A first employee costs more than the salary on the offer letter. For a Singapore citizen or permanent resident, add employer CPF, the Skills Development Levy, work injury compensation insurance where it applies, recruitment, equipment, software, training and the cost of paid leave. A practical rule is to build a monthly cost model before you advertise, and to test whether the extra revenue or time saved covers it. This guide helps you do that, with a worked example you can adapt.
Raffles Corporate Services works with a panel of experienced Singapore law firms who offer cost-effective and efficient legal service and advice. This article is general information only and is not legal advice.
Why build a cost model before you hire?
Most directors ask what they must do when hiring, which our first employee compliance checklist answers. A different question comes earlier: can the company afford the hire, and is hiring better than outsourcing or using a part-timer? A cost model gives you the number to compare. It also stops you from setting a salary you cannot sustain, which is one of the main causes of late salary payments later.
What are the recurring monthly costs?
| Cost line | Who it applies to | What to budget |
|---|---|---|
| Gross salary | All employees | The agreed monthly wage, plus any fixed allowances |
| Employer CPF | Singapore citizens and permanent residents | 17% of wages for employees aged 55 and below, subject to the wage ceilings. Rates for older employees are lower. Check the CPF Board’s current table |
| Skills Development Levy (SDL) | All employees working in Singapore, including foreigners | 0.25% of monthly wages, with a minimum of S$2 (for wages below S$800) and a maximum of S$11.25 (for wages above S$4,500) |
| Work injury compensation insurance | All manual workers, and non-manual employees earning S$2,600 or less a month | Premium from a designated insurer, based on the insurer’s quote |
| Payroll processing | All employers | Software or a bureau fee, or the time of whoever runs payroll |
| Bonuses and benefits | As agreed in the contract | Any guaranteed or customary bonus, medical or transport benefits |
CPF is paid by the employer for Singapore citizen and permanent resident employees whose wages exceed S$50 a month, and the CPF Board’s published ordinary wage ceiling is S$8,000 a month for 2026. Foreign work pass holders such as Employment Pass holders do not receive CPF contributions, but the SDL still applies. The CPF Board also says increased CPF rates will apply from 1 January 2027 for senior employees, so check the rate table at the time you hire. For a longer explanation of obligations, see our guides on employer CPF contributions and on SDL, foreign worker levy and other statutory contributions.
What are the one-off and hidden costs?
- Recruitment: job advertising, an agency fee if you use one, and the time spent interviewing.
- Equipment and software: laptop, phone, software licences and a desk or workspace.
- Onboarding and training: the first months are rarely productive at full capacity.
- Paid leave: under the Employment Act an employee who has worked for three months is entitled to paid annual leave, and public holidays and sick leave are also paid. You pay for days that are not productive, so the cost per working day is higher than salary divided by 365.
- Insurance and legal set-up: a written employment contract and, if you wish, other cover. Our overview of business insurance for Singapore SMEs sets out the compulsory and optional covers.
- Notice and exit costs: notice pay, unused leave and any agreed payments if the relationship ends. See probation and confirmation for how a trial period works.
- Management time: supervision, review and feedback, which comes out of your own working hours.
How do you calculate the monthly cost?
- List the gross monthly salary and fixed allowances.
- Add employer CPF at the applicable rate, using the CPF Board’s current table and the employee’s age and status.
- Add SDL at 0.25% of wages, applying the minimum and maximum.
- Add one-twelfth of the annual cost of insurance, equipment, software and training.
- Add one-twelfth of any bonus you intend to pay.
- Divide the total by the productive days in the month, after leave and public holidays, to get a cost per productive day.
Example: a local employee at S$4,000 a month
Example: this is a hypothetical illustration, not a real client. It assumes a Singapore citizen aged 35, 2026 rates and no bonus, and ignores the annual CPF ceiling.
| Item | Monthly | Annual |
|---|---|---|
| Gross salary | S$4,000.00 | S$48,000 |
| Employer CPF at 17% | S$680.00 | S$8,160 |
| SDL at 0.25% | S$10.00 | S$120 |
| Total before other costs | S$4,690.00 | S$56,280 |
The company then adds its own quotes for insurance, equipment, software, recruitment and training. If the employee takes, for example, 14 days of annual leave, 11 public holidays and a few sick days, the company is paying for the whole year but receiving fewer productive days. A S$4,000 salary therefore costs the company well over S$56,000 a year before the extras, and the hire needs to bring in or save at least that much to justify itself.
What if the first hire is a foreign employee?
The cost structure changes. Foreign employees on work passes do not attract employer CPF, but you may pay pass application costs, levies and medical insurance depending on the pass type, and the salary must meet the pass requirements. For an Employment Pass, MOM’s qualifying salary is currently S$5,600 a month for most sectors and S$6,000 for new applications from 1 January 2027. Compare the options in our guide to Employment Pass costs for a small company. SDL still applies to foreign employees.
Should you hire, outsource or use a part-timer?
Use the cost model to compare like with like. Ask what the task is, how many hours a week it really takes and whether it is recurring. A full-time hire suits steady work that needs your direction. An outsourced provider suits specialised or irregular work, where you pay for output. A part-time employee or freelancer may suit a smaller workload, though the contract must reflect the real relationship. For payroll itself, compare running it in-house with payroll outsourcing costs.
Which records should you set up from day one?
- A signed employment contract and the key employment terms.
- Identity, work pass and bank details as applicable.
- A payroll file showing salary, CPF, SDL, leave and payslips.
- Insurance policy documents where work injury cover applies.
- An annual income tax filing process. See our note on IR8A and the Auto-Inclusion Scheme.
Frequently asked questions
Do I pay CPF on a part-time employee?
Yes, if the employee is a Singapore citizen or permanent resident and the wages exceed the CPF thresholds. CPF applies by status and wages, not by whether the job is full-time.
Is work injury insurance compulsory for an office employee?
Only for non-manual employees earning S$2,600 or less a month, according to MOM. Above that, insurance is optional, but you must still compensate a valid claim whether or not you are insured.
What is the penalty for not insuring workers who must be covered?
MOM states that failing to provide adequate insurance is an offence, with a fine of up to S$10,000, imprisonment of up to 12 months, or both.
Does SDL apply to the director?
SDL applies to employees working in Singapore. Whether a director is an employee depends on the arrangement, so confirm the position before you pay yourself through payroll.
When must CPF be paid?
CPF is generally due by the 14th of the following month. Check the CPF Board’s current instructions for your submission method.
Can I hire a family member to reduce tax?
Only if the employment is genuine and documented. Our article on employing family members explains the CPF, tax and governance points.
Need help budgeting for your first hire?
If you are planning a first hire and want the cost modelled properly, contact the Raffles Corporate Services team at [email protected] or on WhatsApp at +65 8501 7133. We can set up your payroll records, prepare monthly payroll and CPF submissions, keep your books and work with you on the accounting and corporate secretarial side of growing a team.
The Raffles Corporate Services Editorial Team, Raffles Corporate Services