After setting up a company, the next most common legal issue that most SME Company owners face is employment related legal issues. This article aims to highlight the 7 most common legal issues faced by Singapore companies. We have included some practicable examples to illustrate what happens when companies ignore employment legal issues when expanding.
#1: Employment Pass
If any SME Company employer wishes to hire overseas staff, it would need to apply for an employment pass for each of such employees. At the point of making such an application, the Ministry of Manpower will impose a ratio of Singapore versus foreign employees before approving the employment pass application/renewal.
Each employment pass comes with certain restrictions, for example depending on the designation and job description of the EP holder, that EP holder may not hold directorships in Singapore Companies.
Another key issue is the minimum salary such an employment pass holder is supposed to hold. Some local directors of Singapore companies thought that to circumvent this, they would pay such amount to their employees as required but then later asking their employees to pay the company back such amount later. It was reported in the news that the Twelve Cup founders Daniel Ong and Jaime Teo were charged with employment offences in connection with this.
#1: Employment Act Employees
The definition of an employee which has protection under the Employment Act changes very frequently so all SME Company Owners need to be kept aware of such legal developments.
Foreign employees holding a work pass are also covered by the Employment of Foreign Manpower Act, which has employer’s responsibilities and obligations.
An employee is covered if the employee is working under a contract of service with an employer. If you work less than 35 hours a week, you are a part-time employee covered by the Employment of Part-Time Employees Regulations.
Part IV of the Employment Act which provides for rest days, hours of work and other conditions of service only apply to:
- A workman (doing manual labour) earning a basic monthly salary of not more than $4,500.
- An employee who is not a workman, but who is covered by the Employment Act and earns a monthly basic salary of not more than $2,600.
Part IV of the Act does not cover all managers or executives.
In general, managers and executives are employees with executive and supervisory functions.
Their duties and authority may include one or all of the following:
- Making decisions on issues such as recruitment, discipline, termination of employment, performance assessment and reward.
- Formulating strategies and policies of the enterprise.
- Managing and running the business.
They also include professionals with tertiary education and specialised knowledge or skills whose employment terms are like those of managers or executives. For example:
- Advocates and solicitors
- Chartered accountants
- Practising doctors and dentists
Generally, workman is someone whose work involves mainly manual labour.
This includes someone who falls under any of these categories:
- Does manual work (including artisans and apprentices, but not seafarers or domestic workers).
- Operates or maintains commercial vehicles with passengers.
- Supervises manual workers, but also performs manual work more than half their working time.
- Has a job specified in the First Schedule of the Employment Act, namely:
- Cleaner
- Construction worker
- Labourer
- Machine operator and assembler
- Metal and machinery worker
- Train, bus, lorry and van driver
- Train and bus inspector
- Workman employed at piece rates at an employer’s premises
#2: Employee Tax
Under Singapore tax law, the obligation for reporting and filing for employees falls on the employer if your SME Company is on the auto-file scheme. For self-employed personnel in a company, the obligation of tax filing will be on the self-employed person.
Some SME Company have an internal charity entity that employees can contribute to for the purposes of reducing tax payable. You can also consider donating to other institutes of public character prior to your annual tax filing season.
#3: CPF Payment Obligations
Under Singapore law, both the employer and the employee have to contribute towards the employee’s CPF contributions. If you are unsure about the amounts to pay or how to file, we would suggest that you hire an accounting firm to look at this as filing is tedious and there are annual timelines that you need to monitor to be in compliance.
Example:
When negotiating your employment contract with your employees, you need to take into account the entire CPF Contribution from the employee and the company before consolidating this into an entire employment package (as set out in your employment agreement).
#4: Non-Compete Obligations
Many companies including multi-national companies and SME Company think that having strong one sided non-compete obligations will protect them. We wish to caution that Singapore case law states that the courts will be more than willing to strike down non-compete clauses which prevent an employee (for too long a period) from finding employment after they leave a company’s employment unless such a non-compete clause was signed in connection with an ex-gratia payment made to such employment.
Another point in non-compete obligations is the use of global non-compete obligations which are way in excess of the operational scope of the particular employee. The courts will also not hesitate to strike down such clauses if the employee can prove that such provisions are excessive and prevent the employee from unjustly finding new employment.
Example:
A classic example would be the sign-on bonus for a world renown footballer together with a slightly longer non-compete clause in his employment agreement. Based on such facts, this clause may be upheld as enforceable.
Another example would be a business divestment scenario whereby the employee/owner was made to sign an employment agreement after the divestment of the business with a slightly longer non-compete clause. In such a scenario, this clause may be enforceable.
#5: Intellectual Property Rights
Most companies tend to focus on the clauses that relate to pay and leave and termination but an important clause that companies need to have reviewed is the clause that relates to assignment of intellectual property to the company. When drafting the employment agreement, one should include an assignment of intellectual property to state that all intellectual property developed in the course of such employees work should vest with the company.
The example that everyone is familiar with is Yuko Yamaguchi the designer behind Hello Kitty which earned much in royalties for Sanrio company which owns the design behind Hello Kitty. Some companies sign licencing and royalty agreements with famous designers to encourage them to design new creations and earn from the ongoing popularity of their design.
#6: Maternity Leave
Maternity leave protection and benefits are provided for under:
For working mothers, they are entitled to either 16 weeks of Government-Paid Maternity Leave or 12 weeks of maternity leave, depending on whether their child is a Singapore citizen and other criteria. To check on a case by case basis.
Case study Analysis:
Working mothers need time out when looking after their children. Do check with your working mothers and plan your internal workflow accordingly.
#7: Paternity Leave
The latest changes to the Child Development Co-Savings Act means that a father can take a maximum of 8 weeks leave in his baby’s first year – comprising 2 weeks of paid paternity leave, 4 weeks of paid shared parental leave (if his wife so elects to share), 6 days of paid childcare leave and 1 week of unpaid infant care leave.
Case study Analysis:
When planning for your employees and internal workflow and operations, do check with your employees on whether they need the necessary paternity leave when their children are born.
In conclusion, we have highlighted 7 key points that every SME Company owner would need to consider when negotiating employment contracts with their employees. A contract of service between a company and an employee brings with it substantial employment law related issues. Do remember to check with an experienced employment lawyer when updating your company employment contracts.
If you have any employment related legal questions, do leave a comment at the bottom of our page and we will look at those.
https://www.SingaporeLegalPractice.com is a corporate law and commercial law education website headquartered in Singapore which aims to demystify business law and 新加坡商业法 for SME Company Owners, Startup Founders and 新加坡新移民老板。The information provided on this website does not constitute legal advice. Please go to our contact us page and contact us and we will arrange for a lawyer to speak to you. Please obtain specific legal advice from a lawyer before taking any legal action. Although we try our best to ensure the accuracy of the information on this website, you rely on it at your own risk.
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