Why building payroll for local, foreign workforce is a crucial task

What happens after you’ve set up your company? Here comes the tricky part; building your resources.

What clauses should an employment contract constitute? What payroll computations do you need to be aware of when making CPF payments?

As the laws constantly change, the questions never cease too. It’s a dog-eat-dog world for first-time directors and hiring managers who have just entered the employment battlefield. Fret not, Futurebooks is here to help.

We’ll discuss the key considerations when building a local and foreign payroll for your start-up company in Singapore. The differences that exists, and extra compliance for both locals and foreigners are some points to note.

For starters, it’s imperative to understand that there’s a difference between contract of service and contract for service. Contract of service is to employ a person as an employee whilst the latter is to engage someone as an independent contractor.

CPF rates

Central Provident Fund (CPF) needs to be paid for all local employees recruited by a Singapore entity. The rates of CPF differ based on whether a person is first, second or third year PR or a citizen.

The CPF rates are a graduated rate for first and second year PRs and it is standard for third year PRs and citizens. The standard rate of CPF currently stands at around 15 per cent on total wages for the employer and 20 per cent on total wages for the employee’s contribution.

Self-help funds

These are four self-help groups for the less successful individuals in the respective communities. Contributions vary for each. It is a must for working muslims to contribute whilst the rest are voluntary.

Chinese Development Assistance Council (CDAC)

From 1 September 1992, all working Chinese Singapore Citizens and Permanent Residents should contribute monthly to the CDAC Fund according to the wage level drawn by the employee. For wages less than $2,000, the amount is $0.50 and for wages more than $2,000, the contribution amount is $1.00

Mosque Building and MENDAKI Fund [MBMF]

All working Muslim Singapore Citizens, Singapore Permanent Residents and foreigners are required to contribute to the MBMF according to the wage levels below:

SINDA

All working Indians in Singapore who are Singaporeans and Permanent Residents from the following groups with ethnic origins in the Indian sub-continents, such as Bangladeshis, Bengalis, Gujaratis, Parsees, Sikhs, Sinhalese, Telugus, Pakistanis, Sri Lankans, Goans, Malayalees, Punjabis, Sindhis and Tamils) may contribute a monthly sum to the SINDA fund, according to the income levels indicated.

Eurasian Community Fund (ECF)

All employees belonging to the Eurasian Community (Singapore citizens and PRs) may contribute monthly to the Eurasian Community Fund according to the wage levels below:

Skills Development Levy (SDL) 

This is mandatory. Employers have to contribute for all up to the first $4,500 of gross monthly remuneration at a levy rate of 0.25%, subject to a minimum of $2, whichever is higher.

Tax 

This is a cumbersome area of payroll. Different tax rates apply to tax residents and non-resident individuals. The extent of your tax liability will depend on your tax residency status.

Local employees

•       No withholding tax is applicable

•       No deduction of “tax at source” is required in Singapore

•       Personal taxation is the sole responsibility of the employee.

•       As an employer, you must prepare Form IR8A for all your employees (who are employed in Singapore) by 1st Mar each year (for period covering Jan-Dec of previous year). An IR8A is an annual return summarising all monies paid to an employee. An employee should declare this amount and pay taxes on the same.

•       An alternate to providing a Form IR8A is to be part of Auto-Inclusion Scheme for Employment Income (AIS). Under this scheme, employers submit their employees’ income information to IRAS electronically. You need a minimum of 14 employees to take part in this scheme.

Foreign and PR employees

Tax Clearance is a process of ensuring that your non-citizen foreign employee pays all his taxes when he ceases employment with you in Singapore or plans to leave Singapore for more than three months. So when do you seek tax clearance?

You must seek tax clearance by filing Form IR21 at least one month before the non-citizen employee:

•       ceases to work for you in Singapore; or

•       is on overseas posting; or

•       leaves Singapore for any period exceeding three months.

•       If you are unable to give 1 month's notice, please state your reasons when you file the Form IR21. Unless the Comptroller accepts a shorter notice, employers who do not comply may be liable to a fine up to S$1,000.