When setting up a business in Singapore, payroll compliance is one of the most crucial aspects you need to understand as an entrepreneur. Singapore has strict labor laws to ensure fair treatment and compensation for employees. Managing payroll inaccurately could result in financial penalties, damaged employee trust, or even legal trouble.
This blog highlights 20 critical payroll laws in Singapore that every entrepreneur needs to know. From statutory deductions to leave entitlements, we’ll break down the essentials to keep your payroll practices compliant and stress-free.
Understanding Payroll Compliance in Singapore
Before we jump into the specifics, it’s critical to understand the framework that governs payroll in Singapore. Employment practices are guided primarily by the Employment Act, which covers employees under specific terms unless they fall under managerial or executive roles earning above SGD 4,500 monthly. For many entrepreneurs, this Act is the starting point for payroll planning.
Now, below are the 20 payroll laws every business owner in Singapore should know.
1. Employment Contracts are Mandatory
According to the Employment Act, employers must provide employees with clear terms of employment in writing within 14 days. Employment contracts typically outline the hours of work, salary, and benefits. Failing to include specifics about payroll Singapore practices could lead to disputes and liabilities.
2. Minimum Wage Policies for Government Contracts
While Singapore does not enforce a compulsory minimum wage for most industries, specific government contracts require adherence to the Progressive Wage Model (PWM), particularly for sectors like cleaning, security, and landscaping.
3. Frequency of Salary Payments
Salaries must be paid within 7 days after the end of the salary period. For overtime pay, the payment should be processed within 14 days after the salary period. Delaying wages can result in severe penalties under the Employment Act.
4. Compulsory CPF Contributions
The Central Provident Fund (CPF) requires employers to contribute a portion of their employees’ salary into this social security fund. The percentage varies based on the employee’s age and wage. Ensure accurate calculations to remain compliant.
5. Overtime Regulations for Non-Executive Employees
For employees earning SGD 2,600 or less monthly, overtime must be compensated at 1.5 times the hourly basic rate. Overtime is applicable for hours exceeding 44 per week.
6. Payslips Must Be Provided
Employers are legally required to issue itemized payslips to employees. The payslip should include gross salary, CPF contributions, overtime details, and other deductions.
7. Statutory Leave Entitlements
Under the Employment Act, employees are entitled to paid leave such as Annual Leave (minimum 7 days for the first year), Childcare Leave, Maternity Leave (16 weeks), and Sick Leave. Employers must keep records for at least two years.
8. No Salary Deductions Without Consent
You cannot deduct an employee’s salary without obtaining written permission unless it aligns with statutory obligations like CPF contributions or penalties for damage caused by the employee.
9. Public Holiday Overtime Pay
Employees required to work on public holidays are entitled to an extra day’s salary or a compensatory day off.
10. Termination Payments Timeline
For terminated employees, the final salary, including unused leave balances, must be paid within 7 days of the termination date.
11. Contractors vs. Employees
Ensure correct classification of contractors and employees. Misclassifying employees to avoid CPF payments or leave entitlements can lead to hefty penalties.
12. Statutory Bonus Payments
While Singapore does not mandate a 13th-month bonus, known locally as the “AWS” (Annual Wage Supplement), employers must adhere to contractual agreements related to bonus payouts.
13. Foreign Worker Levy
If your company employs foreign workers, you are required to pay a foreign worker levy. The rate will depend on the sector and number of foreign workers employed.
14. Work Injury Compensation Act (WICA)
Employers must ensure all employees, including foreign workers, are covered under the WICA. This Act provides compensation for work-related injuries, which the payroll team must factor into their budgets.
15. IRAS Income Tax Obligations
Salaries, commissions, and bonuses are taxable under Singapore’s income tax regulations. Employers must file income tax forms like IR8A and provide them to the Inland Revenue Authority of Singapore (IRAS) annually.
16. Makeup Pay for NS Employees
Employees undergoing National Service (NS) are entitled to a Makeup Pay for any income they lose during their service. Employers must accurately calculate and disburse this amount.
17. Salary Payments Via Bank Transfer
While cash payments are allowed, using electronic bank transfers is encouraged for transparency and record-keeping. Electronic payments also make it easier to track statutory contributions and deductions.
18. Record-Keeping is Required
Employers must maintain records detailing employment terms, salary history, CPF contributions, and leave details for at least two years.
19. No Discrimination in Payroll Practices
The Tripartite Guidelines on Fair Employment Practices prohibit payroll decisions that discriminate based on gender, age, nationality, or race. Regular audits on payroll fairness are advisable.
20. Penalties for Non-Compliance
Failure to comply with payroll laws can lead to fines, imprisonment, or both. For example, neglecting CPF contributions can result in fines of SGD 5,000 per offense or 6 months of imprisonment for repeat offenses.
Final Thoughts: Compliance Is Key to Building Trust
Payroll compliance isn’t just about avoiding penalties; it’s about building trust with your employees and contributing to an ethical business culture. By adhering to Singapore’s payroll laws, you create a win-win for your business and your team.
If you’re feeling overwhelmed by the complexities of payroll management, consider investing in reliable payroll software or seeking the expertise of a professional payroll service provider. Staying compliant will free up your time so you can focus on growing your business.
