What global businesses need to know about payroll in Singapore
Think of an Asian business center and you may well think of Singapore before anywhere else. It’s easy to understand why, as it regularly ranks among global leaders for a pro-business attitude and a lack of corruption. Add in a strong economy that is one of the world’s highest in GDP per capita, and an attractive corporate tax rate of just 17%, and Singapore stands out among expansion opportunities in Asia.
This city state of around six million people has excellent business links around the world. Its location at the heart of south-east Asia makes it a key staging point for exports, and its port is the second-busiest in the world by tonnage of cargo processed. Having English as an official language, in part through its status as a British colony for nearly a century until 1965, is another benefit and has helped it attract many of the 1.5 million employees who have moved to Singapore for work.
Many of the payroll and employment requirements in Singapore are straightforward, but there are some complexities, particularly around hiring foreign labor. This guide covers the key basics on running payroll in Singapore.
Getting Started
Singapore’s authorities have made it particularly quick and easy to complete business registration, with its Economic Development Board claiming it can be done in as little as 15 minutes.
Business registration takes place online at Bizfile, the filing portal of Singapore’s Accounting and Corporate Regulatory Authority (ACRA). Companies can either incorporate a local company or register a foreign branch, and must have a registered name and office in Singapore, as well as at least one authorized representative. Bizfile should also be used to file annual company returns.
Government approval is generally not required for foreigners to do business in Singapore and 100 percent foreign ownership is permitted (except for banks and other financial institutions, which require approval from the Monetary Authority of Singapore and must obtain certain special licenses). You should open a business bank account in Singapore in order to conduct your financial dealings with the Government, although if opting for one of the larger global banks, you can open this from abroad without needing to visit Singapore in person.
Employment Considerations
Singapore’s Employment Act details the rights and duties of an employee under a contract of service with an employer, with the exception of domestic workers, seamen, government employees and those in managerial and executive positions. According to the Act, each contract of service must include the designation title and job scope, hours of work, probation clause, remuneration package, employee benefits, code of conduct and termination. (Note: Companies that fail to comply with any aspect of the Employment Act can face severe fines and possible jail time.)
The maximum working hours in Singapore are eight per day and 44 per week; additionally, employees should never work more than six hours without a break period. Work over and above this counts as overtime, which is limited to 72 hours per month, and employees should not work more than 12 hours a day inclusive of overtime. Overtime pay should be at least 150% of normal rate, but is only paid to ‘non-workmen’ earning SG$2,600 per month (approx. £1,550, $1,950, €1,850) or less, and to ‘workmen’ earning SG$4,500 per month (approx. £2,650, $3,350, €3,200) or less. These figures also represent the maximum caps on overtime pay.
Probation periods are generally three months, although these can be increased to as much as six months through contract negotiations or collective bargaining. Notice periods vary depending on length of service, starting at one day for those with less than six months’ service, increasing to four weeks for employees who have been with the company for at least five years.
Hiring foreign employees is common in Singapore – around 40% of the total workforce are from abroad. However, the rules around employing foreign workers are complex, from visas and work passes to foreign worker quotas that vary by industry. In order to attract only high-quality foreign workers, there is a minimum salary requirement in place that rises with age, starting at S$5,600 per month (approx. £3,300; $4,200; €4,000) for employees aged 23 or under, gradually rising to S$10,700 per month (approx. £6,300; $8,000; €7,600) for those aged 45 or over. Slightly higher rates apply to the financial services sector.
Compensation, Bonuses and Severance
Singapore doesn’t have a national minimum wage as such. Instead, it has a ‘Progressive Wage Model’ (PWM) which aims to gradually increase the salaries in lower-paid jobs over time. Connected to this is the ‘Local Quantifying Salary’ – if a company employs foreign workers, then all local employees not covered by the PWM must be paid at least S$1,600 per month (approx. £900; $1,200; €1,140).
Pay is typically monthly and Singapore requires itemized pay slips to be issued to all employees, including details of employment such as date of payment, basic salary amount, deductions made, and net monthly salary.
