One of the biggest milestones of any startup is hiring your very first employee. The hiring process can be more complicated than it seems since there are a number of legal obligations/requirements.
After having organized your new business as lean and mean as possible in order to keep operating expenses low and manageable, there will be a point where you need to consider hiring employees to remain competitive and to grow.Therefore, welcoming one or more helping hands aboard your ship at an appropriate time is an informed decision which you will best know when to take.
Before hiring, you need to understand that having extra manpower brings about a whole range of legal obligations, expenses, liabilities as well as documentation and record keeping required by Singapore’s labour law.
Hiring a local employee is a straightforward matter whereas employing a foreigner will involve some processes which tend to be more tedious and lengthy. You will also need to note that not all applications for Work Pass for foreign employers are always successful, especially when it is a new setup with no track record.
Generally, the legislation that governs the hiring of employees comes under the Singapore Employment Act (“EA”) which is applicable to both local and foreign employees, and Employment of Foreign Manpower Act (“EFMA”) which covers work pass holders.
Once you have decided to hire someone to work for you, the following are some of the necessary considerations to take note of:
- Are you going to hire your employee on full-time, part-time, temporary or contract basis?
- Check on the labour laws applicable to different categories of employees you intend to hire
- What are the visa requirements and application procedures for hiring foreign employees?
- What are the applicable levies, central provident fund (“CPF”) contribution, compulsory insurance coverage (if any)?
- Withholding tax for foreign employees – who is responsible for tax compliance for foreign employees?
- Restrictions related to the termination of an employment contract
Singapore Employment Act (“EA”): Who is Covered?
The Singapore EA covers all employees under a contract of service with an employer, regardless if they are employed on full-time, part-time, temporary or contract basis.
However, the EA does not cover people who are employed as:
- Domestic workers
- Managerial and executive staff
- Statutory Board and government employees
The IV part of the EA stipulates clearly the rest days, hours of work, annual leave and other conditions of service. However, it applies only to
- Workmen (employees doing manual labour) whose basic monthly salary is less than $4500
- Other employees covered by the EA whose monthly salary is less than $2500
The relationship between the employer and employee is usually regulated by an employment contract, and the legislation that governs the hiring and firing of employees is stated clearly in the EA. Employers usually can add clauses to the employment contract but the contract is generally subject to statutory requirements under the EA and common law.
Employment of Foreign Manpower Act (“EFMA”) – Applicable to All Foreigners Employed in Singapore
All persons holding a work pass issued by the Singapore Ministry of Manpower are covered by the EDMA. Work passes include Employment Pass, S Pass and Work Permits.
The EFMA outlines the employer’s responsibilities relating to work passes, including applications, cancellations, medical insurance, levy, cancellation and repatriation.
Employers should have a written contract with foreign employees which covers the amount of salary, work hours, holidays, sick and annual leave.
Verify employee’s eligibility to work / Age restriction
- The first steps in hiring a new employee is to find out whether or not that individual is legally eligible for employment in your company.
- Legal age to work in Singapore is 17 years and above. Children between the age of 13 to 16 are permitted to be employed but there are restrictions on the type of work they can perform.
- Retirement age is 62 years.
Guide to Key Employment Terms (“KET”) and Itemised Payslips
The employment contract must cover the following KET for employees covered by EA:
- Company name
- Employee name
- Employee identification number (usually NRIC or FIN)
- Job title, main duties and responsibilities
- Employment start date
- Place of work
- Whether full-time or part-time or employment duration for fixed term contracts
- Details of working hours / number of working days
- Rest day per week
- Salary period / date of salary payment
- Basic salary and rate of pay
- Fixed allowances and deductions
- CPF contribution (for Singaporean and PR)
- Overtime rate
- Types of leave such as annual leave, hospitalisation leave, childcare leave, maternity leave
- Other benefits: such as insurance, medical, dental benefits
- Probation and notice periods
Issuance of itemised payslips to employees
With effect from 1 April 2016, all employers must issue itemised pay slips to employees covered under EA. An itemised payslip should include the following:
- Full name of employer
- Full name of employee
- Date of payment
- Start and end of salary period
- Basic salary including details such as rate and hours worked
- Allowances paid for the salary period (if any)
- Any additional payments for each salary period which may include bonuses, public holiday pay, rest day pay
- Any deductions made for each salary period such as CPF contributions, no pay leave, absence from work
- Overtime hours worked / overtime pay / start and end date of overtime work
- Net salary paid in total
Keeping of Records
Employers must keep record of all pay slips issued to employees. It can be kept in either softcopy or hardcopy. Retention of records of current employees is for 2 years. For ex-employees, records to be kept for one year after the employee leaves employment.
Making Central Provident Fund (“CPF”) contributions and additional levies
CPF contribution has to be made to all Singapore and Singapore Permanent Resident employees that you hire as long as he or she earns more than S$50 a month.
Besides the above, you are also required to contribute towards Ethnic fund contribution, Skills Development Levy and Foreign Worker Levy (if you have an employee under work permit or S Pass).
For detailed information on this, kindly visit www.cpf.gov.sg.
Reporting employees’ income to IRAS
Singapore Income tax law requires all employers to file their Singapore employees’ earnings using certain prescribed forms by 1st March every year.
Starting from 2016, companies who have more than 10 employees as well as those employees who have received the “Notice to File Employment Income of Employees Electronically” are required to participate in the Auto-Inclusion Scheme. For employers who have less than 10 employees, joining the Scheme is optional.
Employers who are not under the Auto-Inclusion Scheme would have to provide the required forms to their employees (where applicable) by 1 March each year to file their income tax returns:
- Form IR8A - for all employees
- Appendix 8A - for employees having benefits-in-kind
- Appendix 8B - for employees with stock / share option or ownership
- Form IR8S - where excess CPF payments were made
The forms must be submitted to IRAS.
Tax Clearance for Foreign EmployeesWhen a foreign employee terminates his employment in Singapore or plans to leave the country for more than 3 months, the employer has to take care that the employee’s taxes are duly filed. Contacting IRAS and seeking tax clearance for the affected employee is the responsibility of the employer.
The above is not applicable if your foreign employee has worked 60 days or less in a calendar year.
Hiring your first employee in Singapore can be a challenging task which involves a lot of effort. But having a thorough understanding of the Singapore Employment Act, the main labour law of the country, and organizing your hiring process in compliance with the letter of the law will surely help you grow your team without any problem.