Independent contractors are common in Singapore. Unfortunately, they can be designated as misclassified employees when not used properly—something governments around the world are cracking down on.
There have been 160 cases over the past three years in Singapore, where workers who were originally classified as independent contractors were eventually deemed to be employees. While not every case of misclassification remains unnoticed by the courts, if employers are found guilty of misclassifications, it exposes them to a wide range of different risks that they would do well to avoid at all costs.
However, it is fairly easy to mitigate independent contractor risks in Singapore by keeping a few rules in mind.
How to Avoid Independent Contractor Risks in Singapore
International companies operating in Singapore must also deal with foreign entity risks. The Companies Act of Singapore states that a foreign company that conducts business in the country must register its presence. The firm is subject to government action if they have a physical (real) site that is not registered but is managed by someone associated with their company, whether it be an employee or independent contractor.
Operating a permanent establishment subjects firms to additional taxes and failing to register could result in hefty fines and other financial violations.
Misclassified Contractor Risks Increase Over Time
When an independent contractor is deemed to have an employment relationship with a firm, that independent contractor will be reclassified as an employee. This comes with a host of financial liabilities and complications. First, the employer must comply with all labor laws that protect employees, most of which function retroactively. This includes contribution arrears to the Central Provident Fund, Singapore’s comprehensive savings plan for retirement, health care, and housing. Authorities often add interest to these back payments. Moreover, the employer will also be exposed to retroactive, vicarious liability for the duration of the employment relationship.
The offending employer would also have to provide converted employees statutory benefits. This includes but is not limited to:
- Annual leave
- Paid medical leave
- Holiday pay
- Overtime pay
- Termination protection
Additional discretionary benefits provided to other employees, such as bonuses, must also be provided the converted employee. Finally, the converted employee can sue for additional damages.
Go Global with an Experienced Expansion Partner and Avoid Independent Contractor Risks Altogether
Because of these risks, many companies that expand into Singapore partner with an International Professional Employer Organization (PEO) like Velocity Global to make sure the process goes as smoothly as possible. Instead of hiring independent contractors, Velocity Global can help you source and compliantly hire in Singapore (or one of the more than 185 countries in which our global expansion capabilities apply) to ensure proper worker classification.