(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 has published administrative guidance on the factors that should be considered when determining if there is an employment relationship for tax purposes.
The introduction of the Platform Workers Act requires that Central Provident Fund (CPF) contributions are payable in respect of contingent workers who are platform workers as defined in the Platform Workers Act.
(c) N/A
(a) No, specific arrangements apply to contingent workers who are platform workers in respect of work injury compensation.
(b) No, specific arrangements apply to contingent workers who are platform workers in respect of CPF contributions.
(c) N/A
Yes. The Platform Workers Act will likely take effect in 2025. It provides for the rights and obligations of platform operators and platform workers, including with respect to registering and recognizing platform work associations, work injury and CPF contributions.
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 nonpayment of the CPF obligation under the Central Provident Fund Act 1953 ("CPF Act"), thus bypassing minimum protections under the Employment Act.
However, misclassification under Singapore law is difficult to prove because recent case law states that the multifactorial 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 factors in context and look at the underlying commercial reasons in totality.
A finding that an individual is an employee would give them statutory rights and benefits under the Employment Act 1968 and the CPF Act. 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 CPF Act, employers must make CPF 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 that misclassify employees in order to avoid their statutory obligations and will take stern action against such errant employers. According to the MOM, employers that practice employee misclassification will be fined 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.
The main risks from the perspective of a person who contracts with a contingent worker are that, as money due to a non-Singapore citizen employee is 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 noncompliant with these obligations where the contingent worker has been misclassified as an independent contractor.
Nonresident persons may also be exposed to permanent establishment risk and may be subject to Singapore income tax compliance obligations depending on the facts and the activities undertaken by the contingent worker.
The following consequences could apply:
- 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 for 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.
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, 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.
If an employer fails to make the requisite CPF contributions in accordance with the CPF Act, the employer may be liable on conviction to the following:
- A fine of between SGD 1,000 and SGD 5,000 or a prison term of up to six months, or both
- A fine of between SGD 2,000 and 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.
There is no national government pension scheme in Singapore, that is, neither employers nor employees are required to make any pension contributions to the government. The CPF scheme is administered in Singapore.
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, nonresident 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 nonresident person.
There is potential liability for an employer failing to make monthly CPF 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.