You want your business to grow faster, but reporting requirements are slowing you down. Your're obligated to pay taxes and levies, and government agencies are asking you to round them in different manners. Confused? Here's a quick guide on how to round your taxes and levies.
We'll use the statutory CPF (Central Provident Fund) contribution and SDL (Skill Development Levy) as examples later because most businesses need to pay them.
Breaking down payroll-related expenses
First, let's start with a breakdown of what you need to do before paying your employees.
Payroll and related expenses
You'll see that you have three things to consider before arriving at the net salary figure, as follows:
- Levies: For example, SDL and FWL (Foreign Workers' Levy).
- Deductions: These are the employees' own expenses that you're obligated to pay on their behalf, e.g., contributions to self-help groups like CDAC, SINDA, Yayasan Mendaki Fund, and Community Chest.
- CPF: This is a hybrid of the above two, comprising an employer cost (the employer's contribution) and an employee deduction (the employee's contribution).
In general, FWL and all employee deductions follow fixed scales prescribed by the relevant agencies, with amounts rounded off to the nearest cent.
SDL and CPF, however, have specific rules to comply with.
Before that, you need to know the different rounding methods... This is important: a summary of rounding methods
You'll be surprised that the terms used are not universal, so we'll standardise them here:
- Normal rounding or simply "round (off)": This means that anything "5" and above is rounded upwards and anything below "5" is rounded downwards. Sometimes, normal rounding is also known as "round up" which should not be confused with "round upwards" to be explained next.
- "Round upwards": This means that amounts are always rounded upwards to the next HIGHER amount.
- "Round down" or truncate: This is the situation where figures are always rounded downwards to the next SMALLER amount.
Now, some examples...
To understand how SDL and CPF are rounded, we'll need to use the "round (off)/ round up" and "round downwards" methods.
How to round SDL?
SDL is computed at both the organisational and employee levels. What do I mean?
Let's suppose that the SDL rates are stipulated as follows:
Every employer shall pay SDL at the rate of 0.25% of the first $4,500 of each of their employees’ monthly remunerations subject to:
- a minimum of $2 (for employee earning $800 or less a month)
- a maximum of $11.25 (for employee earning $4,500 or more a month)
To calculate your SDL, follow these 3 steps:
So you see, for SDL, you use the normal rounding for each tier. When you get the total, you then drop all cents.
How about CPF?
CPF is calculated at the employee level only and the rounding is unique for each component: employer CPF, employee CPF, and total CPF. You can get interesting results here...
Assuming that the CPF rates are as follows for a particular employee (for illustration only):
CPF - employer
CPF - employee
Employee salary subject to above CPF rates
Calculate the CPF in 3 steps:
If you use the CPF tables provided by the CPF Board, the amounts are already properly rounded. Do not be surprised, therefore, if you find the rounding for your employer CPF "out" by a dollar, as demonstrated above. Conclusion - use your knowledge for other statutory obligations
Even if you do not manually calculate your payroll and related liabilities, understanding the rounding principles makes you more confident when you read government regulations on various employer obligations. Consult your accountant and tax agent for clarifications. Your homework:
Now, let's look at a topic not related to payroll. Read this letter by IRAS (Inland Revenue Authority of Singapore) on GST (Goods and Services Tax) rounding: GST on receipts are allowed to be rounded off to a whole cent
Is it easier now to understand IRAS' message?
A.B.U.S.E. Takeaway for QuickBooks Users
If you do not use the QuickBooks payroll module - which is designed for Canada or Australia businesses, depending on the country version that you're using - then you need to record your payroll in two steps:
- Use General Journals to record your liabilities
- Use Write Cheques to pay your liabilities
Bank reconciliation is easy to understand
Does it feel good to receive a returned cheque from the bank?
Never. As a business owner, it means that my work is not paid, and maybe even cheated.
Five years ago, I had to bank in three cheques from a customer for the same invoice because the first two cheques bounced. In fact, the third cheque had to be presented to the bank twice before it cleared. Today, I can tell you the exact cheque numbers and dates of the whole sequence of events. Do I need a photographic memory to do that? Not at all. Let me show you a simple method I use to keep an electronic trail within my accounting software that allows you to know your customers better.
Think thrice before deleting a dishonoured cheque
In some software, you can easily delete/void a cheque received or paid. You may be tempted to do that for a dishonoured cheque.
But you should not do so if you want to retain an electronic trail.
