage or loss of goods or money that the employee was 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. Such deductions can be made as a one-time deduction only.
- For cost of meals supplied at the request of the employee.
- For the cost of accommodation, amenities and services agreed and accepted by the employee and such deduction cannot exceed the value of the supplies made and cannot be more than 25% of the monthly salary.
- For recovery of advances, loans or overpaid salary. It must be noted that for advances and loans, deductions can be made in instalments spread over a period that does not exceed 12 months and each deduction cannot exceed 25% of the monthly salary. In the case of overpaid salary, the overpaid amount can be fully deducted from the employee.
- For CPF contributions
- For approved schemes
- For payment to any registered cooperative society, with the employee’s consent
- For any other purposes approved by the Ministry of Manpower
The maximum amount of deduction for a salary period is limited to 50% of the total salary. This does not include any deductions made for absence from work, recovery of advances/loans, income tax, and payments to the registered societies that the employee has consented. However, in case of termination, the cap on deductions is not applicable, and the employer is allowed to deduct for all outstanding amounts owed by the employee.
In Singapore, authorized salary deductions are regulated to ensure fairness and transparency. Employers must adhere to specific rules regarding what can be deducted from an employee’s salary. Here’s a detailed overview of the types of authorized deductions and related guidelines:
Variable Components
- Monthly Variable Component (MVC):
- Purpose: Acts as a financial buffer for employers during economic downturns or business setbacks.
- Inclusion: Part of the monthly basic salary and used in calculating overtime payment and CPF contributions.
- Recommendation: Should ideally be 10% of the monthly basic salary and consistent across all employee levels.
- Variable Payment
- Purpose: A monthly incentive designed to enhance employee productivity.
- Compulsory: Not required unless specified in the employment contract or collective agreement.
- Bonus
- Nature: Typically an annual payment, often given at the end of the year.
- Compulsory: Not obligatory unless outlined in the employment contract or collective agreement.
- Annual Wage Supplement (AWS)
- Also Known As: The ‘thirteenth month’s salary’.
- Compulsory: Not mandatory; can be negotiated based on business performance.
- Non-Compliance Penalties
- First-Time Offense: Fines between $3,000 and $15,000 and/or up to 6 months’ imprisonment.
- Subsequent Offenses: Fines between $6,000 and $30,000 and/or up to 12 months’ imprisonment.
Calculating Salary
Monthly Basic Rate
Definition: The basic wage an employee earns, excluding allowances, bonuses and incentives.
Formula:
Monthly Basic Rate = (12 × Monthly Basic Rate of Pay) ÷ (52 × Average Number of Working Days per Week)
Monthly Gross Rate
Definition: The total amount payable, including fixed allowances but excluding bonuses, reimbursements and variable incentives.
Use: Applied when calculating payments for paid leave, absences and notice periods.
Incomplete Month Wages
Definition: Salary calculation for months where the employee does not work the full month, for example when starting or leaving employment mid-month or taking no-pay leave.
Formula:
Salary = (Monthly Gross Rate of Pay ÷ Total Number of Working Days in the Month) × Actual Days Worked
Payment for Work on Public Holidays
Entitlement: Employees are entitled to paid public holidays. Employers and employees may agree to substitute the holiday with another day.
If Working on a Public Holiday:
One additional day’s salary at the basic rate
If hours extend beyond the normal working day, overtime is paid at 1.5 times the basic rate
Payment for Rest Day Work
Definition: A rest day is typically a Sunday or a mutually agreed day off.
Work on Rest Day:
- Employer’s Request: One day’s salary for working half the day; two days’ salary for working more than half.
- Employee’s Request: Half day’s salary for working half the day; one day’s salary for working more than half.
Overtime Payment
Working Hours: Maximum of 8 hours a day or 44 hours a week; no more than 6 consecutive hours without a break.
Overtime Pay: At least 1.5 times the hourly basic rate.
Caps:
Workmen: Earning up to $4,500 monthly.
Non-Workmen: Earning up to $2,600 monthly; overtime capped at $13.60 per hour.
Paid Leave
Annual Leave:
Entitlement: Starts at 7 days for one year of service, increasing by 1 day per year up to a maximum of 14 days after 8 years of service. Encashment: Possible upon termination or at employer’s discretion.
Sick Leave:
Eligibility: For employees with a minimum of 3 months of service. Entitlement: Up to 14 days for outpatient treatment and 60 days for hospitalization for those with at least 6 months of service. Employer Obligation: Covers medical consultation fees and other costs as per contract or collective agreement.
Government Paid Leave Schemes
Types: Childcare Leave
Extended Childcare Leave
Paternity Leave
Shared Parental Leave
Adoption Leave
Employer Obligation: Must honor these leave schemes as mandated.
