Independent Contractors & Employment Guidelines in Singapore
There are no local limitations on the use of independent contractors.
Fixed-term contract limitation
There is no limitation on the duration or renewal of fixed-term contracts.
What makes someone an employee
No single conclusive test may be used to distinguish between employees and contractors. Rather, the Courts will consider a variety of factors, such as:
An employer exercises control over the work process, method, timing and location and is ultimately responsible for providing work. An employee is subject to the rules and regulations in the workplace and may be subject to disciplinary actions in the event of breaching the employer’s rules.
Ownership of the tools or equipment used
An employer provides the required tools or equipment used by the employee.
Method of remuneration
The method of remuneration may indicate whether a contract of service exists between two parties, as employees are typically compensated regularly while contractors are paid through commission or lump sum payments.
Obligation to work solely for the employer
An employment relationship is typically exclusive, and employees are expected to devote their time and attention within the work hours to their job.
Employee vs contractor
The Employment Act, which regulates worked hours, and rest days, sets certain minimum standards of employment and benefits that apply to employees. This includes annual leave, paid medical leave, public holiday pay and overtime pay. On the other hand, contractors are not entitled to any specific employee benefits.
Moreover, employees benefit from protection from termination, which stipulates that contracts may be terminated by agreement, performance or expiry, frustration, repudiatory or fundamental breach, and giving notice. Employees who believe they have been unfairly dismissed may appeal to the Singapore Minister for Manpower. In contrast, contractors do not benefit from protection from termination and often simply have a termination clause with a notice period, usually shorted than the period of an employee.
In regards to taxes, employers are responsible for paying contributions into CPF, which funds pensions, for employees who are Singapore citizens or Singapore permanent residents. Employees are taxed on their full employment income, and no deduction may be made regarding their personal expenses. Contractors, however, may treat their expenses as business expenditures and set off these expenses against their income to lower their taxes.
Penalties for Employee Misclassification in Singapore
Misclassification fines up to SGD 60,000 and prison time, plus fines for non-compliance of the Employment Act up to SGD 15,000 and a maximum of 6 month’s jail time (double for subsequent offenders), and back payment of employee’s entitlements, such as CPF contributions (Singapore citizens and permanent residents), annual leave, paid medical leave, public holiday and overtime.