As an accountant or outsourced payroll provider, you’re definitely well aware of the complex and ever-changing regulations surrounding payroll in Singapore and Malaysia.
In fact, Malaysia has the world’s second most complex payroll practices — which makes payroll a constant and confusing challenge for many.
From tax laws to employment legislation, staying on top of compliance issues is crucial for both you and your clients. When you run payroll accurately and quickly, you avoid strained relationships with clients and stressful penalties that could jeopardise your business.
It’s important to recognise and resolve payroll compliance issues before they become serious problems. But where do you even start?
We’re here to help. Let’s take a look at the top compliance issues in payroll and how they can be avoided.
1. Inaccurate employee source data imported
This often occurs if the HR and payroll functions aren’t well-connected. In EY’s 2021 Global Payroll Survey, 32% of organisations considered inaccurate employee source data being imported into the payroll system to be the topmost compliance challenge in their payroll.
It could be due to the use of multiple software, for example, one for HR and one for payroll — which end up not integrating seamlessly. Or utilising software that may not be comprehensive enough to support all the components required to run payroll — resulting in some tasks being completed manually whilst others are done digitally. All these contribute to errors in payroll processing.
There needs to be better alignment between both functions to ensure that employee data is kept accurate and up-to-date. With remote and hybrid working models here to stay, accessing employee data efficiently and accurately is more important than ever. Utilising an all-in-one HR and payroll software can help you avoid this compliance issue.
2. Keeping up with regulatory compliance changes
Legislation pertaining to payroll is ever-evolving. Keeping up with regulatory changes can be quite a challenge, especially due to new ways of working, new generation benefits, and changes to existing legislations. Both Singapore and Malaysia have annual budget statements which outline upcoming legislative changes — but keeping track of them is just the tip of the iceberg.
And now that remote work has facilitated the creation of global teams, the number of countries where an organisation needs to process payroll increases. This in turn leads to an increase in compliance challenges. Different countries have different regulations in place when it comes to payroll, and hiring an international team means payroll has to be processed in multiple ways to ensure compliance with local laws.
Failure to stay abreast of these regulatory changes and adjust payroll processes accordingly can result in incorrect calculations of employee pay and tax liabilities, which will result in your client getting slapped with a large fine or penalty. However, if you’re utilising a payroll software — all these legislative changes get automatically updated in the system for you! Changes in payroll calculations or statutory contributions and deductions? It’s all sorted, you don’t even have to worry about it.
3. Issues with year-end reporting
Data inaccuracies, unbalanced reconciliation, and wrong file formats submitted to the relevant authorities — does that sound all too familiar?
There are so many forms, processes, and deadlines involved in year-end reporting to the relevant authorities, which is why it’s no surprise that compliance issues arise often.
In Malaysia, payroll processing involves a long list of statutory contributions and deductions. From Employees’ Provident Fund (EPF) contributions to Social Security Organisation (SOCSO) contributions, Employment Insurance Scheme (EIS) contributions, Human Resources Development Fund (HRDF) Levy, monthly tax deductions (MTD) and more, payroll calculations for employees are incredibly complicated.
That’s not even taking into account working hours, minimum wage, leave entitlements, public holidays (which vary for each state) and more. Employers will then have to submit various files in the correct format to the relevant government bodies — CP39 and CP8D E to the LHDN, EIS and SOCSO contribution files to Perkeso, and the Borang A KWSP 6 report to EPF. That’s not the end of it — employers are also required to generate and publish employee annual forms, such as Form EA and Form PCB2.
In Singapore, statutory contributions and deductions are lesser in number compared to Malaysia, but there are still substantial calculations involved. Central Provident Fund (CPF) contributions and Skills Development Levy (SDL) contributions are mandatory for payroll.
Employers also have to submit an IRAS lodgement report, as well as additional IR8A forms such as appendix 8A, appendix 8B and IR8S forms if an employee has received benefits in kind, made any gains/profits from employee share plans, or made voluntary CPF contributions.
Generating all these reports and completing these forms for multiple clients can be very time-consuming, and exhausting to say the least. But when you have a payroll software that can generate all these documents in just a few clicks — with accurate calculations and in the correct format for submission to the government authorities, year-end reporting will never look the same again for you.
