Caution: Avoid these rounding mistakes in your salary computation

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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:

1. 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.
2. "Round upwards": This means that amounts are always rounded upwards to the next HIGHER amount.
3. "Round down" or truncate: This is the situation where figures are always rounded downwards to the next SMALLER amount.

Now, some examples...

	Round (off)/ round up	Round upwards	Round downwards
7.49	7 (nearest $)	8 (nearest $)	7 (nearest $)
7.50	8 (nearest $)	8 (nearest $)	7 (nearest $)
7.99	8 (nearest $)	8 (nearest $)	7 (nearest $)

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:

Calculating SDL	Employees earning...
	$800 or less	$800-4500 (exclusive)	$4500 or more
	O O O O O O O O	O O O O O O O O O O O O O O O O O O O O O O O	O O O
Step (1): Calculate SDL at the employee level
No. of employees	8	N.A.	3
SDL rate	$2	N.A.	$11.25
Subtotals	$16	N.A.	$33.75
Step (2): Calculate SDL at the company level
Total remuneration	N.A.	$18,429	N.A.
SDL rate	N.A.	0.25%	N.A.
Subtotal	N.A.	$46.0725	N.A.
(Normal rounding to nearest cent)		$46.07
Step (3): Add total SDL
Subtotals	$16	$46.07	$33.75
Total		$95.82
(All cents dropped)		$95

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
Total CPF
Employee salary subject to above CPF rates

16.5%
18.5%
35.0%
$1,010

Calculate the CPF in 3 steps:

Calculating CPF	Computed	Rounded	Rounding Rule
Step (1): Calculate total CPF
1010 x 35%	353.50	354	Normal rounding to nearest $
Step (2): Calculate employee CPF
1010 x 18.5%	186.85	186	All cents dropped
Step (3): Derive employer CPF
1010 x 16.5%	166.65	168	NO rounding, just difference between steps (1) and (2)

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:

1. Use General Journals to record your liabilities
2. Use Write Cheques to pay your liabilities

1.1 Journal - accrue for each employee's salary (one journal per employee)

			Debit	Credit
Dr	CPF - Employer	P&L	168
Dr	Salary	P&L	1,010
Cr	CPF Board - Employer CPF	B/S		168
Cr	CPF Board - Employee CPF	B/S		186
Cr	CPF Board - CDAC/ SINDA/ Mendaki Fund	B/S		1
Cr	Salary Payable	B/S		823

Notes:

• Tag the employee's name to each line of the journal so that you can generate reports to show expense/liability by employee.
• The accounts "CPF Board - Employer CPF" and "CPF Board - Employee CPF" are separated above so that the amount of employee CPF can be retrieved in future for completing the employee's IR8A. If you do not need QuickBooks to extract this information, then you can use just one general account "CPF Board - CPF Contributions".
• This journal may be printed as a simple payslip.

1.2 Journal - accrue for levies at the company level

			Debit	Credit
Dr	SDL	P&L	95
Dr	FWL	P&L	If any
Cr	CPF Board - SDL	B/S		95
Cr	CPF Board - FWL	B/S		If any

2.1 Write cheque - pay salary for each employee (one cheque per employee)

			Debit	Credit
Dr	Salary Payable	B/S	823
Cr	Bank	B/S		823

2.2 Write cheque - pay CPF Board as a lump sum

			Debit	Credit
Dr	CPF Board (main account)	B/S	Lump sum
Cr	Bank	B/S		Lump sum