What Is Payroll Accounting in Singapore: A Comprehensive Guide

Payroll accounting has several key components: employee compensation, payroll taxes, and payroll deduction. Each element plays a critical role in the payroll accounting process, ensuring that employee costs are accurately tracked while meeting compliances. Payroll accounting aids in budgeting and financial planning by providing insights into employee compensation.

Using accounting software ensures accurate and up-to-date records, enhancing financial process efficiency. This integration supports better financial management and aids in strategic decision-making.

Let’s delve deeper into each of these components to understand their significance.

Employee compensation

Employee compensation encompasses various forms, including salaries, bonuses, additional allowances and employee commissions, which are the gross earnings of an employee. Gross earnings refer to the total amount earned by an employee before any deductions are made.

Creating precise payroll journal entries captures all financial transactions accurately.

Payroll taxes

In Singapore, employers are required to contribute 17% of employees’ monthly wages to the Central Provident Fund (CPF), capped currently at SGD 1,156 per month (2024: SGD 1,156; 2025: SGD 1,258; 2026: SGD 1,360). Additionally, the Skill Development Levy (SDL) is another mandatory contribution, calculated at 0.25% of monthly wages with a specific minimum and maximum amounting to SGD 11.25. These contributions are critical for compliance with Singapore’s regulatory framework.

Unlike many other countries, Singapore does not impose payroll tax withholding. Instead, employees are responsible for filing state income taxes individually while employers manage other statutory obligations, such as the foreign worker levy and the newly launched SkillsFuture Jobseeker Support scheme, whose contribution operates similarly to unemployment taxes in other countries.

Payroll deductions

Payroll deduction refers to the amount removed from employee salary before issuing a payout. These deductions can be categorised into mandatory and voluntary types. Mandatory deductions include contributions to the Central Provident Fund (CPF), which covers retirement, healthcare, and housing needs. Voluntary deductions may include contributions to additional health insurance or savings plans. CPF contributions help reduce an employee’s taxable income, potentially lowering tax liabilities for the employee.

Payroll deductions are calculated by determining gross pay, subtracting CPF contributions, withholding tax (if applicable), and then deducting any post-tax items to arrive at net pay. Errors in this calculation can result in serious consequences, such as penalties from authorities like IRAS or delayed payouts.

In Singapore, payroll accounting involves several types of entries that ensure proper tracking of employee wages, taxes, and statutory contributions. These entries are crucial for maintaining accurate financial records and ensuring compliance with legal requirements. The primary types of payroll accounting entries include gross salary, deductions, and employer CPF contributions.

Each type of entry serves a specific purpose within the payroll accounting process. Gross salary entries capture the total earnings of employees before any deductions. Deductions entries account for mandatory and voluntary deductions from employees’ salaries. Employer CPF contributions represent the employer’s share of contributions to the Central Provident Fund.

Let’s explore each type in detail.

Gross salary

Gross salary refers to the total earnings of an employee before any deductions are made. This includes basic pay, overtime, allowances and bonuses.

Accurate recording of gross salary is essential for calculating payroll expenses and ensuring that employees receive their correct compensation.

Deductions

Payroll deductions include CPF contributions, income tax withholdings, and other withholdings such as insurance or loan repayments. Properly recording these deductions is crucial for compliance purposes, ensuring that net pay in each pay period is accurately calculated. Your employee's net pay is its gross salary minus all necessary deductions.

Employer CPF contributions

Employer CPF contributions are recorded as an additional payroll expense. These contributions are mandatory and must be accurately calculated and recorded to ensure compliance with Singapore’s regulatory requirements.

Setting up payroll accounting in Singapore involves several essential steps to ensure compliance and efficiency. The process begins with registering your business, followed by registering as an employer with the CPF Board, and finally, classifying your employees accurately. Each of these steps is crucial for setting up a robust payroll system that meets all regulatory requirements.

Establishing your accounting system ensures compliance, streamlines the process, reduces errors, and enhances efficiency. Let’s break down these steps in detail.

Register your business

To set up payroll accounting in Singapore, the first step is to register your business with the Accounting and Corporate Regulatory Authority (ACRA). You must appoint at least one local director and one company secretary. Proper registration is essential for legal compliance and for establishing a foundation for your payroll system.

The payroll process workflow involves a series of steps to ensure timely and accurate employee compensation. It starts with collecting employee hours and ensuring compliance with labour regulations, followed by calculating contributions and taxes, and finally, disbursing payments. This workflow is designed to streamline the payroll process and minimise errors.

Understanding the payroll process workflow ensures that all payroll tasks are completed accurately and on time, enhancing employee satisfaction and maintaining compliance with legal requirements. Let’s explore the key steps in this workflow.

Calculate CPF contributions

Calculating CPF contributions is a critical step in the payroll process. Employers must calculate these contributions based on the employee’s wages and prevailing CPF rates. Utilising online CPF calculators can simplify this process, ensuring accurate calculations based on employees’ monthly salaries. Staying informed about changing CPF contribution rates and salary ceilings is crucial for payroll accuracy.

