Rights of the Self-Employed
A person is self-employed if they run their business for themselves and take complete responsibility for its success or failure.
Self-employed people do not have the employment rights and responsibilities of employees as they are their own employer. This negates the necessity for a contract of employment between two separate parties (employee and employer) and means that a self-employed person must decide for themselves things like how much to charge and the amount of holiday they should take.
Being self-employed, therefore, means forfeiting the right to:
- minimum mandatory paid annual leave and sick leave
- payment for overtime work
- the right not to be unfairly dismissed
- rest breaks, paid holiday and limits on night work
- protection against unauthorised deductions from pay
However, those who are self-employed will still have protection in place for their health and safety, as well as against discrimination & harassment. They may also have specific rights and responsibilities set out by the terms of any contracts that they have with their clients.
Protection for the Self-Employed
Those who are self-employed should consider what will happen should they become unable to work due to sickness or injury.
Personal insurance such as income protection can replace part of a self-employed person’s income if they can’t work because they are ill or disabled, and critical illness cover will pay out if a self-employed person gets a specific medical condition or injury listed on their policy.
Having detailed written contracts that specify the scope of work, work schedule, payment amounts and schedules, dispute resolution and termination clauses, are therefore extremely important. Refer here for a guide on contracts, or see sample legal contracts that you can use in your work.
Obligations for the Self-Employed
Central Provident Fund (CPF)
Self-employed persons earning an annual net trade income of less than S$6,000 are not required to make any CPF contributions, except to their CPF Medisave account at the prevailing mandatory rate. Any additional voluntary contributions to an individual’s CPF Medisave account may be claimed as tax relief in the following year of assessment.
Query: Why aren’t freelancers entitled to CPF if they are required to work at a client’s office a certain number of hours a week? After all, the same freelancer would receive CPF from an educational institution if he or she was teaching a course for a set number of hours during a semester.
Answer: The nature of the contractual relationship (i.e. whether an individual is considered an independent contractor or an employee) varies from case to case. An individual conducting a course in an educational institution may be characterised as an employee instead of a self-employed person, in particular if that individual is not responsible for providing the teaching materials for a particular course, and is bound by fixed working hours. That same individual providing services at a client’s office for a fixed number of hours a week may be characterised as an independent contractor instead of an employee, if that individual provides the necessary materials for the production of work, and is liable for any losses arising from the work produced for the client.
The entitlement to CPF flows from the nature of the contractual relationship, and mandatory contributions from an employer only arise from an employer-employee relationship.
A self-employed person is liable for income tax under the Income Tax Act (Cap. 134, 2014 Rev. Ed. Sing.) for the gains or profits from a trade, business, profession or vocation. Self-employed persons carrying on a trade or business may be allowed tax deductions from their income generated, reducing the total “taxable income” of that individual. These include expenses that are wholly and exclusively incurred in the production of income (unless prohibited under the Income Tax Act), including costs of staff and bad debts. Expenditure for the acquisition of assets for the purposes of one’s trade, profession or business, such as intellectual property rights, may be set off against income derived from the utilisation of such assets.
In Singapore, income tax is assessed on a preceding year basis for each year of assessment. For an individual, this means that income tax payable in 2018 would refer to that individual’s income earned in the calendar year 2017. If notified, taxpayers are required to file a tax return with the Inland Revenue Authority of Singapore (“IRAS”), and IRAS will subsequently issue a notice of assessment setting out the details of income tax payable and the terms of payment. The taxpayer must ensure that the information provided to IRAS is correct, or risk facing a fine or imprisonment.