Secondly, if you need to keep your published financial reports consistent with your accounts, you may not delete a bounced cheque, especially if the cheque involved is not material. Deleting a cheque changes your accounts retrospectively - refer diagram below - and requires that you amend distributed reports.
Lastly, you also do not normally delete a bounced cheque that shows up in your bank statement and, because of month-end cut-off, will only be reversed in the next month's bank statement. (Your accountant might have matched the cheque against the bank statement and prepared a bank reconciliation report. Deleting such a reconciled cheque creates a mismatch in your next bank reconciliation).
With these constraints in mind, let's examine how to follow up on a dishonoured cheque that you decide not to delete.
Handling bounced cheque from customer
The treatments differ depending on whose cheque it is, as follows:
Re-invoice customer for the cheque that bounces
- a customer's payment cheque bounces
- your own cheque to a supplier cannot clear
Let's backtrack and evaluate what you should do when a customer cheque bounces. You must do two things:
- Claim that amount from the customer
- Reduce your bank balance by the same amount so that you do not overstate your available balance
To get QuickBooks to accomplish that, you just need to go through two steps: Step 0
(This is an one-off task). Create an item for you to invoice the customer. This item is not meant to increase sales (in accounting, Cr Sales), but rather to reduce your specified bank's balance (i.e., Cr Bank).
Invoice the customer with the item created in Step 0. This invoice is not a usual sales invoice, but rather a debit note (no GST) to claim an amount from the customer.
Get a replacement cheque from the customer and do a receive payment against the debit note created in Step 1.
The infographic on the right explains.
Record a liability for your own cheque that cannot be cleared Handling your own bounced cheque
Your cheque to a supplier may not be able to clear for different reasons:
- Dishonoured: This is due to an oversight at your end, e.g., insufficient funds, wrong signatory
- Spoilt: The receiving party spoils your cheque by mistake, e.g., torn, defaced, misplaced
- Undelivered: The cheque is simply lost in the mail
For your own cheque that cannot be cleared, your bank statement will not show any withdrawal. However, once you know that your cheque is bounced, spolit, or lost; you need to call the bank to cancel the cheque (if necessary), and do an accounting exercise as follows:
- Reinstate your bank balance (temporarily)
- Record a liability to the supplier (because the supplier is still owed the amount)
In QuickBooks, it is again a two-step process: Step 0
(For information only). Leave the original cheque entry alone.
Enter a bill to create a payable to the supplier (Cr A/P). In the "Expense" tab, select the bank account that the original cheque was drawn on (this is put money back into the bank, Dr Bank).
Prepare a new cheque to pay off the bill created in Step 1.
Here's another infographic to help you understand the flow.
When you have a cheque that cannot be cleared, you need to consider whether you can delete the cheque by asking some questions as follows:
- Does it affect any report that I've distributed?
- Does it affect my GST return submitted?
- Does it affect my bank reconciliation done?
If you answer "yes" to any of the above or if you decide to keep an electronic trail of the cheque, then you should not delete or void the cheque. Instead, go through a two-step process to track the cheque depending on whether it is a customer cheque or your cheque to supplier. Your homework
Go ahead, print the above infographics for your personal reference.
“You can't motivate people; people are self-motivated.”
Or rather, self-interested.
This does not mean that you burn your motivational-theory books. What it means is that motivation is not static, but contextual.
For example, a cash bonus is good.
But it's better to personalise the gift. How?
To the newlywed, a candlelit dinner voucher for 2 is more exciting. To the working mom, a paid family trip to the zoo is more meaningful. To the career-minded executive, an accompanying handwritten letter signed by the boss is more rewarding.
If motivation can be applied straight from the books, then it's easy. And because it's easy, it's rarely life-changing. Our job as managers is far more than just being easy.
This coming children's day, how are you rewarding your staff members who have children at home? Or your Gen Y co-workers, who are "children" of some proud parents?
A.B.U.S.E. Takeaway for QuickBooks Users
The QuickBooks Employee Centre is often overlooked as a data mine to help managers interact better with staff members.
The following shows an employee record in QuickBooks:
First, 2 main tabs (Personal Info tab and Employment tab) under each employee name allow you to keep useful details of the employee. (QuickBooks uses main tabs and sub-tabs to let you put information in logical categories). Some standard details that you can maintain are birth date, hire date, and designation.
As a flexible software, QuickBooks also allows you to add custom fields (up to 7 fields) so that you can keep track of other meaningful employee information (as illustrated above).
Secondly, update any general details of the employee by using the Notes field (click the Notes button above).
