(TAX UPDATE) Convert All Staff to Subcontractors?

“Boss, I want to convert all my employees into subcontractors.”

Last week after CNY.

He sounded practical. Not emotional.
“Market slow. If convert, I save EPF employer portion, SOCSO, all statutory cost. Every month few thousand.”

I didn’t react.

I asked him slowly.
“They report at 9am?”
“Yes.”

“Punch card?”
“Yes.”

“Wear company uniform?”
“Yes.”

“Apply leave like other admin staff?”
“Yes.”

“Submit medical claims?”
“Yes.”

Then I asked him quietly:

“So… are they employees or subcontractors?”
He replied, slightly defensive.
“They sign subcontractor agreement. We copy employment contract and just change the title.”

I asked one more question.
“Did you stamp the agreement?”
He became irritated.
“Why need stamping?”

I paused.
“Do you think authorities only read the title?”

Silence.
Let me be very direct.

Changing the title does not change the substance.
If they work fixed hours.
Follow company rules.
Wear uniform.
Apply leave.
Claim medical.

That is employment in substance.
And when authorities review, they look at control.
Not creativity.
EPF + SOCSO + PCB + penalty + backdated contribution.
What started as saving RMx,xxx per month can become a RMxxx,xxx exposure.

And this is before we talk about staff morale and trust.

I understand cost pressure. Many SMEs are reviewing manpower structure this year.
Nothing wrong with restructuring. But restructuring must be defensible.

There are legitimate ways to optimise manpower cost.
However, it must be structured properly from the beginning not copied from an employment contract and renamed.

Strategy is not about avoiding cost.
It is about avoiding unnecessary risk.

PS : Authored by Mr Koh Teck Peng, the group principal, in his personal LinkedIn post

Visit Us

Wisma KTP, 53 Jalan Molek 1/8, Taman Molek, 81100 Johor Bahru
Wisma THK, 41, Jalan Molek 1/8, Taman Molek, 81100 Johor Bahru

KTP (Audit, Tax, Advisory)

An approved audit firm and licensed tax firm operating under the KTP group based in Johor Bahru providing audit, tax planning, advisory and compliance services to clients

THK (Secretarial, Bookkeeping, Payroll, Advisory)

A licensed secretarial firm in Johor Bahru providing fast reliable incorporation, secretarial services, corporate compliance services, outsourcing bookkeeping, and payroll services to clients