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Popular Business Misconceptions Series – Popular Misconception #4

“All My Workers Are Self-Employed, So I Don’t Need To Bother With Payroll Or Workers’ Compensation.”

To save on Employer’s CPF contribution and workers’ compensation premiums, many employers arrange their staff in such a way that those working for them are self-employed, independent contractors. This is good tax planning.

On the other hand, some employers take the position that all those working for them are self-employed, whether they are or not. Although it is tempting to eliminate CPF contribution and workers’ compensation premiums, care should be taken to do so legally.

Whether those working for you are employed or self-employed is a question of fact (which can be determined by the Courts).

  • Do you supply the tools and vehicles?
  • Do you determine the working hours?
  • Do you have the right to control how the job will be done?
  • Do you pay a flat-rate or by-the-hour or a salary?
  • Does your worker have other clients?

By asking several such questions, a pattern will emerge as to whether your worker is employed or self-employed. If it turns out that your worker fits all the criteria of an employee, don’t say he’s self-employed. On audit, you would still be responsible for the CPF contribution (and penalties and interest as well).

Even if your workers are considered independent contractors by the Income Tax Department, it is still possible that they will be considered to be “workers” for purposes of Workers` Compensation legislation. Thus, it is the responsibility of the employer to determine whether such coverage is necessary or not. Failure to obtain proper coverage could subject you to substantial (and unnecessary) costs.

In review, calling someone self-employed doesn’t necessarily make them selfemployed. Make sure that your position regarding your workers is legally correct.

Source: FINNOVATION group
Summarize: DKT Business Services Pte Ltd

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