Singapore's Employment Act provides critical protections for employees while setting clear obligations for employers. For SMEs focused on growth and innovation, keeping pace with these regulatory requirements can be challenging but essential.
MOM compliance audits have revealed that many Singapore SMEs fall into the same regulatory pitfalls year after year. These oversights—often stemming from misunderstanding key provisions or failing to update policies—can result in significant financial penalties, operational disruptions, and damaged workplace trust.
This guide examines the most common Employment Act compliance traps affecting Singapore SMEs and provides practical solutions to help your business navigate these challenges effectively.
A growing tech startup hired several "freelancers" to save on CPF contributions and employment benefits. During a routine MOM inspection, these relationships were deemed employment relationships due to the level of control exercised by the company. The startup was forced to pay backdated CPF contributions with penalties and interest.
The reality check: Simply labeling someone as a "contractor" or "freelancer" doesn't make it so. MOM looks at the substance of the working relationship:
The solution: Review all your contractor relationships against MOM's criteria for employment. If they look like employees, treat them as employees with proper employment contracts and CPF contributions.
A local F&B chain paid their service staff a base salary plus "service charges" collected from customers. They didn't realize these service charges counted as part of the wage when calculating overtime pay and CPF contributions. A disgruntled employee's complaint triggered a full MOM investigation.
The reality check: Many employers don't understand which payments constitute "basic salary" versus "gross wage" for the purposes of:
The solution: Clearly structure and document all salary components in employment contracts. Understand how each component affects statutory obligations like:
A mid-sized logistics company had an outdated employee handbook stating that unused annual leave would be forfeited without compensation. When employees raised this with MOM, the company was forced to compensate employees for all forfeited leave for the past year.
The reality check: Your policies cannot override the Employment Act. Common policy violations include:
The solution: Have your employee handbook and policies professionally reviewed annually. Ensure all managers are trained on Employment Act requirements, especially regarding:
A local retail company immediately terminated an employee suspected of misconduct without proper investigation or notice. The employee filed a wrongful dismissal claim with MOM, resulting in compensation of three months' salary and reputational damage.
The reality check: Even in cases of suspected misconduct, employers must:
The solution: Establish clear termination procedures aligned with the Employment Act:
A growing SME failed to update their payroll system when the CPF contribution rates increased in January 2025. By the time they caught the error six months later, they owed significant backdated contributions plus compounding interest.
The reality check: CPF rates and ceilings change regularly:
The solution:
A food delivery company paid their part-time delivery riders a flat hourly rate without pro-rated benefits. During a labor inspection, they were found non-compliant with the Employment Act's part-time provisions.
The reality check: Part-time employees (working less than 35 hours weekly) are entitled to pro-rated benefits:
The solution:Calculate part-time benefits correctly using MOM's formulas:
Part-time benefit = Full-time benefit × (Part-time hours ÷ Full-time hours)
Document these calculations clearly in employment contracts and ensure your payroll system handles these pro-rations accurately.
A tech startup issued vague offer letters without detailed employment terms. When disputes arose over work hours and overtime, they had no documentary evidence of agreed terms.
The reality check:Since April 2016, employers must provide written Key Employment Terms including:
The solution:Create comprehensive employment contract templates that cover all required KETs. Issue them within 14 days of employment start. Review them annually against the latest Employment Act requirements.
A local marketing agency terminated a pregnant employee "for performance reasons" during her third trimester. She filed a complaint with MOM, resulting in mandatory compensation equivalent to her maternity leave entitlement.
The reality check:Singapore law provides strict protections for expectant and new parents:
The solution:
Singapore's regulatory environment for employment is becoming increasingly sophisticated. The days of "I didn't know" being an acceptable excuse are long gone. MOM has strengthened its enforcement capabilities, and employee awareness of their rights continues to grow.
For SMEs looking to maintain full compliance while remaining operationally efficient, consider these best practices:
By avoiding these common compliance traps, Singapore SMEs can protect themselves from unnecessary financial and reputational damage. More importantly, proper compliance builds the foundation for a workplace where employees feel secure and valued—a critical advantage in Singapore's competitive talent market.
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Source: Ministry of Manpower (MOM), Central Provident Fund Board (CPFB)
