|GH 2017 Singapore|
a. Factors that Determine Who is an Employee and Who is an Independent Contractor
Generally speaking, persons engaged under a ‘contract of service’ are considered to be employees, while persons who are engaged to work under a ‘contract for service’ are deemed to be independent contractors.
Whether an individual is an employee or an independent contractor is ultimately a question of fact. There is no single conclusive test, which may be used to distinguish between a ‘contract of service’, and a ‘contract for service’. Rather, the Courts will consider a variety of factors, such as:
The element of control is an important function of the employer-employee relationship. An employer is expected to be able to exercise control over the work process, method and timing and is ultimately responsible for the provision of work.
An employee will be subject to the employer’s rules and regulations in the workplace and may be subject to disciplinary actions in the event they breach the employer’s rules. An independent contractor on the other hand will not be subject to such discipline.
Ownership of the tools or equipment used
Another indicative factor as to whether an employment relationship exists is whether the employer provides and maintains the tools or equipment used. In a contract of service, the employer typically provides the necessary tools and equipment, which are required for the work. By contrast, an independent contractor will generally have to provide his own equipment to perform the required services.
Method of remuneration
While not conclusive, the method of remuneration may also give an indication as to whether a contract of service exists between the two parties. An employee would more typically be remunerated on a regular basis (e.g. through a monthly salary) as opposed to being remunerated through commissions or lump sum payments.
Obligation to work solely for the employer
Consideration should also be given to whether the individual is required to work solely for the employer. An employment relationship is typically exclusive and an employee is expected to devote their time and attention within the work hours to their job. An independent contractor would typically have more freedom to choose what work they wish to do and can provide services to others.
It may also be helpful to consider the economic considerations involved. If an individual is carrying out business on their own account, as opposed to for an employer, it is more likely they will be deemed an independent contractor.
Other pertinent questions on economic considerations include whether the individual shares in the profits or whether they are at risk for loss, and how earnings are calculated and profits derived.
b. General Differences in Tax Treatment
Central Provident Fund contributions
Employers in Singapore are responsible for paying contributions to the Singapore Central Provident Fund (“CPF”) in respect of employees who are Singapore citizens or Singapore permanent residents. The CPF is a compulsory comprehensive savings plan for working Singapore citizens and Singapore permanent residents to fund their retirement, health-care and housing needs.
All eligible employees and their employers must make monthly contributions to the CPF. Contribution rates change periodically and are tiered based on the employee’s age and whether the employee is in the private or the public sector. As of 1 January 2016, the maximum rates are 17% for the employer and 20% for the employee (of the employee’s monthly salary capped at SGD 6,000). The contribution rates differ for employees in age brackets above 55.
An employee is taxed on their full employment income and no deduction may be made in respect of their personal expenses. An independent contractor however may treat their expenses as business expenditure and set off these expenses against their income, to lower their taxes.
c. Differences in Benefit Entitlement
The primary piece of employment legislation in Singapore is the Employment Act (Cap 91) of Singapore (the “Employment Act”). The Employment Act generally applies to all employees working under a contract of service with a Singapore employer, except for certain categories of employees (such as managers or executives with monthly basic sal-aries of more than SGD 4,500 and seafarers). Additionally, Part IV of the Employment Act (which covers rest days, hours of work etc.) only covers, amongst others, a non-workman (who is covered by the Employment Act) and earns a monthly basic salary of not more than SGD 2,500.
Employees who fall under the Employment Act (the “EA Employees”), enjoy certain min-imum standards of employment and benefits. This includes annual leave, paid medical leave, public holiday pay and overtime pay.
In Singapore, independent contractors are not entitled to any specific employee benefits. Any benefits or remuneration due to them would be by way of contractual agreement under their ‘contract for service’.
d. Differences in Protection from Termination
Employment contracts in Singapore are also subject to the general principles of contract law. Contracts of employment may be terminated by agreement, performance or expiry, frustration and repudiatory or fundamental breach.
Typically, such employment contracts include express provisions, which allow the employer or employee to terminate the contract of employment by giving notice, and the serving of a stipulated notice period.
Where a notice period has not been agreed between the employer and employee, cer-tain statutorily prescribed periods apply to EA Employees. For instance, where an EA Employee has less than 26 weeks’ service with the employer, the prescribed notice peri-od would be one day, and if an EA Employee has at least five years’ service, their notice period would be four weeks.
EA Employees may, if they believe they have been unfairly dismissed, appeal in writing to the Singapore Minister for Manpower, requesting to be reinstated. If their appeal is successful, the Minister may either order the employee’s reinstatement to their former job or order a compensation payment.
Singapore has recently put in place a mandatory retrenchment notification. Employers who employ at least 10 employees must notify the Ministry of Manpower if five or more employees are retrenched within any six month period beginning 1 January 2017.
A contract for service (unless it is a fixed term) will usually have a termination clause with a stipulated notice period. Such a notice period tends to be shorter than notice periods agreed between an employer and employee. Independent contractors are not protected by any minimum statutory prescribed notice periods.
e. Local Limitations on Use of Independent Contractors
There are no local limitations on the use of independent contractors. There is howev-er the risk that a person who has been contracted as an independent contractor may be construed as an employee. In that situation, there may be ancillary issues such as whether the employer has fulfilled its statutory duty to pay CPF contributions in respect of the individual. This situation is more likely to arise where the contract has been poorly drafted.