(a) No
(b) No, the classification of contingent workers for tax purposes is based on employment law principles. However, the Inland Revenue Authority of Singapore (IRAS) has published administrative guidance on the factors that should be taken into consideration when determining if there is an employment relationship for tax purposes.
(c) N/A
(a) No, however, mandatory work injury compensation insurance will apply to platform workers with effect from the later part of July 2024. Details have yet to be announced by the government.
(b) No, however, mandatory Central Provident Fund contributions will apply to platform workers under 30 years old with effect from July 2024. Details have yet to be announced by the government.
(c) N/A
3
The Advisory Committee on Platform Workers has issued its recommendations in November 2022. It aims to strengthen protections for self-employed persons who work for online platforms, specifically delivery persons, private-hire car drivers and taxi drivers. Please see a summary of the recommendations made here.
With the rise in digital platform services, we are seeing an increasing global trend in case law and legislation aimed at protecting platform workers' labor rights. For more insight on these developments, along with other employment law updates, click here.
A finding that an individual is an employee would give them statutory rights and benefits under the Employment Act 1968 and the Central Provident Fund Act 1953. An employee has the full set of employment rights, including the benefit of enjoying minimum standards of employment and benefits, including annual leave, paid medical leave, public holiday pay and overtime pay.
Under the Employment Act 1968, employees enjoy certain minimum standards of employment and benefits. This includes the right not to be unfairly dismissed, annual leave, paid medical leave, public holiday pay and overtime pay.
Under the Central Provident Fund Act 1953, employers must make Central Provident Fund contributions for employees who are Singapore citizen or permanent residents in accordance with statutory rates.
Singapore’s Ministry of Manpower (MOM) also takes a serious view of employers who misclassify employees in order to avoid their statutory obligations and will take stern action against such errant employers. According to MOM, employers who practice employee misclassification will be fined and/or imprisoned for breaches of the Central Provident Fund Act 1953. Employers will also need to deal with administrative penalties, including being named and shamed in a public forum.
- Fines of up to SGD 5,000 could be imposed where misclassification leads to an employer failing to comply with tax filing/clearance obligations.
- Penalties of up to 400% of the tax undercharged, fines of up to SGD 50,000 and/or imprisonment of up to five years could be imposed where misclassification leads to the filing of incorrect tax returns, or the finding of tax evasion or serious fraudulent tax evasion, depending on the severity of the offense.
- A surcharge of 50% of the tax adjustment applies, although it can be remitted in whole or in part for good cause, where misclassification leads to the finding of tax avoidance from the year of assessment, 2023 onwards.
If an employer fails to make the requisite CPF contributions in accordance with the CPF Act, the employer may be liable on conviction to:
- A fine of not less than SGD 1,000 and up to SGD 5,000 or a prison term of up to six months, or both
- A fine of not less than SGD 2,000 and up to SGD 10,000 or a prison term of up to 12 months, or both (for repeat offenders in relation to the same offense)
- As defined under the CPF Act, a person is a repeat offender in relation to an offense if the person has been convicted of the same offense on at least one other occasion (whether before, on or after 1 January 2014) before the person is convicted of the current offense.
- Depending on the facts, contingent workers and persons that contract with contingent workers could be subject to potential tax and criminal liability under the general tax provisions for avoidance or evasion of tax arising from the misclassification of contingent workers.
- Depending on the facts, non-resident persons that contract with contingent workers in Singapore may create a permanent establishment risk leading to Singapore income tax exposure, as well as Singapore income tax compliance obligations for the non-resident person.
There is potential liability for an employer failing to make monthly Central Provident Fund contributions.
From a tax perspective, the risk of criminal sanctions arising from the misclassification of contingent workers are assessed to be low to medium. Such matters are generally pursued as a civil matter.
The main employment law risk is misclassification. The reasons for misclassifying employees are mostly to avoid legal documentation and to avoid paying a contribution to employees, such as non-payment of Central Provident Fund (CPF) obligation under the CPF Act, bypassing minimum protection under the Employment Act.
However, misclassification under Singapore law is difficult to prove because recent case law states that the multi-factorial approach in determining an employment or independent contractor relationship will be applied holistically rather than in isolation. In other words, the Singapore courts will take the relevant factors into account but will apply these facts in context and look at the underlying commercial reasons in totality.
From the perspective of a person who contracts with a contingent worker:
- Moneys due to a non-Singapore citizen employee are required to be withheld as part of a tax clearance process if that employee will cease employment in Singapore (among other scenarios). The contracting person could be non-compliant with these obligations where the contingent worker has been misclassified as an independent contractor.
The CPF is a comprehensive social security savings scheme that is mandatory for all citizens and permanent residents of Singapore employed in Singapore. Pursuant to section 7 of the CPF Act 1953, employers must pay to the CPF monthly employee contributions at the appropriate rates set out in the First Schedule of the Act. Thus, misclassification of a contingent worker who is actually an employee can lead to liability for failure to pay CPF contributions.
Where employers misclassify employees in order to avoid their statutory obligations, Singapore's Ministry of Manpower (MOM) will take stern action against such errant employers. According to MOM, employers who practice employee misclassification will be fined and/or imprisoned for breaches of the CPF Act. Employers will also need to deal with administrative penalties, including being named and shamed in a public forum.
However, it should be noted that misclassification under Singapore law is difficult to prove because recent case law states that the multi-factorial approach in determining an employment or independent contractor relationship will be applied holistically rather than in isolation. In other words, the Singapore courts will take the relevant factors into account but will apply these facts in context and look at the underlying commercial reasons in totality.
Misclassification of a contingent worker who is actually an employee can lead to the employer being held liable for failure to pay Central Provident Fund (CPF) contributions.
If an employer fails to make the requisite CPF contributions in accordance with the CPF Act, the employer may be liable on conviction to (i) a fine of not less than SGD 1,000 and up to SGD 5,000 or a prison term of up to six months, or both; or (ii) a fine of not less than SGD 2,000 and up to SGD 10,000 or a prison term of up to 12 months, or both (for repeat offenders in relation to the same offense).
Where misclassification leads to (i) a failure to comply with tax clearance obligations, fines of up to SGD 5,000 could be imposed; (ii) the filing of incorrect tax returns, or the finding of tax evasion or serious fraudulent tax evasion, penalties of up to 400% of the tax undercharged, fines of up to SGD 50,000 and/or imprisonment of up to five years could be imposed (depending on the severity of the offense); and (iii) the finding of tax avoidance, from the year of assessment 2023 onwards, a surcharge of 50% of the tax adjustment applies, although it can be remitted in whole or in part for good cause.
Persons who contract with contingent workers could be exposed to similar civil and criminal liability. Non-resident persons may also be exposed to permanent establishment risk and may be subject to Singapore income tax compliance obligations depending on the facts.