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Singapore, situated at the southern tip of Malaysia, is now the world's 36th-largest economy, and it ranks second in the World Bank's 2018 ‘Ease of Doing Business Survey’. Many enterprising investors and entrepreneurs are looking to set up shop in Singapore. It has one of Asia's most successful economies, with plenty of room for expansion and development. In Singapore, salary payments, deductions, and variable wages are governed by The Employment Act. There are numerous variables involved in employee cost management, such as salary calculation, payroll laws in Singapore, and so on. The official currency of Singapore is Singapore Dollar (SGD).
When compared to other countries, payroll processing in Singapore to determine employment costs is relatively simple and transparent, making it a highly desirable choice for multinational corporations looking to expand in the region. Payroll laws in Singapore involve specific regulations that must be followed when running payroll operations.
This guide on the payroll in Singapore will assist you in learning more about employee cost & employment costs and ensuring that payroll processing in Singapore is carried out under payroll laws in Singapore. Let’s get started.
Payroll Processing in Singapore
When you hire people in Singapore, you must manage payroll processing in Singapore to understand the employment costs clearly. Every step in this procedure involves:
- Gathering information about employees
Businesses should make a list of all personnel who have joined them and who require payment. Employee profiles should include information like bank account information and addresses, among other things. - Establish precise payroll policies
Organizations should develop clear payroll policies and acquire management approval before implementing anything, including pay policy, leave management, and employee perks. - Payroll calculation
The system should be provided with the recorded inputs for processing payroll, and the net pay is determined after all tax and deduction deductions have been taken into account. - Salary payments
Typically, businesses first check to see if there is enough money in their account, then they send a statement to the bank requesting that they distribute the pay. - Paying the required fees
All required fees, including CPF, the Skill Development Levy, the Foreign Workers Levy, and ethnic funds, must be deducted from paychecks and paid to the appropriate government agencies. - Issuing Salary slips: By payroll laws in Singapore, all businesses are required to provide salary slips to all employees after payroll processing in Singapore
Payroll Calculation in Singapore
In Singapore, the employee costs must be paid once per month and within 7 days of the end of the payroll cycle. According to an employment contract, the Monthly Gross Rate is the sum of money due to an employee for a given month, including any allowances. Bonuses, reimbursements, incentives, and allowances for lodging, food, and travel are not included in this. Instead of providing notice of termination, it is utilized to calculate remuneration for paid time off, vacation, and salary.
Use this formula to get any employee's Daily Gross Rate of pay:
(12 * the employee's monthly gross rate of pay) / (52 * number of days an employee must work each week)
Therefore, if your employee is needed to work five days per week and has a monthly gross rate of SGD 100,000, their gross daily compensation should be computed as follows:
12 * 100,000 / 52 * 5 = 1,200,000 / 260 = SGD 4615.38
Payroll Cycle & Working Hours in Singapore
In Singapore, salaries are often paid before the final working day of each month and the payroll cycle is typically monthly. The working days in a week are Monday to Friday. For all employees in Singapore whose gross monthly wage is less than SGD 2600, the Employment Act Singapore restricts working hours and overtime. According to Singapore's Ministry of Manpower, these workers are only permitted to work a maximum of eight hours per day or 44 hours per week, and they are not permitted to work continuously for longer than six hours at a time.
No employee may work more than 12 hours a day, including overtime, according to the Employment Act.
Payroll Tax in Singapore
Taxation & Payroll Laws in Singapore differ depending on whether your company employs foreign nationals or locals. Individual income tax (IIT) for Singapore employees, social security costs, payroll tax in Singapore, employee compensation insurance, withholding tax, business tax, and permanent establishment concerns are the primary concerns for a foreign company that needs to comply with Tax & Payroll Laws in Singapore.
Social Security Contribution For Payroll Tax in Singapore
The Central Provident Fund (CPF) is a comprehensive social security savings plan in Singapore for employment costs. It provides financial security for many working Singaporeans in their retirement years, including lifelong income, healthcare financing, and home financing. Aside from the employee's CPF contribution, the employer also makes a CPF contribution. The amount withheld for CPF begins at a minimum wage of 5,000 SGD.