Armed with all these valuable information, you now have the intelligence to relate personally with each staff member:
Note: This report is customised from the standard report (Reports > List > Employee Contact List).
click to see larger image
While preparing the above chart, I must have re-designed it a dozen times, or more. It's not perfect, but I have to say "no more" at some point. Here's Parato's 80/20 rule to tame any perfectionist's mind: 80% of the benefit is generated by 20% of the effort. What this also means is that the last 20% to perfection requires an extra 80% of the effort. In the multiple tasks that we do each day, we need to know when to stop.
In the countless tasks that scream for our attention each day, we also need to decide which ones to start doing. Here, the Eisenhower Matrix of prioritisation comes in helpful.
According to former U.S. President Dwight D. Eisenhower, tasks should be organised into 4 quadrants of a urgent/important matrix and prioritised accordingly as follows:
Most people are trapped in the "Urgent" column only and rush between the important (1) and unimportant (3) daily. However, people should concentrate more on the "Important" region and give priority even to tasks that are not yet urgent (2). For example, file income tax return way before the deadline.
At this moment, my Outlook new mail alert sounds for the nth time (where n = integer > 1). Perhaps it's time to process my emails.
Regarding email management, Martin Mann's Inbox Zero system is worth adopting. The trick is to keep your inbox to near zero by making a conscious decision each time you open a new email. Choose one:
Delete --> Delegate --> Respond --> Defer --> Do
The last 2 actions - defer and do - are the ones that can suck us into a big black hole if not properly managed.
By combining the 2 concepts - Inbox Zero and Eisenhower Matrix - you can productively manage your email folders (or physical in/out-trays) in the manner shown.
In summary, itemise the tasks that you have to do from your emails, in-tray, verbal instructions, and personal goals; prioritise and decide the important tasks to start; then bear in mind the 80/20 rule when you do each task.
A.B.U.S.E. Takeaway for QuickBooks users
There are several ways you can use QuickBooks to help you become more proficient in your job. Let's explore three below.
1. To-Do List
Company > To Do List
QuickBooks has a To-Do List that you can use to improve your personal efficiency.
If you use QuickBooks' To-Do List as a normal to-do function, then you are merely adding noise to the multitude of other utilities available - Google desktop, sticky pad, mobile apps, email calendar, Google calendar, etc.
However, QuickBooks To-Do List can be applied differently as 2 very useful documents.
A. As simple operating manuals
- Don't have to rely on brain power of different people
- Can go on leave with peace of mind because colleagues can help to cover duties easily
- Boss doesn't have to worry about money plant withering
B. As company-wide list of deadlines
Tip: Once task completed, simply revise due date to the next deadline.
2. Duplicate transaction
At transaction screen, Edit > Duplicate [Transaction]
Most transactions we encounter are recurring in nature. The duplicate transaction capability in QuickBooks is a great time-saver.
3. Keyboard shortcuts
Make use of your keyboard to do things faster in QuickBooks. These are some common shortcuts:
Ctrl+C : Copy highlighted text/characters
Ctrl+X : Cut highlighted text/characters
Ctrl+V : Paste previously highlighted text/characters
Ctrl+Ins : Insert line (above line where cursor is currently on)
Ctrl+Del : Delete line (where cursor is currently on)
Ctrl+A : Call up the Chart of Accounts
Ctrl+F : Call up the Find transaction function
+ : Next day
- : Previous day
T : Today
M : First day of the Month
H : Last day of the montH
Y : First day of the Year
R : Last day of the yeaR
Are there any other productivity tools in QuickBooks that can make all our lives easier?
I'd like to start out by saying 'thank you' [pause] to all the brothers and sisters that have come here today representing this cause. I have been asked by Mr Itaka and the Tribal Council to speak to you and the members of the press about the injustice that's been brought against us by some government officials' big business.
How many of you out there have heard of alternative engines? Engines that can run on anything from alcohol to garbage or water? Or carburetors that can get hundreds of miles to the gallon? Or electric or magnetic engines that can practically run for ever?
[3:15] And finally, as long as there's profit to be made from the polluting of our earth, companies and individuals will continue to do what they want. We have to force these companies to operate safely and responsibly, and with all our best interests in mind, so that when they don't, we can take back our resources and our hearts and our minds to do what's right.
[3:40] End of speech.
The above is a speech given by Steven Seagal in the closing scene of his 1994 movie "On Deadly Ground".
