CPF contributions are mandatory for all Singaporean and Singaporean PR employees. Each month, an employer contributes up to 17% of their employees’ wages into their CPF accounts while employees also contribute 20% of their own wages.
The current monthly cap on contributions for the period is $6,800, and it will increase to $7,400 in 2025. This cap is known as the Ordinary Wage (OW) ceiling. This cap on OW ceiling will be raised to $8,000 by 2026.
There is another CPF contribution known as the Additional Wage (AW) ceiling that employers also need to be aware of and is calculated each year or before an employee leaves the company.
Read Also: 10 Types Of Employee Payments (Apart From Salary) That Businesses Need To Pay CPF For
What Is Considered Additional Wage (AW)?
Additional Wage (AW) refers to wages that are not granted wholly and exclusively for the month. It refers to other forms of remuneration provided to an employee beyond his/her monthly salary. This can include annual bonuses, leave pay, incentive payments and other payments made at intervals of more than a month.
For example, if you pay a year-end commission to an employee because they met the sales target for the year, this would be considered as AW wages. However, if the commission is part and parcel of your employee’s monthly salary (e.g. each month, they get a fixed salary and a commission component that is dependent on their monthly sales), then it’s considered as Ordinary Wage (OW) for the month.
What Is The Additional Wage (AW) Ceiling And How Do You Calculate It?
The AW Ceiling sets the maximum amount of AW on which CPF contributions are payable per year.
Unlike the OW ceiling, which is capped at a monthly salary of $6,800 (and $8,000 by 2026), the AW Ceiling is computed on a per employer per year basis. This means that if a sales manager worked for Company A from January to June, but leaves and works for Company B from July to December, his AW Ceiling will be computed twice – once for Company A and once for Company B.
The formula for calculating the AW Ceiling is:
($102,000) – (Ordinary Wages subject to CPF for the year) = AW Ceiling
Scenario 1: If an employee earns $7,000 a month:
$102,000 – ($6,800 x 12) = $20,400
Firstly, even though the employee may earn $7,000 a month, their OW ceiling remains at $6,800.
If the employee was then rewarded with $10,000 bonus at the end of the year, the entire bonus will be subject to CPF contributions since it falls below the AW Ceiling of $20,400.
But if the employee received a $40,000 year-end bonus, the maximum AW that is subject to CPF contribution will be the AW Ceiling of $20,400. The remaining $19,600 would not require any employer’s or employee’s CPF contributions.
Scenario 2: If an employee earns $5,000 a month:
$102,000 – ($5,000 x 12) = $42,000
In this scenario, the employee’s AW Ceiling is $42,000. So, if your employee enjoys an annual bonus and leave encashment pay that adds up to $40,000 for the year, the entire sum of $40,000 will be subject to employer’s and employee’s CPF contributions.
As an employer, it’s important to calculate the AW ceiling correctly so that you don’t overpay or underpay the government-mandated CPF contributions.
Read Also: Complete Guide To Employer’s CPF Contribution In Singapore
When To Calculate Additional Wage (AW) Ceiling?
According to the CPF Board, you should calculate the AW Ceiling twice during the year.
Step 1: At the start of the year, employers should first estimate the AW ceiling by using the current year’s estimated monthly OW.
For example, if your employee earns $6,800 or more a month, then the estimated AW ceiling for the employee will be $20,400. This is derived from the AW ceiling formula. $102,000 – ($6,800 x 12) = $20,400.
Step 2: At the 1) end of the year, 2) upon an employee’s resignation, or 3) if there are changes in the employee’s salary, employers should re-calculate the AW ceiling for the year based on the OW paid. Any shortfall in contributions should be paid together with the CPF contributions at the end of the year in December, or in the employee’s last month of employment.
For example, if an employee receives a salary increment or reduction after AW Ceiling had been estimated at the start of the year, the employee’s AW Ceiling will be recalculated and adjusted to reflect the new wages. Any shortfall should be paid to the employee at the end of the year in December or in the employee’s last month of employment.
As an example, take an employee earning $6,800 a month from January to October 2024, but his monthly salary was reduced to $3,000 in November and December. At the same time, he received a bonus of $40,000 in June.
At the start of the year, the estimated AW ceiling for the employee is $20,400 (from step 1 above). Thus, when the additional wages of $40,000 was paid in June, only $20,400 of the AW required CPF contribution. However, due to his salary reduction in November and December, his AW ceiling is now at $28,000. Thus, an additional $7,600 for the AW wages would now require CPF contribution by the end of the year.
In the event that an employer contributed excess AW, they can arrange for a refund via an online application with the CPF Board.
Lastly, note that even though the OW ceiling will be gradually raised from $6,800 to $8,000 by 2026, the AW ceiling will not change from the current $102,000. As the ceiling is raised towards the $8,000 cap, less of an employee’s bonus may attract CPF Contributions.
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