Employer and Employee Contribution to Payroll Tax in Singapore:
The employer is required by payroll laws in Singapore to remit any mandatory CPF contributions to the CPF Board. Contributions to social security, also known as the Central Provident Fund (CPF), is required for Singapore citizens and Singapore permanent residents ("SPRs") who work in Singapore.
Employers, on the other hand, are also required to contribute to the Skills Development Fund (SDF) on behalf of their employees at a levy rate of 0.25 percent up to the first SGD 4,500 of gross monthly remuneration as payroll tax in Singapore.
Employee Income Tax Contribution in Singapore
Singapore's income tax system is progressive, which means that higher-income earners pay a proportionately higher tax. The fiscal year runs from January 1 to December 31 of each calendar year, and income is assessed on a year-to-year basis.
Employers in Singapore are not required to withhold taxes from their employee's monthly pay; therefore, it is the employees' responsibility to file their taxes and pay them directly to the local tax authority, the 'Inland Revenue Department (IRD).
Income earned in or derived from Singapore is taxable. Residents are eligible for certain personal allowances and are subject to tax rates ranging from 0% to 22% on income exceeding SGD 20,000. Non-residents, on the other hand, are not entitled to any personal allowances and must pay a flat rate of 22%.
Employees in Singapore are subject to the following Income Tax Contribution rates (as of 2022):
According to Singapore's Income Tax Act and GST Act, all employers must keep a detailed record of their employees' salaries and other deductions, which must be submitted to the IRAS each year. Failure to do so may result in penalties.
Employee Benefits in Singapore
- Public Holidays
There are 11 public holidays in the year. If a public holiday falls on a non-working day, the employee should receive either a day's salary or an extra day off. If the holiday falls on a day of rest, the next workday will be a paid public holiday. - Overtime Pay
Overtime pay for employees covered by the Employment Act is at least 15.00% of the basic hourly rate of pay for eligible employees, with a maximum of 12 hours worked in any one day and 72 hours in a month. The maximum monthly overtime pay for a non-workman is 4,500 SGD, and the maximum monthly overtime pay for a workman is 2,600 SGD. Overtime must be paid within 14 days of the end of the salary period. - Paid Leaves
Employees covered by the Employment Act who have served at least three months are entitled to paid annual leave of at least 7 days in their first year, increasing by one day for each year of service after that. However, it is common practice for employers to grant 14 - 20 days after the first year is completed. - Sick Leaves
After six months of service, an employee is entitled to 14 days of paid sick leave per year if no hospitalization is required, or 60 days if hospitalization is required. - Maternity Leaves
A pregnant employee who has been working for at least three months before the due date and whose child is a Singaporean citizen is entitled to 16 weeks of paid maternity leave. Maternity leave is divided into two parts: up to 8 weeks before the expected due date but no less than 28 days, and the remaining weeks after the baby is born. The maternity leave period is reduced to 12 weeks if the child is not a Singaporean citizen. - Paternity Leaves
After three months of service and within 16 weeks of the baby's birth, the father is entitled to two weeks of paid paternity leave. This leave is paid for by the Government-Paid Paternity Leave Program (GPPL). If they meet the eligibility requirements, adoptive fathers are also eligible for government-paid paternity leave. - Marriage Leave
If an employee marries, he or she is entitled to up to five days of leave. - Severance Pay
Employment contracts/collective agreements in Singapore include "retrenchment benefit" payments due upon termination after two years of service. It is customary to receive 2 - 4 weeks' pay for each year of employment. - Leave for bereavement
Although it is not a statutory right, many Singaporean employers provide employees with two or three days of paid leave in the event of the death of an immediate family member. - 13th Salary
Also known as the Annual Wage Supplement (AWS) is a single annual payment made to employees in addition to their total annual wage. Employers in Singapore must pay 13th salary to employees at the end of the year.
