The following is a list that all employers should take into account when considering payroll for their workforce and required procedures.
1. Do pensions or social security contributions need to be taken care of?
The Central Provident Fund (CPF) is a social security system that allows working Singapore Citizens and Permanent Residents to effectively save and set aside funds for retirement.
CPF is only applicable for Singapore citizens and Permanent Residents and does not apply to foreign workers with Employment Pass holders. These payments are not compulsory however it is recommended that each employee should set up their own social security contributions.
Singapore does not use the Pay-as-You-Earn (PAYE) scheme of monthly tax deductions from each wage.
The agreed amount (a maximum amount of SGD $3 – $30 depending on ethnic group and income bracket) is deducted monthly from the wages from certain employees. Employees may opt-out if they wish. Contributions are made via employer deductions.
As per legislation to be introduced in April 2016, all employers will have to issue payslips detailing each reduction or addition for all personnel receiving payment and are covered under the Employment Act in Singapore.
Payslips can be supplied in either paper or electronic format. They should be provided at least on a monthly basis, at the same time as the payment transfer or within 3 working days of payment.
Skills Development Levy
Every employer must pay what is called a Skills Development Levy for their entire workforce working in Singapore up to the first SGD $4,500 of gross monthly salaries at a charged rate of 0.25%, subject to a minimum of SGD $2, or whichever is highest.
Tax Clearance Process
Where an Employment Pass holder ceases employment, the employer needs to file the tax clearance return (IR21) to report the employment income up to the last working day in Singapore and withhold any payments due to the employee, until clearance is received from IRAS.
IR21 must be filed 1 month before employee’s cessation of employment or departure from Singapore, whichever is earlier. Employer may be fined up to S$1,000 and also be liable for any unpaid taxes of the employee, if they fail to comply with the tax clearance procedure.
Employment Pass Cancellation
You must cancel an employee’s Employment Pass within 1 week of their termination from the company.
Expense claims and tax payments should be incorporated into the payroll of your business operations. Each type of individual allowance or payment can be defined and the nature of the claim can determine if the Central Provident Fund will accept it or not.