Payroll is a critical aspect in any business. It is more than just remunerating your employees for their services; it involves compliance with legal regulations, deductions, and ensuring that employees receive their deserved wages on time. For businesses unfamiliar with payroll procedures, or are looking to optimise their existing processes, this guide will walk you through the essential components of payroll management.
1. Setting Up Payroll for New Employees
The payroll process begins even before the employee’s first paycheck. Setting up payroll for new hires ensures that you have all the necessary information and systems in place to handle payments efficiently and accurately. Here’s what you need to do:
- Collect Employee Information: Gather identifying information from new hires, such as tax forms, bank details, and relevant contracts.
- Determine Salary Structure: Define the type of remuneration system of the new employee— whether they will be paid hourly, salaried, or commission-based. This will have an impact on how you determine their wages and other deductions.
- Set Up Your Payroll System: Select a good payroll management software or system that suits your business size and needs. A good payroll software will assist in wage calculation, record keeping, and help you ensure compliance.
- Employee Benefits and Allowances: Ensure that all allowances or benefits like transportation, housing, and medical coverage are included in your payroll system. These will have to be factored into the overall salary calculations.
2. Deductions and Contributions
Deductions are a significant aspect of payroll. It is important to ensure compliance with legal requirements. Some common deductions include:
- Central Provident Fund (CPF): CPF is a key statutory deduction that Singaporean employees are subjected to. Both employer and employee must contribute to this retirement fund. Your payroll system should calculate the contributions based on salary, age, and other applicable regulations.
- Tax Deductions: Be sure to deduct the correct income tax based on your country’s regulations. In Singapore, employers will have to submit IR8A forms for filing annual tax returns.
- Other Deductions: Other mandatory deductions may include insurance premiums, union dues, or deductions for overpayments or advances.
3. Managing Overtime Payments
Overtime can be complicated, but it is critical to get it right. In Singapore, non-exempt employees who work more than their contracted hours are entitled to overtime pay, typically 1.5x their hourly wage. Here’s how to manage it:
- Tracking Overtime: Employ a proper time-tracking system to log hours worked beyond regular hours. This can be incorporated into your payroll system to enable automatic computation of overtime.
- Legal Compliance: Make sure you comply with local labour laws. In Singapore, employees should not exceed 72 hours of overtime per month, and failure to comply can result in penalties.
4. Payroll for Different Contract Types
It is not easy to manage payroll for employees under different contract types. Here’s a breakdown to handling the most common types:
- Full-Time Employees: Payroll for full-time employees is usually straightforward. They are paid a monthly wage, plus any allowances or bonuses that may be due to them. CPF, taxes, and other benefits are automatically deducted from their pay.
- Part-Time Employees: For part-time employees, you should determine wages in relation to the hours worked. While they may not receive the same benefits as a full-time employee, CPF contributions and other statutory requirements may still be applicable.
- Freelancers and Contract Workers: Payroll for freelancers and contract workers can be different, since they are often paid on a per-project or hourly basis. These individuals are not usually entitled to benefits such as CPF or overtime pay. However, you must ensure that they are paid in a timely manner and as per the agreed terms in their contract.
5. Tax Compliance and Filing
A good payroll system should ensure that your business remains in line with tax regulations. Failure to observe compliance can lead to hefty fines and legal issues. Here’s what to keep in mind:
- Employee Income Tax Forms: In Singapore, the employee IR8A tax form must be filed by all employers to the Inland Revenue Authority of Singapore (IRAS) by 1 March every year. This form summarises the total earnings and deductions of every employee for the year.
- Employer Tax Contributions: Apart from CPF contributions, ensure you are complying with other statutory requirements, such as the Skills Development Levy (SDL) and Foreign Worker Levy (FWL), if applicable.
- Stay Updated on Tax Regulations: Tax laws can change, so it’s vital to stay informed and regularly review your payroll processes for any new laws that have been passed. A well-configured payroll system or software can help you automate and manage tax compliance.
6. Correcting Payroll Mistakes
Everyone makes mistakes, but handling payroll errors quickly and efficiently can prevent bigger issues from forming. Here are a few common payroll errors and how to fix them:
- Underpayment or Overpayment: If an employee has been paid more or less than they should have been, you should rectify the issue immediately. However, remember to be transparent and upfront with the employee.
- Incorrect Deductions: If deductions were calculated wrongly, you can adjust the amount in the next payroll cycle but ensure that the correct amount is reported to authorities.
Check out other common payroll mistakes and ways you can avoid them.
7. Final Check Before Processing
Before processing payroll each month, ensure you’ve reviewed the following:
- All employee information is up to date (i.e. bank details, changes in salary, etc.).
- Overtime hours and deductions have been calculated accurately.
- New employees have been included in the system and departing employees have been removed.
- All relevant contributions (i.e. CPF, taxes, benefits) have been included.
- Payroll have been approved by the relevant authority.
DigiSME: Streamlining Payroll Management for You
Managing payroll for your business doesn’t have to be overwhelming. By understanding the various parts of the payroll process, you can ensure that your payroll process is efficient, compliant, and transparent. Therefore, it is crucial to invest in a reliable payroll system, such as DigiSME’s payroll software.
DigiSME’s payroll software is the complete package that has been designed to optimise every part of payroll process, from calculating wages and overtime pay, to managing CPF contributions and tax compliance. The software integrates seamlessly with other HR functions, such as time and attendance tracking, automating complicated calculations and reducing the chance of errors. With DigiSME’s easy-to-use interface, real-time reporting, and automatic updates to reflect changes in regulations, your business can enjoy smooth and hassle-free payroll management tailored to your needs.
Transform your payroll processing and contact our team at +65 6964 7611 or email us at salessg@digi-sme.com now!