Talenox what to look for in a payroll software

What To Look Out For In A Payroll Software

This post was originally published in October 2014 and has been completely revamped and updated for accuracy and comprehensiveness.

I’ve had the privilege of taking many business professionals through their payroll process. From entrepreneurs to SME business owners, HR administrators with no prior experience to Finance controllers of MNCs, even outsourcing consultants with a portfolio of clients – many of them face the problem of not knowing what to do with the issuance of paychecks, and how to efficiently update or archive them.

Despite the complexities (headcount, number of pay components, frequency of payment, statutory requirements), good software can simplify the entire process such that you need only decide how many pairs of eyeballs are necessary to be confident of the accuracy of the final amount.

So let’s agree on what a good payroll software should have, in the context of Singapore. Before covering 3 key areas of consideration, I first need to explain some acronyms:
CPF – Central Provident Fund.
SDL – Skill Development Levy.
FWL – Foreign Worker Levy. Check your FWL and FW quota using our free online calculator.

Donation Funds:
CDAC – Chinese Development Assistance Council Fund
ECF – Eurasian Community Fund
MBMF – Mosque Building and Mendaki Fund
SINDA – Singapore Indian Development Association Fund


(source: Piece_Together)

Calculation Logic

1. Proration of salary for incomplete months of work (typically for new hires or departures). Common practice is to use work days in a month for calculation.

2. Salary payment in arrears – if payment is mutually agreed to be carried over to the following month, any CPF contribution due (including SDL and donation funds) should still be calculated for the 1st month of work.

3. Pay frequency – weekly, bi-weekly, bi-monthly, monthly. Monthly pay is by far the most common in Singapore. Weekly or bi-monthly pay are practised by businesses with a significant number of part time employees with a preference for more frequent pay disbursement. Both options are not commonly supported by payroll software due to CPF considerations (contribution amount is determined by a full calendar month’s salary). One solution is to apportion 20% of the payment for CPF to be reconciled with the last payment of the month.

4. Rate of pay – hourly/daily rated with varying rates based on the day of the week or rest days and public holidays. Again this isn’t a common feature but a good system should allow for any combination of rate of pay.

5. Additional payments & deductions – e.g. reimbursement, allowance, bonus, commission, overtime, leave encashment, loan, unpaid leave. Apart from capturing these pay items, it’s crucial to determine if they contribute to CPF (under either ordinary wage or additional wage, each has separate capping) and Tax calculations. Most software typically tag common items accordingly while some utilize an open-ended feature for users to determine the appropriate contribution.

6. Statutory contributions – CPF, SDL, FWL, Donation funds. Aside from the contribution situations highlighted above, treatment of decimal places needs to be applied correctly. Steps to compute CPF contribution:

  • Compute the total CPF contribution (rounded to the nearest dollar).
  • An amount of 50 cents should be regarded as an additional dollar.
  • Compute the employee’s share of CPF contribution (cents should be dropped).
  • Employer’s share = Total contribution – Employee’s shared.
  • Employers can pay SDL together with their employees’ CPF contributions.
  • For SDL, cents should be ignored only when you arrive at the total SDL Payable.

User Functions

1. Mass data upload. Simply put if you have too many entries to key in individually, this feature is a real time saver. The challenge lies in how well the data is sorted within the software. A smart process should require minimal data massaging, with the option for user-defined formatting and naming conventions.

2. Job grades. Again in a sizeable workforce having defined job grades is good for career progression mapping, and allows matching of employees to predefined compensation packages.

3. Reports. Can’t live without them. The bare minimum is a summary of all payroll items with sum totals. Building up on this, the variation in style becomes quite extensive. In my opinion, the report view should rely on design (colour, layout, alerts) to faciliate checking without having to switch between reports/views. Unless each report serves a unique validation purpose.

4. Payslip. The Ministry of Manpower (MOM) intends to mandate the issuance of itemised payslips by 2016, in hard and/or soft copies. Pretty straightforward. Most software should already support individual access to view the payslip online or forwarding of payslips via email.

5. Integration. The must haves: CPF, IRAS, Bank – online submission compatible. The good to haves: integrated to accounting, Leave & Attendance tracking, and expense management software. Everybody loves an all-in-one software.


(source: Architecture_Design)

Architecture & Design

1. On the cloud. More users are adopting cloud software over on-premise installation. The advantage is data mobility plus no hassle over version updates. Especially with regular statutory updates affecting calculation logic. With regulated data protection laws, any fuss over data security on cloud database is quickly fading.

2. Speed. I’ve come across software where processing speed is affected by the total headcount captured. In one instance it slowed down by 1 second per record! Modern software using newer technology stacks can process thousands of records within seconds. Not a big deal overall, more FYI in case you assume the software is prone to hanging.

3. Simple. A software with comprehensive computation logic coupled with enough user functions should be excellent right? Yes, functionally. But how simple is it to master? Simple enough that you can ignore the user manual and skip the training session? It’s really worth considering. Intuitive product design speeds up learning, especially for the inexperienced user.

Dealing with complexity is an inefficient and unnecessary waste of time, attention and mental energy. There is never any justification for things being complex when they could be simple. – Edward de Bono


Learn more about Talenox Payroll. Your life is about to get a lot easier.


We think you may also be interested in:
Itemised Payslips for Business Owners (compulsory in 2016!)
Accurate Calculation of CPF Contribution

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