Everybody needs to make a presentation at some point in time. When you need to do one, remember this basic presentation rule:
First impression lasts
Last impression stays
Whatever in between, people forget
The introduction of a presentation has only one objective, that is, to tell the audience what you are going to tell them.
You have less than a minute to make the first impression that will "help" the audience decide whether to continue listening to you, or wander away to other things on their mental to-do list. To capture attention, one of the most effective ways is to tell them an interesting fact, a piece of insider information, a set of stunning statistics, a bold claim, or anything that is unusual, uncommon or unknown. But relevant to the audience.
In the introduction (and elsewhere in the presentation), establish rapport with the audience by using 3 simple techniques:
1. Ask questions to relate their thoughts to the topic ("How many of you out there have heard of alternative engines?")
2. Give examples that they are familiar with ("Engines that can run on anything from alcohol to garbage or water")
3. Use the loudest statement you can ever make in a speech - PAUSE
Once you have started with an impact, transit into the main body. At this stage, you job is to tell the audience what you want to tell them. The simplest rule to follow here (unfortunately, also one that is most broken) is this:
Make use of visual aids to complement, NOT compete with, what you have to say
In the above movie, a video at the background (visual aid) is perfectly harmonised to support the points made by the speaker (audio). Contrast this with most presentations that use slides after slides of bullet points. Bullet-point slides only compete with the speaker for attention because the audience would be reading the same words that are being spoken at the same time.
By the end of your presentation, you would have provided a lot of information. This is why, at the closing, you need to summarise for the audience what you have already told them. Most importantly, you need to end with a call-to-action – a statement of what you want the audience to do. To take home a point? To act on something? To come back for more? Your objective at the conclusion is to let your audience leave with a sense of closure.
Incidentally, the above video clip is the closing scene of a movie where the speech is presented to leave a lasting impression in the minds of the people who watch it.
When your audience goes back, it is said that they will forget up to 90% of what they hear within one week. The introduction and conclusion are two definite areas that they can vaguely remember to tell their friends and associates. So make your head and tail extraordinary to win half the battle.
The relationship between wage and productivity is not a straightforward one.
We are told that wage increase should be supported by productivity increase. Is this always true at the micro level?
An employee who is paid below the market rate will not feel the need to produce. In fact, given a choice, he or she will probably not stay; just as why a new hire who is offered a salary below the perceived market rate might not want to join the organisation.
Therefore, it is unrealistic to ignore this perceived “fair wage” in the productivity equation.
At a low-wage level, all things being constant, wage probably determines production (and productivity). In fact, a reasonable wage increase could lead to a more than proportionate increase in productivity. (The blue curve in the yellow region).
Beyond a certain point, wage ceases to contribute to productivity. The presumption that wage increase should be driven by productivity then becomes true. (The red curve).
Put all the basic costs of the business together (reasonable salaries, basic training, functional equipments, etc.) and if the enterprise cannot make a profit, perhaps the underlying issue is not one of productivity.
The normal price-quantity relationship for supply is not a one-dimensional upward sloping curve starting at the zero point. In the real world, it should be a band.
There are people who are willing to perform at zero price, for example:
- the lawyer representing a client at no charge,
- the artist showing up at a charity event for free,
- the student doing internship without salary.
But being without compensation is NOT being without value.
Consumers need to understand the intrinsic value of what they are getting: free delivery, free installation, free anything.
For the businessperson, the implication is to tweak the supply curve and replace quantity with value instead. This means that you should sell (and price) based on value (to the customer), not based on quantity or feature. "You get to enjoy an evening of favourite movies with your family" vs "this model has the best resolution in the market".
Caution: Operating in the red zone is challenging. The only legitimate scenario is to command a premium by providing a strong differentiation or high value-added.
Why employers don't train
When business owners don't spend on staff training, it is usually because of 2 seemingly valid reasons above.
Regarding the second reason, it is debatable which is cause and which is effect:
What if they leave because they are not adequately trained?
In any case, if you operate on the side of the fence where staff turnover is high, it means that there are management issues that need to be addressed. Staff training may well be a non-issue.
Most importantly, managers overlook the other side of the coin where employees stay. After all, isn't low staff turnover every manager's dream? When that happens, training comes into the picture as a relevant tool for productivity and motivation. Will you therefore decide for yourself?
The case for training
Introduced in the Singapore Budget 2010 and enhanced in Budget 2011 and Budget 2012 to provide tax benefits for qualified business investments, effective for years of assessments 2011 to 2015. View slide show below...