Employee vs Contractor in Singapore : Know the Difference

As a business owner in Singapore, knowing the difference between an employee and a contractor isn’t just about semantics—it can have significant legal, financial, and operational implications for your company. Misclassifying workers could lead to non-compliance with the Ministry of Manpower (MOM) regulations, and that’s a risk you don’t want to take. Let’s break it down.

Contract of Service vs. Contract for Service

The distinction between an employee and a contractor lies in the type of agreement they operate under:

1. Contract of Service

   • This is what employees work under.

   • Governed by Singapore’s Employment Act, employees are entitled to statutory benefits like annual leave, sick leave, CPF contributions, and protection under labor laws.

   • The employer has a significant level of control over how, when, and where work is performed.

Example: Your marketing executive working 9-to-6 at your office is on a contract of service.

2. Contract for Service

   • This applies to independent contractors, freelancers, or vendors.

   • They are not covered by the Employment Act and are not entitled to employee benefits like CPF contributions or leave entitlements.

   • Contractors are hired to deliver a specific outcome and generally have more autonomy over how they complete their work.

Example: The freelance graphic designer you hired to create your website is likely on a contract for service.

Key Differences Between Employees and Contractors

Criteria	Employee (Contract of Service)	Contractor (Contract for Service)
Control	Employer controls how, when, and where work is done	Contractor decides how and when to perform the work
Statutory Benefits	Entitled to CPF, leave, and other Employment Act benefits	Not entitled to CPF or benefits under the Employment Act
Tax Responsibilities	Employer handles income tax filings (Form IR8A)	Contractor handles their own taxes
Nature of Work	Continuous, integral to business operations	Specific project or deliverable-based
Termination	Requires notice in line with Employment Act	Governed by the terms of the contract

Why It Matters

Getting this classification wrong can lead to:

• Legal penalties: Misclassifying employees as contractors could violate MOM regulations.

• Unnecessary costs: You might be paying CPF contributions or benefits you’re not legally obligated to provide—or failing to provide them when required.

• Disputes: Misunderstandings about roles and expectations can lead to sour relationships or even lawsuits.

Understanding this distinction ensures you remain compliant and maintain clear agreements with your workers.

How to Avoid the Hassle

Navigating employment regulations can feel overwhelming, especially when juggling contracts, CPF contributions, and compliance with MOM standards. That’s where PayrollSG comes in.

Our team of payroll specialists ensures your workers—be they employees or contractors—are classified correctly, so you can focus on growing your business with peace of mind. Learn more about our services at PayrollSG.