4 Common Wage Mistakes That Small Businesses Make
29 Apr 2021
Starting a business can be a daunting task, particularly when it comes to paying your employees, contractors and freelancers.
Remunerating your full-time employees is relatively straightforward, given that the only additional cash components to be included would be their bonuses, fixed allowances and so on. However, the tricky part would be dealing with remuneration for contractors and freelancers – “employees” who do not work fixed shifts and hours.
Payroll errors can be a costly mistake to your small business and it creates a negative impression on your employees as well. Here are some hourly wages mistakes that small businesses commonly make and tips to addressing them.
Incorrect employee classification
Contract of service versus contract for service can be confusing for some small business owners, but it is imperative that your workers are classified correctly. The question to ask yourself is, “who has control?” If you as a business owner has more control over your employees, they are likely to be considered your full-time employees i.e contract of service. However, if your workers have more control over their work and/or services, they are likely to be considered your contractors or freelancers i.e contract for service.
As a small business owner, you may hire employees from other countries due to the relative lower labour costs. However, does that mean that these employees are exempted from paying taxes? More often than not, small business owners overlook the fact that certain countries have different tax laws in place. At the same time, some small business owners may be so overwhelmed with the workload that they end up missing the tax payment deadlines, resulting in costly penalties and fines.
According to the Inland Revenue Authority of SIngapore (IRAS), employers are required to submit Form IR8A which includes employees’ income information to IRAS for tax assessments by 1 March every year.
Running a small business means that you and your employees typically have to take on multiple hats in order to ensure that operations run smoothly. This could also result in significant overtime hours clocked by your employees. However, are all employees eligible for overtime pay? One of the common mistakes that small business owners make it classifying all employees as ineligible for overtime pay.
Based on the Ministry of Manpower (MOM)’s Employment Act (EA), employers are required to compensate overtime pay to workman earning up to $4,500 or non-workman earning up to $2,600. Calculation of overtime pay differs whether an employee is being compensated on a daily, hourly or monthly basis.
Poor storage of employees’ records
Proper storage of employees’ records is one aspect of HR that most small business owners tend to overlook. It is crucial to ensure that employees’ records are accurately and securely stored for audit and business purposes. This includes historical employee records as well as ensuring that employee records are regularly updated and it should also include information on any contractors and/or freelancers that you have hired. At the same time, it is imperative to invest in a robust data storage system to avoid any data leaks of confidential employee information.
Based on MOM’s requirements, employers are required to maintain detailed employment records (soft or hard copy including handwritten records) of all employees covered under the Employment Act. For existing employees, employers are required to retain employment records for at least two years while for ex-employees, employers are required to retain their last two years employment records for at least one year after the employee has left the organisation.
These wage mistakes can have a costly impact on your small business and end up disrupting your business processes as well. As such, it is best to tackle these issues right from the start and take measures to prevent making these wages mistakes.