Doing payroll is a necessary, but time-consuming task. Multiply that across the number of employees you may have in your company, each with differing requirements, and you can see why many business owners regard payroll as a tedious chore.
Whether it is your first time or you’ve been doing it for years, it is worth taking note of the following four tips when doing payroll in Singapore.
#1 You Must Issue An Itemised Payslip
Apart from crediting your employee’s salary in a timely manner, you are legally required under the Employment Act to give an itemised payslip. A breach of this rule can result in a fine of $100 to $200 per employee or per occurrence.
Payslips (which can be either soft or hard copy) should be issued at least once a month and given to employees along with their salary. While that’s the ideal scenario, employers have up to 3 working days from the salary payment to provide employees with their payslip.
Aside from being legally required, providing an itemised payslip is a good employment practice for documentation purposes, especially for the avoidance of any future salary dispute. Having payslips also helps your employee understand their salary components.
Payslips for the entire company must be kept for 2 years, while for ex-employees, payslips must be kept for 1 year after the employee leaves.
#2 Types Of Salary Deductions Allowed
Salaries can only be deducted for valid reasons allowed under the Employment Act, or under court orders. The following is a non-exhaustive list of authorised deductions.
Absence From Work
An employee’s salary could be deducted for absences, which usually refers to an incomplete month of work. This could be when an employee joins or leaves the team midway through the month, when no-pay leave is taken or when the employee is on reservist training.
To calculate salary deductions, the basic rate of pay and the gross rate of pay is used. Basic rate of pay refers to wage adjustments and increments that your employee is entitled to as per the contract terms. Gross rate of pay is the basic rate of pay plus allowances that your employee is entitled to according to the contract terms.
Absence from work it is calculated as follows:
For Damages Or Loss Of Money On Goods
You can deduct your employee’s salary if goods such as work gear, tools, equipment and vehicles are damaged and you held an inquiry to establish that it is the direct fault of your employee. This deduction cannot be more than 25% of your employee’s monthly salary and must be deducted as a lump sum.
Recovering Advances, Loans, Overpaid Salary Unearned Employment Benefits
Advances and loans can be deducted from your employee’s salary in instalments, not exceeding more than 25% of their salary. For advances, the instalments must not spread over 12 months.
For overpaid salary and unearned employment benefits, the full sum can be recovered.
Other Common Reasons For Salary Deductions Include:
- For supplying accommodation, amenities and services accepted by your employee
- For CPF contributions
- For payments to any registered co-operative society with your employee’s consent
Whatever the reason(s) for salary deduction, note that the total amount must not be more than half of the total salary payable, except when made for absence from work, recovery of advances, loans, overpaid salary or unearned employment benefits, and payments to registered co-ops. Also, when you are terminating an employee, deductions may exceed 50 per cent of the final salary.
#3 You Should Know About Variable Payments
Variable payments are a type of incentive payment to boost productivity or as a form of reward to employees. Examples include the Annual Wage Supplement (AWS), annual bonus and other performance-based variable payments.
Variable wages are not required by law, and depends on the terms in the employment contract. Whether the probation period is included in your employee’s AWS eligibility or what the bonus amount is depends on what was stated in the contract.
#4 You Must Make CPF contributions, Even On Bonuses
You must make CPF contributions accurately for your employees who are Singapore Citizens and Permanent Residents.
Employers can use CPF EZPay, a free tool, to submit their employee CPF contributions, regardless of the number of employees. There are three ways that employers can make CPF contributions through CPF EZPay: via PayNow QR or Direct Debit; setting up electronic standing instructions within CPF EZPay; and submitting a file in accordance with CPF’s file transfer protocol (FTP).
You have up to 14 days before the CPF contributions are due. Otherwise, a late payment interest of 18% per annum (or 1.5% per month) will be charged. Rates for employees in the private sector are as follows.
Source: CPF Website
Different CPF contribution rates may apply for employees based on their salary.
CPF contributions are payable on bonuses, including Retention Bonus, AWS, sign-on bonus and discretionary bonus, but the amount depends on the CPF Additional Limit of $37,740.
Ordinary Wages (OW)
Ordinary Wages refer the employee’s monthly salary. The OW Ceiling is $6,000 (will be revised to $6,300 from 1 September 2023) per month, which means that is the maximum amount of salary that requires CPF contributions. Even if your employee draws a monthly salary of $7,500, you only have to make CPF contributions on the first $6,000 each month.
Additional Wages (AW)
Additional wages are typically not granted every month. Such wages include bonuses, cash incentives, transport and meal allowances and commissions. CPF contributions payable on AW are capped at the AW Ceiling, which can be calculated as follows:
AW Ceiling for the year = $102,000 – Total Ordinary Wages (OW) subject to CPF for the year
This means even employees who earns more than $6,000 monthly, may be eligible for CPF contributions on their Additional Wages, up to the CPF Annual Limit of $37,740.
Paying Your People On Time And Accurately
While unglamorous, payroll is an important function that is required by law and conveys your appreciation to your employees. Doing payroll in an organised and timely manner projects professionalism and trust in your company and you as a boss.
On the back of an accelerated take up of digital solutions to boost productivity and modernise operational processes, the government’s Start Digital Pack was introduced in 2019 with the aim to help SMEs onboard “foundational and competitively-priced digital solutions”. Such solutions include accounting, digital marketing, cybersecurity and, of course, HR management system and payroll.
These Start Digital Packs are provided through Start Digital Partners, such as OCBC. Currently, OCBC has a partnership with Talenox to promote cloud HR and payroll solutions. Under OCBC’s bundle subscriptions, businesses can sign up for Talenox for free for six months with a minimum 18-month contract period.
This article was first published on 16 January 2020 and has been updated with additional reporting.
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