Employers in Singapore are typically quite well-versed with the CPF scheme. Besides usually being a CPF member themselves, business owners and those who do payroll also have to contribute to CPF for their employees on a monthly basis when they pay salary.
While many are fairly familiar with the CPF scheme, there may also be lesser-known requirements we are not fully aware of. In this article, we detail 10 types of payments to employees (apart from their monthly salary) that businesses need to contribute CPF on as well. We also list some salary payments types that businesses don’t have to contribute CPF on.
#1 Commissions & Tips
Some employees, especially in sales, hospitality or F&B, receive a variable income each month in the form of sales commission and tips.
The CPF Board gives an example of tips as cash collected from customers to augment wages of hotel and restaurant employees.
Similarly, commissions for on monthly sales of for exceeding sales targets during the month are also considered Ordinary Wages, and CPF contributions have to be paid on them.
The classification of these payments as Ordinary Wages (OW) is also important, as there are other forms of commissions such as quarterly, yearly or others not payable during the month – these are considered Additional Wages (AW). This distinction is important as the limit for CPF contributions in the month (of $6,000) will not apply for AW.
Living allowances given to employees for things like rent, grooming or laundry expenses are considered staff benefits. CPF contributions are payable on such staff benefits. However, one workaround is that if such payments are made directly to the third-party, CPF contributions are not payable.
Similarly, other types of allowances also require CPF contributions:
- Handphone allowance
- Transport allowance
- Meal allowance
- Clothing allowance
- Overseas allowance
- Good attendance allowance
Again, if these are not fixed monthly allowances, and instead are paid on a reimbursement basis or directly to the third-party, CPF contributions are not payable.
Finally, even payments like education allowance for an employee’s child or fixed vacation/travel allowance require CPF contributions to be made.
#3 Festive Allowances
Another type allowance most businesses may not realise requires CPF contributions are for festive allowance. This includes cash payments (Hongbaos) during Chinese New Year or for Christmas celebration.
Making it slightly complicated, like most CPF contributions, employee CPF contributions also have to be made. This can make the amount complicated to calculate and if it’s done via cashless modes, make the gesture less significant/meaningful.
Cash prizes given to participants may also require CPF to be payable. It depends on whether the cash prize is for a work-related contest. Cash prizes for contest unrelated to work, for example as a lucky draw or dance contest at the company’s annual Dinner and Dance will not require CPF to be payable.
Cash gifts to employees on occasions such as their marriage or the birth of a child also require CPF to be contributed as they increase the employee’s wage. Gifts in-kind do not require CPF contributions though.
Bonuses are considered Additional Wage (AW) and require CPF to be payable. In the event employees are paid a 13th month bonus or a lump sum bonus at some point in the year, employers must make CPF contributions up to the CPF Annual Limit of $37,740.
This is an important consideration as employees who are paid more than the month limit on CPF contributions of $6,000 a month will still be eligible for CPF payments on their bonuses. For example, an employee who earns $6,000 a month will only accumulate $26,640 in CPF contributions during the year. He or she will still be eligible for CPF contributions of up to $11,100 on their bonuses – or up to $30,000 in bonuses.
#5 Maternity Leave
Females employees who are Singaporean or PRs are entitled to up to 16 weeks of Maternity Leave in Singapore. When your employee takes her Maternity Leave, employers will have to make CPF contributions on their wages.
As an employer, the government will co-pay a portion of this Maternity Leave. For female employees who are having their 1st or 2nd child, the government will fund up to $20,000 (including CPF contributions) per confinement for the last 8 weeks. For female employees having their 3rd and subsequent children, the government will fork out up to $40,000 (including CPF contributions) per confinement for the full 16 weeks.
If employers provide any subsidies for maternity expenses, these will not require CPF to be payable if the payment is made directly to the service provider.
#6 National Service (NS) Make-Up Pay
Under Singapore’s Enlistment Act, CPF contributions are payable for employees on NS training.