The total CPF contributions are calculated based on an employee’s ordinary and additional wages, applying the relevant contribution rates and rounding off to the nearest dollar. Employers can recover the employee’s share of CPF contributions from their wages for the month, with specific rounding rules applied to the calculations.

Calculate withholding taxes

Withholding tax is another critical aspect of the payroll process. In Singapore, withholding tax is calculated based on flat tax rates (15% to 22%), which vary according to the employee’s type of income. Employers must consider both resident and non-resident tax rates when calculating withholding tax.

Taxable income for employees includes all employment-related earnings, such as wages, bonuses, and allowances. Employers must prepare an annual income tax report (IR8A) for each employee, due by February 28 of the following year.

Calculating income tax and withholding tax accurately is essential to avoid tax penalties and ensure compliance with legal requirements.

Submit income tax filings

Submitting income tax filings is a mandatory requirement for employers in Singapore. Employers must submit the IR8A form to the Inland Revenue Authority of Singapore (IRAS) by February 28 each year.

Accurately completing and submitting income tax forms by deadlines avoids tax penalties and ensures compliance.

It is crucial to manage payroll expenses effectively if you want to gain insights into your company's labour costs and their impact on your overall cash flow. Payroll expenses include employee wages, salaries, benefits, payroll taxes, and other contributions. Accurate tracking of these expenses helps businesses make informed hiring decisions and assess their financial health.

Payroll systems can tag expenses and run detailed reports to provide a comprehensive view of total employee costs. Proper management of payroll expenses impacts net income or loss and affects profit analysis. Companies can record payroll expenses weekly, biweekly, or monthly, depending on their systems.

Tracking payroll costs

Tracking payroll costs involves considering all expenses incurred to process payroll, including direct compensation, indirect compensation, withholding taxes, and payroll liabilities. Using payroll software can significantly reduce errors and automate calculations, making the tracking and management of payroll expenses much easier. You should also take into account accrued wages, which are wages that have not yet happened but will be paid out in the future.

Ensuring that payroll liabilities are paid to various agencies on time and managing the accrual of payroll expenses are crucial aspects of tracking payroll costs.

Payroll liabilities vs. payroll expenses

Payroll liabilities refer to money that you owe and have not paid yet, such as unpaid amounts owed to agencies like CPF and accrued wages (accrued liabilities). Payroll expenses refer to the costs associated with paying your employees. These expenses are paid and reset on a monthly basis.

Proper management of payroll liabilities requires adherence to due dates and remittance processes to avoid legal and financial penalties.

Accounting software comes with significant benefits, including organised payroll documents, automated tasks, and reduced calculation errors. Automation ensures accurate payroll accounting by minimising human errors and streamlining the payroll process.

Moreover, payroll software often includes features that simplify payroll functions, such as tax and deduction calculations and compliance support. These features are particularly beneficial for businesses with complex payroll needs, as they enhance management agility and employee satisfaction.

Let’s delve into the specific benefits of using accounting software.

Reducing errors and automating calculations

One of the primary benefits of using payroll software is the reduction of errors through automation. Payroll software can automatically transfer hours worked from timesheet systems, simplifying payroll calculations and ensuring accurate payroll accounting. This automation minimises the risk of human errors, leading to more accurate and timely payroll processing.

Integration with financial systems

Integrating payroll software with other financial systems allows for more streamlined operations and minimises discrepancies in financial records. This integration enhances the efficiency of financial transactions and ensures that all payroll accounting entries are accurately recorded, contributing to better financial management and decision-making.

Employee self-service features

Employee self-service features in payroll software empower employees to manage their own payroll information, improving transparency and convenience. An online payroll solution can provide employees with access to their payroll information online, directly connecting to employee bank accounts, enhancing engagement and satisfaction with the payroll process.

Choosing the right tool for payroll is essential for compliance, efficiency, and effective employee management. When selecting payroll software, it’s crucial to consider your company’s size, budget constraints, and the resources available internally. Evaluating payroll software options based on functionality, cost, user-friendliness, and support services ensures that the payroll solution fits your company's needs.

Top payroll services offer comprehensive features such as automated tax calculations, direct deposit options, and compliance support. These services can significantly enhance payroll management, making the process more efficient and reducing the risk of payroll errors.

Let’s explore key factors for evaluating payroll software options and highlight some top payroll services.

Evaluating payroll software options

When evaluating software options, it’s important to consider essential features like:

• Automatic statutory deduction submission
• Flexible benefit plans
• Seamless ERP integrations
• Automated calculations

These features help streamline payroll tasks, enhance accuracy, and fit the unique needs of the business.

Your company’s size, budget constraints, and available resources are all important aspects to consider when choosing software for payroll.

User-friendly and efficient payroll software contributes to successful payroll processing. The right solution should improve payroll management, overall employee satisfaction and compliance with legal requirements.

Top Payroll Services

Several top payroll service providers offer specialised solutions for businesses in Singapore. Osome provides cost-effective payroll solutions with a team of certified accountants specialising in payroll management.