You can even automatically build and send reports on a recurring basis, based on the schedule set. It’s fuss-free, smooth, and done much quicker than you used to.
4. Failure to pay employees on time
Paying employees on time is a critical aspect of payroll compliance. You’d be surprised at how many cases of late salary payments there are in Singapore and Malaysia. Employers are required to pay employees according to the pay schedule outlined in their employment contract, or as defined by local legislation.
In Singapore, employers must pay their employees no later than 7 days after the end of the salary period. Itemised payslips are also a requirement for employees covered by the Employment Act. You can find the full list of payslip requirements here.
In Malaysia, employers must pay employees according to the terms of their employment contract, which must be in compliance with the Employment Act. Similar to Singapore, employers must complete salary payments to employees within 7 days after the last day of any wage period (with the exception of overtime, which must be paid not later than the last day of the next wage period).
All employees in Malaysia must also be issued with a payslip each time they are paid — you can find the full list of required inclusions here.
Employers will never have to deal with late salary payments again when you have payroll software at hand. As their accountant or outsourced payroll provider, you can fully automate payroll processing from start to finish, and even run multiple pay runs in the background at the same time. Employees will also be easily notified of their payslips via email or SMS, removing the need for paper or manual data handling.
5. Gaps in data protection
Payroll involves a lot of personal and confidential employee data, which makes data protection a top priority. It is vital to ensure that employees’ personal data are collected and used lawfully, and appropriate measures have been implemented to protect that data.
In both Singapore and Malaysia, the Personal Data Protection Act (PDPA) governs the collection, use, and disclosure of personal data. Under the PDPA, organisations must obtain their employees’ consent before collecting and using their personal data, and must take reasonable steps to prevent unauthorised access, use, or disclosure of that data.
Compliance issues can arise when payroll data containing sensitive personal information, such as employees’ names, addresses, and bank account details are leaked. It increases the risk of this information being accessed by cybercriminals and used for identity theft or fraud, potentially resulting in financial losses for both employees and employers.
It also results in a breach of laws like the PDPA, potentially leading to fines or other penalties, legal action and reputational damage, especially if the data leakage affects a large number of employees.
With payroll software, you can ensure that extensive measures are in place to ensure all employee data is duly protected. There will be multiple levels of security checks, backups conducted regularly, certification maintained through extensive audits of its controls, and any information security risks that affect the confidentiality, integrity, and availability of company and customer information will be appropriately managed.
6. Not keeping payroll records adequately
Many SMEs in particular fail to maintain proper payroll records, which makes it a prevalent compliance issue. It creates a significant problem especially when disputes over an employee’s payments are made.
In Singapore, employers must keep a record of all payslips issued — it can be in soft or hard copy, including handwritten ones. For current employees, payslip records for the last two years have to be kept, while for ex-employees, payslip records for the last two years have to be kept, as well as for one additional year after the employee leaves.
In Malaysia, in accordance with the statutory data retention obligations, employers are required to keep a record of all payroll activities for at least six years (seven years for SOCSO and income tax purposes).
Record-keeping is made easy with payroll software. Employee payslips will be stored digitally in their accounts for easy reference or download whenever needed, and stored for the appropriate time according to legal requirements.
Avoid payroll compliance issues with Employment Hero
The solution to all the compliance issues mentioned above? Utilising a cloud-based software like Employment Hero in Singapore or Malaysia.
As an accountant or outsourced payroll provider, your clients are your top priority — and you certainly don’t want them running into any of these issues.
Employment Hero is an all-in-one HR and payroll software, which allows you to elevate accuracy and utilise automation to help in payroll compliance. You won’t have to worry about incongruent employee data, or run into integration issues. Our partner dashboard enables you to provide more tailored services to each client, extract insights into client activity and generate new business streams.
Plus, it’s constantly enhanced with legislation updates and value-add features, so you never have to worry about keeping up with regulatory compliance changes. Deliver an efficient and compliant payroll service to your clients, while reducing time spent on admin tasks by up to 90%. It’s a win-win situation for all.
