Payroll Services in Singapore: What is Payroll Legislation in Singapore?

In this article, you will learn:

1. What is Payroll?
2. What are Various Payroll Services?
3. Payroll Computation
4. Preparation of Payslip
5. Furnishing of IR8A and IR21 Income Tax Forms
6. Preparation and Filing of Monthly CPF Contributions
7. Providing Payroll Reports
8. Leave Management

As per the employment act, you as an employer must pay salary to the employees at least once a month and within 7 days after a specific salary period ends. However, there are certain circumstances like overtime, resignation without notice, and other situations where you need to pay a salary as per the prescribed legislation for the same.

Furthermore, from April 1, 2016, you are required to issue itemized payslips to your employees who are covered by the employment act. In addition to this, you also need to keep detailed employment records including salary records of those employees who come under the purview of the employment act.

This means that payroll is more than just preparing payslips for your employees, calculating incentives or increments, processing deductions, and so on.

Hence, these functions involve a huge amount of effort as well as resources. Therefore, as an employer, you can either carry out such functions with cloud-based payroll software or outsource payroll services to a third party.

So, let’s understand what is an online payroll and what are various payroll services.

What is Payroll?

Payroll refers to the remuneration including all the allowances paid to the employees for the work performed as per a contract of service. That is an agreement between the employer and employee charting out the terms and conditions of the employment.

As per the employment act, you need to pay a salary to your employees at least once a month. However, you can also choose to pay a salary at shorter intervals. Typically, you must pay a salary to your employees within 7 days after the end of the salary period.

In case an employee works overtime, you must pay his salary within 14 days after the end of the salary period. Besides this, there can be certain scenarios when the payment of the final salary can vary.

These are as follows:

What are Various Payroll Services?

• Payroll Computation

You can either pay monthly or daily salary to your employees. Monthly wages refer to paying salary for a month or a complete month where month refers to any of the months in a given calendar year.

It is important to note that daily wages are calculated using either gross rate or the basic rate.

• Gross Rate of Pay

The gross rate of pay includes the basic salary along with the allowances that your employees are entitled to receive as per the contract of service.

However, the gross rate of pay does not include:

• Bonus payments, Annual Wage Supplements (AWS), and overtime payments
• Incentive payments pertaining to productivity
• Reimbursement of certain specific expenses incurred during the course of employment
• Travel, food, and housing allowances

Where is the Gross Rate of Pay Used?

The gross rate of pay is used to calculate:

• salary in place of notice of termination of service
• salary in place of annual leave
• deduction from salary for unauthorized absence from work
• paid public holidays
• approved paid leave including annual leave, maternity leave, and hospitalization leave

How is the Gross Rate of Pay Calculated?

The gross rate of pay for a single day in case of a monthly rated employee is calculated as follows:

(12 x monthly gross rate of pay)/(52 x average number of days an employee is required to work in a week)

Basic Rate of Pay

The basic rate of pay includes the basic pay that you pay to your employees along with any adjustments and increments that your employee is entitled to claim under a contract of service.

However, the basic rate of pay does not include:

• Annual Wage Supplements (AWS), bonus payments and overtime payments
• Reimbursement of certain specific expenses incurred during the course of employment
• Incentive payments pertaining to productivity

Where is the Basic Rate of Pay Used?

The basic rate of pay is used to calculate:

• pay for work on a rest day or a public holiday

How is the Basic Rate of Pay Calculated?

The basic rate of pay for a single day in case of a monthly rated employee is calculated as follows:

(12 x monthly basic rate of pay)/(52 x average number of days an employee is required to work in a week)

• Preparation of Payslip

The employees receive a salary in return for the services rendered by them to their employer. The details of such remuneration are contained in a document that is called a Payslip.

In other words, a Payslip is a document that comprises the components of the salary received by the employee for the services rendered to the employer under the contract of service.

As of April 1, 2016, the Ministry of Manpower (MOM) mandated all the employers to issue itemized Payslips to employees covered by the Employment Act.

What is an Itemized Payslip?

Itemized Payslip is nothing but a Payslip that contains details of information regarding components of salary item by item that is paid to the employees.

The Itemized Payslip is given to all the employees covered by the Employment Act and is given at the time of paying salary to the employee.

If the employer is unable to provide an itemized Payslip to the employee at the time of paying the salary, it must be given within three working days of such payment.

You must remember that an itemized Payslip can be given both as a soft or a hard copy including the handwritten payslip.

Maintaining Payslip Records

As an employer, you are required to maintain a record of all the payslips:

• Of the lastest two years – in case of current employees and
• Of the last two years for a period of one year after the employee has left the employment.

For the itemized payslip components and itemized payslip template, check the article on Payslip Template.

• Furnishing of IR8A and IR21 Income Tax Forms

As per section 68(2) of the Income Tax Act, as an employer, you are required to prepare and file Form IR8A and Appendix 8A, Appendix 8B, or Form IR8S (wherever applicable). This is for employees who are employed in Singapore.

According to the notice issued by IRAS, as an employer, if you have 6 or more persons working as employees, you are required to provide completed and correct return in an electronic format in Form IR8A.

