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3 Payroll Rules Every Employer Should Know

Labour costs are typically the largest expense for any business. It is a fundamental aspect that affects an organisation’s financials as well as employees’ morale. According to a Paycor report, People Management – Perception vs Reality, which surveyed over 700 CFOs, CEOs and HR leaders globally, it found that majority of CFOs (61%) indicated that the most important HR metric is total labour spend.

A firm understanding of payroll management is essential given that it is every organisation’s largest expense. Poorly managed payroll processes can impact an organisation’s cash flow while late or inaccurate salary disbursements to employees can result in lower productivity levels. Here are 3 key rules that every organisation should be aware of when processing payroll.

Accurate salary and tax calculations

Payroll is directly associated with employees’ compensation. A poor payroll system, missing documents or human error could affect payroll accuracy. Payroll involves more than simply compensating your employees for the time worked. It includes monetary benefits, fixed cash allowances, taxes and in some cases, long term incentives. Improper payroll calculations can mean overpaying or underpaying your employees. It then becomes time-consuming to get the money back from employees or to reimburse them in the next payroll period as it may impact the organisation’s cash flow. Employer and employee taxes are also an important aspect in payroll calculation. Organisations have to ensure that the correct amount of monies are withheld from employees’ salaries for taxes to the appropriate agencies. Incorrect tax calculations could mean paying the wrong amount to these agencies and result in your employees facing problems when they file their annual tax returns.

Timely salary disbursements and tax filing

Employees with direct bank deposit expect their full salaries to be in their bank accounts by payday. In accordance with the Employment Act, employers are required to pay employees’ salaries at least once a month and within 7 days after the end of the salary period. Late payments may inconvenience employees financially. This may also affect employees’ morale and productivity as they are not incentivised to work productively. Non-payment of salaries is also considered an offence in Singapore and organisations may be subjected to heavy penalties in such cases.

Besides timely salary disbursements to employees, organisations are also obliged to file timely tax returns annually to the appropriate agencies. According to Inland Revenue Authority of Singapore (IRAS) and under the Income Tax Act, employers are required to prepare statutory reports for employees who are employed in Singapore by 1 March each year. With the increasing number of mobile employees from Singapore, some employers end up erring on timely tax payments. For non-Singapore citizen employees who are about to cease Singapore employment or plan to leave Singapore for more than three months, employers are required to file the required forms at least one month before the employee leaves. While an extension of 10 days to the deadline is provided for employees paying their own taxes, failure to comply to these requirements may result in hefty fines per employee on the organisation.

Compliance with local labour and tax laws

Labour and tax laws vary from country to country. As such, it is imperative to keep abreast of ongoing changes in terms of labour and tax legislations. Failure to adhere to labour and tax laws may incur heavy penalties for organisations.

There are various ways in which organisations can ensure that they are complying with local labour and tax laws. The first is to educate payroll staff. Staff who are in charge of payroll processing should familiarise themselves with local labour and tax legislations so that they are aware of these statutory contributions and deductions when running payroll. A robust payroll system can also help to ensure that the necessary salary contributions and deductions are accurately worked out during each payroll period.

Payroll is not just about giving out monthly pay packets to employees. It covers everything from salaries, benefits, bonuses, annual leave and more. Managing payroll is no doubt a strenuous jobs and hence, it is imperative that payroll be carried out with utmost accuracy and care.

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