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How To Choose a Payroll Software That Is Right For Your Business

Because payroll calculation is directly impacted by the employment laws that govern a particular country, it is important that your payroll software is programmed with formulae that are localized for your country of business operations. Learn how to choose a payroll software that complies with countries’ rules and regulations.

Hong Kong has the Mandatory Provident Fund (MPF) and if we dig deeper into Singapore for example, the following are some must-know acronyms for payroll calculation:

  1. CPF – Central Provident Fund
  2. SDL – Skill Development Levy
  3. FWL – Foreign Worker Levy

Types of donation funds:

  1. CDAC – Chinese Development Assistance Council Fund
  2. ECF – Eurasian Community Fund
  3. MBMF – Mosque Building and Mendaki Fund
  4. SINDA – Singapore Indian Development Association Fund

Image credit: Piece Together

The Ministry of Manpower of Singapore (MOM) provides the following formulae for salary calculation:

Calculation of salary formula Ministry of Manpower Singapore

Source: MOM Singapore

In other words…

Your payroll software must be good at math!

A good payroll software should get all of the following covered so you never have to worry about them:

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 first month of work.

3. Frequency of payment – weekly, bi-weekly, bi-monthly, monthly. Monthly pay is by far the most common practice in Singapore. Weekly or bi-monthly payment schedules 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.

Does your Employment Contract specify the rate of pay?

how to choose a payroll software-Hourly salary employment contract

With effect from 1 April 2016, all Employment Contracts for Singapore are to include these Key Employment Terms:

Start drafting Employment Contract with Key Employment Terms

5. Additional payments & deductions – e.g. reimbursement, allowance, bonus, commission, overtime, leave encashment, loan, and unpaid leave etc. Apart from capturing these pay items, it is crucial to determine if they contribute to CPF (as ordinary or additional wage) and tax calculations. Most software typically tag common items accordingly, while some utilise 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 share
  • 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

Besides being a mathematics genius, look out for the following features in your payroll software:

1. Mass data upload. This feature serves as an absolute time-saver if you have many entries that would otherwise require individual data-entry. 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. Having well-defined job grades is good for career progression mapping and helps to match employees to pre-defined compensation packages, especially in a sizeable workforce.

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 facilitate 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. 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 with the rest of your accounting, leave and attendance tracking, and expense management software. Everybody loves an all-in-one software!

how to choose a payroll 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 and little hassle in the event of version updates. This means that you can count on your software provider to keep up-to-date with the latest statutory changes, leaving you more time to focus on your business. 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. 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

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This is a guest contribution by Sebastian Kang, Co-Founder of Talenox, and was originally published in October 2015 on the Talenox blogEdited in August 2016 by Zegal.

how to choose a payroll software-Sebastian Kang, Co-Founder, Talenox


I’ve had the privilege of taking many business professionals through their payroll process. From entrepreneurs to small business owners, HR Administrators with no prior experience, to Financial Controllers of multinationals, and even third-party Consultants with a portfolio of clients – many of them struggle with the administrative requirements of updating, issuing, and archiving paychecks.

Naturally, as the size of your workforce grows, so do the complexities surrounding headcount, pay components, payment frequencies, and statutory requirements.

Good payroll software help to eliminate these, all while minimizing human error.