Such a return must be furnished not later than 1st March 2021. Furthermore, if you fail to comply, you would be charged a penalty of not exceeding $1000 and imprisonment for a period not exceeding six months.

Form IR8A that declares remuneration of all of your employees. The details include gross salary, bonus, director’s fees, and other details like allowances, pension, retirement benefits, CPF contributions, etc.

In addition to IR8A, you are also required to file Appendix 8A and Appendix 8B, and IR8S if applicable.

• Appendix 8A is a form that you must complete for those employees who are provided benefits in kind. Benefits in kind may include:place of residence provided to an employee
• accommodation and related benefits provided to the employee
• hotel accommodation
• others including car benefits, insurance premiums, educational expenses, etc
• Appendix 8B needs to be filed in case an employee has derived any gains either directly or indirectly from the exercise of Employee Stock Option Plans (ESOPs) or benefits from other forms of Employee Share Ownership (ESOW) plans.
• Form IR8S needs to be completed if you have made excess CPF contributions on your employee’s wages or have claimed or will claim a refund on excess CPF contributions.

• Preparation and Filing of Monthly CPF Contributions

CPF stands for the Central Provident Fund that is an important part of Singapore’s social security system. It is a mandatory Social Security Savings Scheme that both you as an employer and your employees have to make contributions to every month.

The funds contributed to this scheme serve to meet the retirement, housing, and healthcare needs of your employees.

CPF contributions are payable for Singapore citizens (SCs) and Singapore Permanent Residents (SPRs). Provided such citizens or residents:

• work in Singapore under a contract of service
• employed under a permanent, part-time, or casual basis

Also, company directors, part-time or casual employees, operationally ready NS men on in-camp training, family members of business owners are few other employees who are eligible for CPF contributions. However, if the employee is an SC or SPR working overseas, then it is not mandatory to make CPF contributions for such an employee.

In addition to this, as an employer, you are required to make CPF contributions at monthly rates as prescribed in the CPF Act. You can recover your employee’s share of CPF contribution by deducting such an amount from his salary. Furthermore, you need to ensure that you recover the employee’s share within 6 months in case you fail to recover due to negligence.

Furthermore, the due date to make CPF contributions is at the end of each month. Also, there is a grace period of 14 days to make CPF contributions. In case the fourteenth day is a Saturday, Sunday or a public holiday, then you need to pay the CPF contributions on the next working day.

It is important to note if you are paying the Foreign Worker Levy for your foreign workers, you do not have to pay CPF contributions for them.

Penalty for Non-Compliance to CPF Act

As an employer, if you fail to comply with the CPF act, then you may be liable to:

• late payment interest at the rate of 18% per annum (1.5% per month). Such interest begins from the first day of the month following the month when the contributions are due. Also minimum interest payable in $5 per month.
• a fine up to $5000 and not less than $1000 per offense or up to six months imprisonment
• a fine up to $10,000 and not less than $2000 per offense or up to twelve months imprisonment in case of repeat offenders
• Fine of up to $10,000, and imprisonment of up to seven years or both in case you deduct your employee’s share of CPF contribution but fail to pay the same to the CPF board.

• Providing Payroll Reports

As an employer, you are required to have a proper payroll system in place in order to calculate and generate itemized payslip, submit CPF, make tax filings and make salary payments to your employees.

Performing all such tasks manually is quite cumbersome for the HR manager. This is because it involves:

• preparing employee timesheets,
• maintaining records of employee’s personal and claim information
• maintaining leave calendars
• collecting supporting leave documents
• maintaining other leave information
• undertaking the company’s monthly and year-end statutory filings such as CPF and income tax returns

Therefore, to make the task of the HR manager easier, you can invest in payroll software that helps in performing all such tasks quite easily and quickly.

Besides this, it also generates comprehensive reports pertaining to payroll, employee leaves, employee expense claims as well as timesheets that help you to keep a track of the employee payroll information.

• Leave Management

If your employees are covered under the Employment Act, they get eligible for different types of leaves and can claim entitlements against them. These leaves include:

• adoption leave
• annual leave
• childcare leave
• maternity leave
• paternity leave
• shared parental leave
• sick leave
• unpaid infant care leave

Each of the above leaves has various eligibility criteria. If your employees meet such criteria, then they get entitlements in the form of leaves as well as reimbursements.

These reimbursements are either paid by the employer or government or both. As an employer, you need to be aware of the legislation pertaining to leave eligibility and entitlement.

You need to calculate the leaves as well as apply for claiming reimbursements on various government-run websites. For instance, in order to claim paternity leave reimbursement, you need to apply for the leave or claim reimbursement by accessing profamilyleave.gov.sg.

So, this requires maintaining lot of records and undertaking leave calculations. As an employer, you can either outsource these services or use QuickBooks online, bookkeeping, and accounting software that comes integrated with third-party payroll software such as G Payroll.

This software automates your payroll activity right from making salary payments, generating itemized payslips to auto CPF and tax filings. Such a software also helps in reducing the number of steps needed to process the payroll.

It also takes care of paying your employees via GIRO payments. So, there is no need to make payments to employees via cash or cheque.

In addition to this, the payroll software updates each time there is a regulatory change so that you’re always compliant.