10 things you should know related to payroll in Singapore
1. Work Visas, Quotas & Foreign Worker Levy
There are many types of work visas available for foreigners seeking work in Singapore. The most common are the Employment Pass, S Pass, and Work Permit. The eligibility criteria vary by visa and typically include income level, qualifications and relevant work experience. An application for a work visa usually takes between 4 to 6 weeks.
To encourage the employment of locals, the Singapore government has introduced quotas that limit the number of foreign workers that can be employed on an S Pass or a Work Permit. The quotas vary by industry and sector e.g. quotas are more generous for construction than they are for service industries.
For each employee on an S Pass or Work Permit, employers are required to pay an additional monthly payment known as the Foreign Worker Levy (FWL). The amount payable depends on the employee’s qualifications and the number of foreign employees employed by the company.
2. Work Injury Compensation Insurance
The Work Injury Compensation Act allows employees to make a claim for work-related injuries and diseases without having to file a claim under common law.
Under the Act, employers must purchase workman insurance for the following groups of employees:
- All employees performing manual work, regardless of salary.
- All employees with a salary of SGD 1,600 or below. This salary threshold will increase to SGD 2,100 and to SGD 2,600 from 1st April 2020 and 1st April 2021 respectively.
Note: Employers are required to compensate employees for work-related injuries even if the employee does not fall within the mandatory insurance parameters above i.e. compensation is required regardless of salary, age and nationality.
3. CPF - Singapore’s Social Security system
Social Security in Singapore is known as the Central Provident Fund (CPF). CPF contributions are mandatory for Singaporeans and Singapore Permanent Resident (SPR) employees. Foreign employees are not eligible to contribute to CPF.
Employers who would like to provide quasi-social security support to foreign employees can consider providing an allowance in lieu of CPF, making payments to a tax-efficient Supplementary Retirement Scheme (SRS) account or, if possible, contributing to the employee’s home country social security fund.
4. Non-mandatory fund contributions
In line with Singapore’s multi-racial and multi-religious society, Self-Help Groups (SHG) were set up to uplift the less privileged and low-income households in the different ethnic communities.
Employers are expected to deduct the SHG contributions from their employees’ monthly salary. Employees who do not wish to contribute can submit an opt-out form to the respective SHGs.
5. Bonuses & the 13th month
A 13th-month salary, also known as Annual Wage Supplement (AWS), refers to the payment of an additional month’s salary as part of the employee’s contract.
It is becoming increasingly common for employers to pay a variable bonus instead of, or in addition to, a 13th-month salary. The quantum of the variable bonus is typically dependent upon the performance of the company and the employee.
6. Annual Leave entitlements - Employment Act vs. Market Practice
Employees who have worked for at least 3 months are entitled to paid annual leave per the Employment Act. Employees are entitled to 7 days of annual leave for the first year of service. This increases by one day for each additional year up to a maximum of 14 days.
Many companies offer more than the minimum entitlement. Depending upon the industry, it is common for employers to offer 14 days paid annual leave or more in the first year of service. Management level employees may start with as high as 20 days of annual leave.
Annual leave entitlements are in addition to paid public holidays and paid medical leave entitlements.
7. Government & Military leave
To encourage couples to have children, the Singapore Government introduced Government-paid leave schemes including maternity, paternity, adoption and child care leave. Eligibility and the leave period depends upon the nationality and age of the child.
Singapore requires all male Singaporean citizens to perform National service: military, police or civil defence. National service consists of an initial, full-time, 2-year period following high school. Thereafter, males may be called up for reservist training, typically annually. The reservist obligation ends at the age of 50, for commissioned officers, and 40 for all other ranks.
Employers must grant Military Leave to male employees who receive a call-up notice. Employers can make a claim from the Government for the salary of the employee during the period that he was away on Military Leave.
8. Singapore income tax
There is no income tax withheld as part of the monthly payroll process. Instead, an income tax assessment is conducted annually based on income earnt in the preceding calendar year.
Employers are required to submit employee income information to the Inland Revenue Authority of Singapore (IRAS). IRAS will then inform the employees of their tax liability. The employee is responsible for arranging the tax payment directly to IRAS.
9. Tax resident vs. non-tax resident income tax rates
Singapore tax residents are taxed on progressive income tax rates. Non-tax residents are taxed at the higher of a flat rate or the resident tax rate. Non-tax residents are not entitled to tax relief.
To be regarded as a tax resident, the employee should be physically present in Singapore for at least 183 days in the year. Alternatively, the period of employment should be at least 183 days straddling two consecutive years.
If the work visa is granted for at least one year, the employee will initially be treated as a tax resident even if employment is less than 183 days in the first year. However, the tax residency status will be re-evaluated at the point of tax clearance and an additional tax liability may be imposed if the employee does not meet the tax resident criteria.
10. Tax clearance
Employers are required to file tax clearance for all foreign employees ceasing employment. This filing must be done at least one month before the last day of employment.
Employers are required to withhold all monies due to the employee from the time that the employee is known to be leaving their employment. The amount withheld will then be used to contribute to or settle the employee’s outstanding tax liability with IRAS. If the amount withheld is not sufficient, and the employer failed to file the tax clearance on a timely basis, the employer may be required to settle the shortfall in tax.
The tax clearance process also applies when a Singapore Permanent Resident employee ceases employment. This is unless a signed Letter of Undertaking (LOU) is obtained. The LOU is a declaration by the employee that he or she will not be leaving Singapore after ceasing employment.