Processing the payroll for a new hire can be complex as it consists of activities that must be completed before, during, and after payroll processing. When it comes to processing the payroll for a new hire, it differs from that of a regular employee. Most of the time, new hires come in at various times of the month – if you are lucky enough, it could be at the start or perhaps midway of the month. Image Credit: Pexels
Furthermore, what happens if your new hire is not a local resident? This would mean that you have to remember to submit applications for the relevant passes and withhold tax too. Seems overwhelming? Here is an overall summary of the payroll matters to look out for when you have a new hire.
Hire Date
The hire date of a new hire determines how much his or her basic salary should be for the first month upon joining. Supposed the new hire comes in on the 1st of the month, this would mean that proration of their basic salary is not necessary. However, should the new hire join the company on any other days other than the 1st, prorating their basic salary is necessary. Essentially, you need to take the total number of days worked by the new hire for the entire month divided by the total working days of a regular employee before multiplying their basic salary to get the prorated salary. Do note that some companies work on a 5.5 day basis and thus, the total working days of a regular employee might differ from company to company.
Employee’s Citizenship
The citizenship of the new hire determines whether they are eligible for local statutory contributions such as the Central Provident Fund (CPF) contributions in Singapore. Local Singaporean new hires are entitled to CPF contributions as per the statutory requirements. However, there is another group of people who are entitled to CPF contributions as well – the Singapore Permanent Residents (SPRs). If your new hire happens to be a SPR, do note that the percentage contribution varies according to the number of years upon receiving their PR status. Finally, if your new hire is a foreigner and on a work pass (Work Permit, S Pass, Employment Pass), CPF contributions are not required. However, you have to remember to withhold their taxes for submission at the end of the year.
Employee’s Race
Your new hire’s race matters when it comes to calculating their payroll. Contributions to race funds (CDAC, SINDA, ECF & MBMF) are determinant on both your new hire’s race and basic salary. A higher basic salary would translate to higher contribution amounts. However, do note that certain funds are only applicable to Singaporeans and SPRs such as the CDAC, while MBMF contributions are applicable to all working Muslims, regardless of nationality. All employees have the option of opting out from contributing to these funds.
Benefits Awarded To Employee
Similar to calculating the basic pay, employee benefits have to be prorated according to the new employee’s hire date as well. These employee benefits include any allowances, commissions earned, year-end bonuses as well as annual leave.
Statutory Filing For The Employee
After processing payroll, it is important to remember to ensure the new hire is issued with their payslips and submit any monthly statutory contributions to the various statutory boards. Depending on the country that you are processing payroll for, there may be monthly tax, social insurance and pension funds that need to be filed. Usually, this include completing the relevant forms to declare the contribution details and making the statutory payments.Each of the statutory boards will set out different deadlines for the submission. Timely submission is important to ensure compliance.
Dealing with the payroll computation of a new hire can be confusing, particularly if you have several new hires coming in to your company within the same month. However, do remember these five key payroll matters to take note of whenever you have a new hire. This should help minimise the possibility of potential payroll mistakes during payday.
