Contributions towards a person’s Central Provident Fund (CPF) savings comes from 2 sources:
- Employee’s contribution, deducted from their salary
- Employer’s contribution, not deducted from an employee’s salary
This 2-way contribution method makes the CPF system profitable to the employee and their future, as well as making an employer socially responsible for their staff. Though the contributions are mandated by law, it comes as a boon in the later years when you need to buy a house, pay your medical bills or depend on savings after retirement.
An employee does not need to do anything towards their contributions – the onus of deciding and deducting the employee’s contributions is on the employer. However, the employee as well as the employer can offer to contribute more than the mandated amount towards their CPF accounts, under the Voluntary Contribution scheme.
Glossary Of CPF Contribution:
Some of the key terms that one needs to understand are:
Employer: According to the CPF Act, an employer is “a person, company, association or body of persons whether or not incorporated, by whom an employee is employed”. Also considered “employer” are owners of vessels (ships) that employs employees, and manager, agent or person who pays wages to an employee on behalf of an employer.
Employee: An employee is identified as “any Singapore Citizen or Singapore Permanent Resident who is employed in Singapore under a contract of service by an employer”. Employees include company directors, employees on concurrent employment, family workers, National Servicemen on in-camp training, part-time employees, and temporary or casual employees.
Ordinary Wages: Ordinary Wages (OW) are defined as “wages due or granted wholly and exclusively in respect of an employee’s employment in a specific month; and wages payable before the due date for payment of CPF contributions for that month”.
Additional Wages: Additional Wages (AW) are defined as wages that are “not granted wholly and exclusively for the month; or made at intervals of more than a month”. This includes incentives, leave pay, annual bonus, etc.
Salary Components Where CPF Is Payable:
It is not compulsory to pay CPF for all kinds of salary components. Wage constituents on which CPF has to be paid are:
- Basic salary
- Cash incentives
- Overtime pay
- National Servicemen make-up pay
However, the following parts of your salary do not attract CPF payments:
- Reimbursements for expenses incurred for official purposes
- Termination benefits such as retirement gratuity, ex-gratia payment, retrenchment pay, salary instead of notice period, etc.
- Gifts/incentives in kind
The employer’s contribution towards an employee’s CPF is separate from the salary they pay to the employee. It is a legal offence to subtract the employer’s contribution amount from an employee’s wages.
Employees Who Do Not Have Mandatory CPF Contribution:
The following kinds of employees do not have to compulsorily pay towards their CPF:
- Singapore citizens or Singapore Permanent Residents working overseas are not mandated by the CPF Act to receive contributions – it is a voluntary act for such employees and their employers to open a CPF account.
- Partners, sole proprietors and self-employed persons are also not mandated to make CPF contributions, except for payments into the Medisave Account. They can voluntarily contribute towards other accounts, though.
- Foreigners on Employment Pass, S Pass, Miscellaneous Work Pass or Work Permit.
- ‘N’ & ‘O’ level Government school students working during the scheduled school holidays.
- ‘A’ level students working during scheduled school holidays before their ‘A’ level examinations.
- Students working during vacation or term, under training programme approved by the following institutions:
- National University of Singapore
- Nanyang Technological University
- Singapore Management University
- Singapore University of Technology and Design
- Singapore Institute of Technology
- Nanyang Polytechnic
- Ngee Ann Polytechnic
- Singapore Polytechnic
- Temasek Polytechnic
- Republic Polytechnic
- Institute of Technical Education
- Students studying abroad and returning to Singapore to work during vacation or term, under a training programme approved by their overseas education institution, wherein the training period is less than 6 months in duration.
CPF Contributions Rates And Ceilings:
CPF contributions vary according to the employee’s salary and additional incentives, and their age. There are also maximum payable salary limits for both ordinary and additional wages. CPF has to be paid on Ordinary Wages up to S$6,000 per month. If your salary is higher than this amount, the remaining amount does not come under the CPF ambit. For example, if your salary is S$7,000, it is S$1,000 more than the limit set on OW. So CPF will be paid only for S$6,000 and not for the remaining amount. For Additional Wages, the limit is annual in nature as additional wages are not usually paid every month. The ceiling for AW is $102,000, 17 times the OW for a month.
For a clearer idea of how much money you should pay your employees, you can use the CPF Contribution Calculator available on the CPF website. The contribution and allocation rates are explained in detail in another article on the topic.
Common Errors In CPF Contribution Calculation:
Some of the common mistakes made by employers while computing CPF calculations are:
- Incorrect identification of Ordinary Wages and Additional Wages
- Incorrect calculation of Additional Wages
- Wrong classification of wage components as Reimbursement instead of Allowance
- Not making CPF payments on allowances, commissions, incentives and perks, overtime pay, etc.
- Not paying CPF contributions for employees on probation, part-time or temporary work, contract or casual job, and daily-rated or piece-rated wage payment
- Not making CPF payments on allowances and National Securitymen make-up pay
- Not paying CPF amount to employees who leave the company mid-month
- Making less CPF contribution when wages are not paid monthly
Frequently Asked Questions:
- How does an employer compute CPF for employees who do not receive wages on a monthly basis?
A. If an employee receives wages on a weekly or daily basis, the employer needs to add up the wages for a calendar month in order to compute the CPF contributions. For example, let’s say weekly wages are paid for the weeks August 29 to September 4, September 5 to September 11, September 12 to September 18, September 19 to September 25 and September 26 to October 2. From this, to calculate the salary for the month of September, the employer needs to apportion the wages from September 1 to 30 only, excluding the wages paid for August 29-31 and October 1-2. The wages computed for August 29-31 and October 1-2 would be added in to the monthly salary of August and October respectively.
- How does an employer deal with the change in CPF contribution rate when an employee moves from age group to the next?
A. For employees moving from one age group to the next – e.g., from 55 and under to Above 55 to 60 years – the CPF contribution rates will change as per the relevant age group, from the month after the employee’s birthday. For example, if Mr. Wang’s 55th birthday is on August 24, 2016, he will be moved to the Above 55 to 60 years group with 13% contribution rate from September 2016.
- How is the CPF contribution calculated on Additional Wages when an employee resigns?
A. If an employee resigns before the end of the calendar year, the additional wages ceiling needs to recomputed as per the actual ordinary wages paid in the year, until the last month of the job.
- Can an employer apply for refund of CPF payments if excess amount is paid?
A. Yes. If there is an error in calculation and excess CPF is paid, you can seek refund from the Refund Management Section of CPF.
- What happens if an employer makes less CPF contribution than actual?
A. The employer can make a manual or online payment of the underpaid or omitted amount, but will have to pay interest on the shortfall or late contribution.
- If salary hike arrears are being paid to an employee, would it be considered Ordinary Wages or Additional Wages?
A. The salary arrears you would pay to an employee in addition to the hike in the current salary would be considered as Additional Wages However, that amount will be considered as Ordinary Wages from the ongoing month.
- If an employee was paid Additional Wages in one company before he or she joined another company mid-year, does the second employer need to factor in the AW paid by the previous company?
A. No. Additional Wages are calculated per employer per year, and each employer has to pay it separately irrespective of payments by previous employers.
- If an employee requests that CPF not be deducted from their salaries, can an employer oblige?
A. No. CPF contributions are mandatory and not optional. So whether an employee likes it or not, CPF contributions have to be made if they are eligible for it.