Do freelancers without CPF dues subsidize the cost of doing business in Singapore?


Every business owner knows that the cost of doing business in Singapore is high. Apart from the rent of real estate space, the other major expense item that companies spend on is labor. As a developed country with a high cost of living, it’s no surprise that wages in Singapore are probably the biggest cost item for many businesses.

When hiring Singaporeans or PRs, companies must not only pay their employee’s gross salary, but also the employer’s mandatory CPF contribution. For workers age 55 and under, it’s an additional 17% of salary, capped at the first $6,000 of gross monthly salary. Older workers receive a lower employer contribution to the CPF.

For example, if a business pays a local worker $6,000 per month, the cost to the business is actually $7,020 per month. This is despite the fact that the worker thinks his salary is only $6,000, of which his net salary would only be $4,800 after the employee’s CPF contribution.

Think about it. While a worker may only receive $4,800 per month (after deducting the CPF), the cost to the employer is actually $7,020. That’s a difference of $2,220 per month.

Are freelancers cheaper (only) because there is no CPF contribution?

In the age of work from home/work from anywhere, it is increasingly easy and common for companies to assign work to a freelancer rather than an employee. Assuming both the employee and the freelancer are working remotely anyway and are available for meetings whenever needed, it can be argued that there is no difference from a business perspective. as long as the work is done.

However, companies have to pay CPF contributions and other benefits for their employees (whether part-time or full-time) thus increasing their cost of hiring. On the other hand, the self-employed generally do not receive any contribution to the CPF. Yet the same work ends up being done.

To be clear, there is no law that says freelancers cannot receive CPF dues. The Employment Act only stipulates that CPF contributions must be paid by employers to their employees (among other requirements). But what then differentiates a full-time/part-time employee from a regular freelancer of the company remunerated on a mission basis without contribution to the CPF?

More importantly, do companies get away with paying less to a freelancer who is willing to do the same job because the freelancer doesn’t need to contribute to the employee’s CPF, thus giving them a higher net salary?

A victory for employers. A victory for freelancers?

In the short term, many self-employed persons (SEPs) may choose to be self-employed to carry out the work of their employers customers under a service contract. A service contract means that the person is not officially an employee, but a freelancer who agrees to complete a project or assignment for a fee.

Since employment law does not protect SEPs, they do not receive statutory benefits such as CPF contributions, annual leave and medical entitlements, making them cheaper to pay. to employ work with.

Read also: Service contract VS service contract: what is the difference between these two “employment” relationships?

Employee versus freelancer. What is the difference?

The Department of Manpower (MOM) provides a series of questions that should be considered when determining if someone is or should be on a service contract or service contract.

For example, if a business is responsible for setting the hours of work, determining wages and when they are paid, providing the workplace and equipment, it is likely to have a relationship employer-employee with the individual under a service contract.

Think of it this way. If the terms and conditions of employment require a person to report to the office three times a week, from 9:00 a.m. to 6:00 p.m., it is likely that the person is in fact an employee rather than a freelancer. This is because they have little control over their time on the days they work.

However, this can be a gray area for companies that practice working from home/anywhere.

If an employee doesn’t need to show up at any given time as long as they’ve completed their work, how is that different from what a freelancer does? What’s stopping companies from just having a service contract and paying them freelance?

The same logic also applies to workers. If all that matters is that the work gets done and we get paid for the work we do, and that we can possibly do more elsewhere with another company that hires us to freelance, then might it be reasonable to ask companies we work with for having a service contract and for paying us an amount equivalent to what they would pay us as an employee, only that it’s paid entirely in cash instead of a portion of the money that goes into CPF contributions?

Should freelancers (and their clients) start contributing to the CPF

A possible solution is to have the self-employed and their clients contribute to the CPF, as would already be done for full-time/part-time employees.

As we wrote in this article, the Contribute as you earn (CAYE) is a way to ensure some wage parity (if that’s what we want) between freelancers and full-time employees. However, it is still in its infancy and currently only applies to MediSave contributions. It’s not enough.

Today, the line between being a freelancer and a remote worker is becoming increasingly blurred for certain roles. Writers, graphic designers, accountants, digital marketers, and sales reps can all work with a company either as an employee under a service contract or as a freelancer under a contract. ‘a service contract with the result received by the company is similar.

Yet the benefits they receive and the cost to the business can be very different.

In addition to the CPF contributions, other cost items that companies do not need to make available to freelancers should not be overlooked. These would include benefits such as medical expense claims, hospital leave, paid annual leave, and maternity/paternity leave. All of these cost areas are covered by employment law for employees but do not need to be paid for freelancers.

The number of self-employed (SEP) is not small either today. In the CPF Annual Report 2021, it is reported that more than 298,000 MS have contributed to their MediSave for a total of $589.1 million. In total, however, SEPs contributed only $779.6 million, or roughly $190 million outside of Medisave contributions. This equates to an average contribution of only $637 per SEP (excluding Medisave contributions).

If these SEPs and/or their companies were to contribute to the CPF beyond Medisave, the amount of the contribution would surely be at least a few billion dollars, which would increase the cost of business operations for companies that constantly hire freelancers. .

Read also : Is it legal for an employee to have two jobs (with two CPF contributions)?

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