Employers have the bear the full share of the Employer CPF contributions, but can claim the rest of the income (including variable wage such as commission or overtime pay) from the Ministry of Defence (MINDEF)/ Singapore Civil Defence Force (SCDF)/ Singapore Police Force (SPF).
#7 Annual Leave Encashment
Cash payment in lieu of leave also requires CPF to be paid. This is because such a payment increases the wage of the employee.
In the same token, if employers deduct excess leave taken from an employee’s wage, CPF contributions should also be correspondingly reduced.
#8 Long Service Awards / Incentive Allowance
CPF may be payable for cash awards given to employees as a Long Service Award.
Interestingly, such cash awards are exempt from CPF contributions for every 5 year period if it does not exceed the employee’s Ordinary Wages (OW). For example:
|Long Service Award||Is CPF Payable?|
However, if such cash awards a given in periods shorter than 5 years:
|Long Service Award||Is CPF Payable?|
Nevertheless, if such cash awards are given to employees every 5 year period, CPF will be payable if they exceed the employee’s Ordinary Wage (OW).
Similarly, cash incentives, such as productivity awards, require CPF to be payable. In-kind incentives such as gifts do not require CPF to be payable.
#9 Holiday Allowance
CPF is payable for fixed payment to employees for vacation. In addition, from 1 January 2020, reimbursement for holiday expenses incurred by employees or their dependants require CPF contributions to be payable.
#10 Cash Proceeds For Share Options
CPF contributions are payable for cash proceeds for share options given to employees. This means employers who sell their shares and give employees cash proceeds due to their share options are also required to make CPF contributions.
However, if the shares options have been exercised and the shares are held in the employee’s name, then CPF contributions are not required.
And 5 Types Payments That Businesses Don’t Have To Pay CPF On
In the list above, there were certainly some payments even the DollarsAndSense team were surprised to find that CPF contributions were payable. Many employers may not realise this and may not have been making such CPF contributions.
Since there were so many unexpected payments that required CPF contributions, we also included 5 types of payments that do not require CPF contributions. This is for employers that may start second-guessing whether CPF contributions are payable given the list of 10 payments that require CPF to be paid on listed above.
#1 Retrenchment Benefit
Retrenchment pay, or any other types of payment given in compensation in lieu of notice period, severance pay or compensation for loss of employment do not require CPF to be paid. It is because these payments are seen as unrelated to employment.
However, CPF is payable on redundancy pay or temporary lay-off benefits, given to employees who are not required to work temporarily, but are not terminated because their services would be needed in the future.
#2 Salary In-Lieu Of Notice
When an employer terminates an employee and pays them a salary-in-lieu of notice, CPF contributions are not payable.
Similarly, if the leaving employee has to pay the employer a salary-in-lieu of notice, CPF contributions are not payable on the compensation.
#3 Finders Fees
If payment is made to an employee who introduces workers to the company, CPF contributions are not required to be made.
#4 Medical And Dental Treatments
Reimbursement for medical and dental treatments (local and overseas) incurred by employees and their dependants (spouse and children), do not require CPF contributions to be payable.
#5 Most Reimbursements
Finally, most reimbursements paid to employees do not require CPF contributions to be made. Such expenses are typically made on behalf of the business and usually include:
- Entertainment expenses for company’s clients
- Course/exam fees as part of employee’s training programme
- Mobile expenses incurred for official purposes on behalf of employer
- Laundry expenses for uniforms
- Meals for staying beyond working hours
- Transport expenses for official duty/beyond working hours
(Top image: Raymond Quek)
Need Financing Support During This Period?
From now till 31 March 2021, SMEs can enjoy extra financing support of up to $5 million through the Temporary Bridging Loan Programme.
Join The DollarsAndSense Business Community
For more content that helps entrepreneurs, freelancers, and self-employed individuals and learn to build better businesses, join the DollarsAndSense Business Community on Facebook.