The annual ‘13th month’ bonus is not a legal requirement in Singapore, but it is a customary payment that many employees will expect. It’s normally paid around December or January, in time for Chinese New Year. It is also not unusual for these bonuses to be increased to two or three months’ salary if employers have enjoyed a particularly successful year.
Severance pay is normally agreed in employment contracts or through collective bargaining, with the standard level between two and four weeks’ pay per year of service. Different rules apply for foreign workers. To facilitate tax clearance before a foreign employee leaves Singapore, a company is required to withhold all monies due to the employee and inform the Inland Revenue Authority of Singapore (IRAS) via Form IR21 at least 30 days before the date of cessation of employment.
Tax & Social Security
Singapore’s income tax rates are relatively low. The first S$20,000 (approx. £11,800; $15,000; €14,300) earned each year is exempt, after which the first of 12 bands kicks in at 2%. The highest band of 24% applies to earnings over S$1 million (approx. £590,000; $750,000; €715,000).
There is no capital gains or inheritance tax and individuals are taxed only on income earned in Singapore. Employers are required to deduct tax from employees at source and pay it to the Inland Revenue Authority of Singapore (IRAS).
Employers also need to conduct certain tax-related reporting and administrative duties. They are required to prepare an annual wage report Form IR8A and Appendix 8A, Appendix 8B, or Form IR8S (where applicable) for their employees and pass the documents along to employees by March 1 in the year following the employment year. This is mandatory for employers with at least 15 employees, and voluntary for smaller ones.
Under Singapore’s Income Tax Act and GST Act, employers are also required to keep proper records of all employees’ income and deductions that have been submitted to the IRAS. Companies that fail to do so may be subjected to penalties or their expenses claimed can be disallowed. To help employers ensure compliance with its record keeping policies, the IRAS offers a comprehensive record-keeping guide.
For social security, employees pay 20% into the public pension fund, although this rate gradually reduces to 11.5% for employees aged over 55. Employers contribute 17% (reducing progressively to 12% for older employees), plus a 0.25% ‘Skills Development Levy’, and a variable work injury contribution for all manual and low-paid workers.
Singapore also levies extra employer contributions on foreign workers at 350 US dollars per month, plus an extra S$450 a month (approx. £265; $335; €320) if the employee is a skilled foreign worker in Singapore on the S Pass scheme.
Singapore’s Goods and Services Tax is levied at 9%, and corporate tax at a relatively low rate of 17%.
Holiday & Leave
There are 11 days of public holidays in Singapore each year, which employees are entitled to as paid time off. As a sign of Singapore’s multicultural population, these holidays include Chinese New Year, Deepavali and Christmas Day. Paid leave entitlement is relatively low, starting at seven days per year, and rising by one day each year to a maximum of 14 days; however, in practice many companies offer more than the statutory minimum.
Sick leave entitlement is 14 days per year, rising to 60 days in the event of hospitalization, and should be paid by employers at full salary.
Maternity leave entitlement is 16 weeks, and should start between four and eight weeks prior to the due date. The total entitlement reduces to 12 weeks if the child is not a citizen of Singapore. For a first or second child, the first eight weeks are paid at full salary by employers; after this, social security provides maternity pay up to a maximum of S$20,000 (approx. £11,800; $15,000; €14,300). For a third child onwards, the same social security payment applies and employers are not required to make any contribution.
Paid paternity leave is two weeks, to be taken within the first 16 weeks post-birth, and is paid by social security up to a maximum of S$5000 (approx. £3000; $3700; €3600).
In Summary
Singapore is a multicultural country that attracts businesses and labor from all over the world, but it has strict rules in place around foreign workers in particular. Managing these demands, and meeting the cultural expectations of the local workforce, can be tricky if your organization is unfamiliar with the ins and outs of Singapore payroll. It’s therefore strongly recommended to access local expertise to help you get your payroll operational and compliant – and this is exactly where a global payroll partner can help.
This guide is for informational purposes only and not intended to convey or constitute legal or any other advice. It is not a substitute for advice from a qualified professional. Click here to see more country payroll guides from CloudPay.