Employer Compliance: What is it and why is it important?

In business, rules and regulations exist to ensure efficient and effective operations. These rules can be internal or external. For most business owners, listing all the relevant rules and regulations is crucial. Businesses may be subject to various laws based on their relationship with other entities. One such relationship exists between these businesses and their employees.

For this relationship, business owners must ensure employer compliance. Employer compliance is a critical area for businesses and their employees. Most employer-employee regulations come from the government. Before understanding employer compliance and its importance, it is crucial to define what an employer is.

What is an Employer?

An employer is an individual, business or organization that employs an individual to work for them. The employer also has the authority to direct the employee, including how, when and where they work. An employer can be any entity, for example, government institutions, companies, firms, nonprofits, stores or even individuals.

An employer provides employees with work and pays them for their services. In exchange, the employer gets the service and benefit from it. In addition to the salaries paid by employers, employees may also get benefits, overtime, bonuses, etc. The definition of an employer may differ in various places. In essence, however, it is usually the same.

Being an employer subjects the entity to various rules and regulations. For example, these include ensuring proper working conditions, withholding taxes, paying salaries, etc. Therefore, the relationship between an employer and an employee comes under rules and regulations.  For employers, ensuring employer compliance is highly critical.

What is Employer Compliance?

Employer compliance is a process in which employers ensure they follow the laws, policies, guidelines and regulations that apply to them. As mentioned, anyone can be an employer as long as they have an employee and dictate the work. Once the relationship between an employer and employee gets established, the rules and regulations start applying to the employer.

Employer compliance is a requirement under the law. Many countries have specific requirements for employers to ensure they treat their employees right. On the other hand, these rules and regulations are also crucial for the government. Every country or jurisdiction has its own rules, which may come under an employment act. On top of that, these rules may differ based on the type of employer, industry, location structure and size.

With employer compliance, it is crucial for employers to identify all the rules and regulations that apply to them. These rules may come from the statute, specific agencies or from within the entity. Regardless of the source, employer compliance is highly crucial. Most organizations or businesses have a human resources department that ensures employer compliance.

Employer compliance can be a costly process. On top of that, it also requires other resources to ensure proper compliance. However, it can have significant benefits for both the employer and the employee. Some employers also introduce internal rules and regulations for employees to ensure a better relationship. Therefore, employer compliance can be of significant importance.

What is statutory or mandatory Employer Compliance?

Statutory or mandatory employer compliance refers to the specific rules and regulations set by the statute for employees. As mentioned, these rules and regulations may come under an employment act that differs from one country to another. For Singapore, the Employment Act dictates the relationship between employers and employees.

The Employment Act is the major legislation that governs the relationship between an employer and an employee. The act sets out a minimum standard of terms and conditions by which employers must abide. This act covers the hiring process, the working conditions, terminations, etc.  However, the employment contract between employers and employees also plays a significant part in those.

The Singapore Employment Act covers some critical areas of the employer-employee relationship. These include when employers should pay salaries, overtime, hours of work, public holidays, annual and sick leaves, maternity and childcare leave, etc.

Apart from the Singapore Employment Act, there are some other laws that also apply to employers. These may include the Central Provident Fund (CPF) Act. This act dictates that employers must contribute to the Central Provident Fund accounts of their employees. Similarly, it also includes the Child Development Co-Savings Act. This act dictates the maternity leave and maternity pay for employees.

Lastly, employers in Singapore are also subject to tax compliance. The Inland Revenue Authority of Singapore (IRAS) dictates the tax-related rules and regulations for employers. Employers are responsible for the annual tax declaration for all types of employees. Similarly, it will also include Tax Clearance (IR21) for foreign and Permanent Resident employees.

Apart from these, some other compliance for employers may include the following:

• Contributions to SHG-SHARE (Community Funds)
• Foreign Worker Levy (FWL)
• Key Employment Terms (KET)
• Skills Development Levy (SDL)
• Work Injury Compensation (WICI)
• Employee Handbook
• Employment Records
• Itemized Pay Slip
• Leaves
• Termination of Employment

What is non-statutory Employer Compliance?

Apart from statutory or mandatory employer compliance, some employers may also provide non-statutory benefits or perks. These benefits are not obligatory or statutory. However, employers will still offer them to employees to ensure a better relationship with employees. These rules fall under the internal employer compliance for companies and other organizations.

Non-statutory benefits that companies provide may include healthcare, per diem, relocation packages, employee stock purchase plans, etc. Usually, larger companies offer more perks to employees to ensure retention. However, some small companies may also provide benefits to ensure employees are content.

Why is Employer Compliance important?

Employer compliance is important for several reasons. One of the most important of these includes avoiding fines and penalties. Usually, non-compliance with statutory rules and regulations carries some fines. On top of that, employers also face potential litigation from employees if they don’t comply with these rules. However, employers that abide by these rules and regulations can avoid any significant damages.

Employer compliance is also highly critical for the employer-employee relationship. Undoubtedly, any organization or company’s success lingers on its employees and their performance. Employers can ensure the best performance by providing them with the optimal working conditions. The statutory and non-statutory compliance also builds trust between both parties.

Employer compliance also exists to provide a standard or benchmark for employers to follow. Employers can ensure they comply with the best practices and procedures through this process. On top of that, it can also help companies retain experienced staff and attract new employees. Through this, employers can obtain a competitive advantage over the competition.

Conclusion

Employer compliance is the process of complying with statutory rules and regulations for employers. These rules and regulations may come from external sources or internal policies. For Singapore, the primary source for these rules is the Singapore Employment Act. Employer compliance can have significant benefits for employers, as stated above.