How Is Payroll Calculated in Singapore?

As a small business owner in Singapore, ensuring that payroll is calculated accurately and efficiently is crucial. Between statutory contributions, levies, and compliance requirements, payroll can quickly become complex. A well-managed payroll system ensures employees are paid on time, maintains regulatory compliance, and avoids unnecessary penalties.

This guide will walk you through the key payroll components in Singapore so you can handle payroll with confidence while keeping your operations smooth and compliant.

1. Key Components of Payroll Calculation

Payroll in Singapore consists of multiple components that affect how salaries are calculated. These include:

• Basic Salary – The fixed amount stated in the employment contract.
• Gross Salary – Basic salary plus allowances and bonuses before deductions.
• Net Salary – The amount an employee receives after CPF deductions and other mandatory contributions.

For example, if an employee’s basic salary is $3,500 with a $200 transport allowance, their gross salary becomes $3,700 before deductions.

Understanding these salary components ensures transparent payroll processing, reducing errors and potential disputes.

2. CPF Contributions – A Core Payroll Deduction

The Central Provident Fund (CPF) is a key payroll requirement in Singapore, ensuring employees have savings for retirement, housing, and healthcare. Employers must deduct and contribute CPF accurately to remain compliant.

Latest CPF Contribution Rates (Effective 2025)

For an employee earning $3,700, the CPF contributions would be:

• Employer Contribution: $629 (17% of $3,700)
• Employee Deduction: $740 (20% of $3,700)
• Net Salary After CPF: $2,960

Employers must process CPF contributions correctly and adhere to the latest CPF wage ceiling changes to avoid penalties.

Updates to CPF Wage Ceiling (2025)

These increases mean that payroll systems must automatically account for CPF ceiling changes to ensure compliance.

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3. Skill Development Levy (SDL) – A Key Employer Responsibility

Employers are required to contribute 0.25% of an employee’s total wages to the Skill Development Levy (SDL), with a minimum of $2 and a maximum of $11.25 per employee per month.

SDL contributions fund workforce training and development programmes, making accurate payroll calculations essential for small businesses looking to maximise workforce potential.

For an employee earning $3,700, the SDL contribution would be $9.25.

4. Foreign Worker Levy (FWL) – For Non-PR and Non-Citizen Employees

Employers who hire foreign workers under Work Permits or S Passes must factor in the Foreign Worker Levy (FWL). The amount varies depending on industry and skill level.

Accurate tracking and reporting of FWL payments are necessary for compliance and workforce management.

5. Overtime Pay – Ensuring Compliance with Employment Laws

For employees covered under the Employment Act, overtime pay is required if they work beyond their normal hours.

How to Calculate Overtime Pay

• Hourly Pay = Monthly Gross Salary ÷ (52 weeks × No. of Working Hours Per Week)
• Overtime Pay = Hourly Pay × 1.5 × Overtime Hours Worked

For an employee earning $3,700 with a 44-hour workweek:

• Hourly Rate = $3,700 ÷ 52 ÷ 44 = $16.13
• Overtime Rate = $16.13 × 1.5 = $24.20 per hour

If the employee works 10 extra hours in a month, their overtime pay would be $242.

6. Other Deductions – What Employers Must Track

Payroll calculations must include additional deductions such as:

• Unpaid Leave – If an employee takes unpaid leave, their salary must be prorated accordingly.
• Salary Advances & Loans – Salary deductions for advances must comply with legal limits (not exceeding 50% of total salary per month).
• Income Tax – While not automatically deducted, employees must file and pay income tax themselves.

Keeping accurate payroll records ensures that businesses avoid disputes and penalties.

7. Issuing Payslips and Keeping Payroll Records

Employers must issue itemised payslips for every salary payment. Payslips must include:

• Employee’s basic salary, allowances, and deductions
• CPF contributions (both employer and employee)
• Overtime pay, bonuses, and net salary paid

Employers must keep payroll records for at least two years for compliance with employment laws.

Summary 

Payroll management in Singapore requires attention to detail and regulatory compliance. Here are key takeaways:

1. Payroll components include basic salary, allowances, and deductions.
2. CPF contributions must be calculated correctly, keeping up with the latest CPF ceiling updates.
3. SDL and FWL must be factored in when employing Singaporeans or foreign workers.
4. Overtime pay must be calculated accurately based on Employment Act regulations.
5. Payslips are mandatory, and payroll records must be properly maintained.

Businesses that automate and streamline payroll processes can reduce administrative burden, improve accuracy, and ensure full compliance with Singapore’s payroll regulations.

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