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What is an Employer CPF and How Does It Work in Singapore?
by Emma • Tue, 20 Sep 2022 12:54PM
The Central Provident Fund (CPF) is a critical component of Singapore's social security system. CPF supports Singapore citizens and permanent residents in putting money away to develop a solid foundation for retirement. As an employer, you must pay employer CPF contributions for your employees who are Singapore Citizens or Singapore Permanent Residents who earn more than $50 per month in total compensation. Still unfamiliar with employer CPF? Here is how it works in Singapore.
First, understand the definition of an employer. An employer is defined under the CPF Act as: Any person, firm, association, or group of people, whether incorporated or not, who employs an employee; the owners of any vessel on which an employee works; or Any manager, agent, or person in charge of paying an employee's salary on behalf of a company.
Your employee's salaries are used to calculate employer CPF contributions. As a result, it is critical to provide accurate wage information to the CPF Board so that the right amount of CPF contribution may be validated. You must report to the CPF Board the actual salary payable to your employee(s), excluding the Ordinary Wage (OW) and Additional Wage (AW) ceilings. You should do so even if your employee's earnings remain the same.
Here are a few things to keep in mind:
Only include payments that are defined as wages
Employee salaries are used to calculate employer CPF contributions. When declaring salary information, only include payments that are defined as wages. Here are some examples of what constitutes wage:
- Basic wage (Salary payable to an employee for work done)
- Overtime pay (Payment to an employee for working beyond normal working hours.)
- Bonus (Payment such as performance bonus.)
- Allowance (meal allowance and transport allowance.)
- Commission (For example, sales commission.)
- Cash incentive (For example, productivity incentive.)
Read Also: Childcare Leave in Singapore
Declare OW and AW information separately
Wages are classified as either OW or AW. When making monthly CPF payments, you must disclose your employee's OW and AW separately. Wages are categorized as either Ordinary or Additional Wages. The total of Ordinary Wages and Additional Wages is Total Wages. Employer CPF contributions are calculated on the employee's total wages payable in a calendar month, with differing limitations applied to Ordinary Wages and Additional Wages.
Wages must meet both of the following standards to be categorized as Ordinary Wages for the month. Wages are due or provided only in connection with an employee's employment during that month; and Wages for that month are payable by the 14th of the following month. Take, for example, a monthly wage. The Ordinary Wage Cap restricts the amount of Ordinary Wages that are eligible for CPF contributions in a calendar month. The current Ordinary Wage Cap is $6,000 per year. The employer CPF contribution rate tables include information on previous Ordinary Wage limits. If an employee's Ordinary Wage for a calendar month is $6,500, his or her contribution is calculated on that amount. This implies that no employer CPF payments are required for the remaining $500.
Wages not categorized as Ordinary Wages will be considered Additional Wages for the month. For instance, an annual performance bonus. The Additional Wage Cap restricts the amount of Additional Wages that are eligible for employer CPF contributions. The Additional Wage cap is imposed per employer and calendar year. The Additional Wage cap is calculated as follows:
$102,000* - Total Ordinary Wage subject to CPF for the year
*Equivalent to 17 months x Ordinary Wage ceiling of $6000
Declare wages without applying the OW and AW ceilings
It is critical that you report the actual wages owed to your employee(s) without taking into account the OW and AW ceilings. This allows your employee(s) to cross-check the earnings you stated against their payslip.
Failure to declare accurate wage information
Knowingly providing incorrect information to the CPF Board is a violation of the CPF Act. A first-time offender may be fined up to $5,000 or imprisoned for up to 6 months, or both. The CPF Board will undertake periodic audits and investigations to ensure the veracity of wage information supplied.
Verification of declared wages by your employees
Any disparities in their monthly pay submitted by their employers to the CPF Board should be addressed immediately with their employers. Employees who are dissatisfied with their employer's explanations may submit a complaint with the CPF Board.
Singapore's CPF system is a beneficial plan. Indeed, it is frequently mentioned on the international arena as having one of the world's greatest pension systems, offering financial stability for both individuals and society as a whole. If you want to learn more about employer CPF contributions, click this link.
Read Also: Paternity Leave Policy in Singapore
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