This article was first published on 9 July 2020 and has been updated.
In Singapore, CPF forms a crucial housing, retirement and medical safety net for citizens and permanent residents – via the Ordinary Account, Special Account and MediSave Account respectively.
While employees contribute up to 20% of their salary into their CPF accounts, employers play their part too, contributing up to 17% of their employee’s salary in their CPF accounts. The actual contribution rate and allocation into separate CPF accounts vary depending on an employee’s age and is capped at up to $6,000 a month and a CPF Annual Limit of $37,740 a year.
Individuals can make top-ups to their CPF accounts via the Retirement Sum Topping Up (RSTU) Scheme and the Voluntary Contribution (VC) scheme – into all 3 CPF accounts or just into their MediSave Account (MA).
In this article, we look at whether it makes financial sense for companies to make further MediSave Account contributions for their employees through the Additional MediSave Contribution Scheme (AMCS).
What Is The Additional MediSave Contribution Scheme (AMCS)?
The Additional MediSave Contribution Scheme (AMCS) is a voluntary scheme for private sector employers to contribute more to the MediSave Account of their Singapore citizen and permanent resident employees.
If businesses choose to embark on this scheme, you may choose to vary the number of employees receiving these additional contributions, as well as pay any amount up to $2,730 a year. Top-ups made under the Additional MediSave Contribution Scheme are not part of the prevailing $37,740 CPF Annual Limit.
Benefits Of The Additional MediSave Contribution Scheme (AMCS)
Some companies may already provide wellness, health, medical or other forms of personal care benefits for their employees. The AMCS may enable companies to return or transfer any unused balances to their employees in a transparent manner without any implications on their salary. This way, employees will not incur additional taxes, while companies may receive tax benefits as well.
Such a perk provides longer term medical security for a company’s workforce, enabling them to draw on these funds for approved medical insurance as well as meet hospitalisation and/or eligible healthcare needs. This approach enables employees to enjoy lifelong benefits, even if they no longer work for the company.
Companies can also go beyond their legal duties to help their employees reach the Basic Healthcare Sum (BHS) earlier, giving them peace of mind that they have the funds for basic subsidised healthcare in their old age.
Employers may also use the AMCS to implement the Portable Medical Benefits Scheme (PMBS). This can allow employees to keep their company-paid health insurance even when they move companies, and protect them against losing coverage if they are diagnosed with a pre-existing illness between jobs.
To some extent, it may reduce double coverage in the industry if companies want to provide insurance for their employees, who already have their own MediShield Life and Integrated Shield Plans.
What Are Portable Medical Benefits?
Employers can qualify for higher tax deductions, beyond the normal tax deduction limit of 1% of employee remuneration, for providing portable medical benefits.
There are three portable medical schemes designed to enable employees to keep their medical benefits even if they move jobs and provide for hospitalisation and/or inpatient medical benefits for your employees.
If you want to be more flexible, you can provide different types of benefits for different employees based on their requirements or preferences.
#1 Portable Medical Benefits Scheme (PMBS)
Under the Portable Medical Benefits Scheme, you need to make additional MediSave contributions for at least 20% of your local employees every month. The contributions should be at least 1% of an employee’s gross monthly salary, subject to a minimum amount of $16 each month.
By embarking on the Portable Medical Benefits Scheme, companies qualify for 2% tax deduction limit of an employee’s remuneration, rather than the existing 1% limit.
#2 Transferable Medical Insurance Scheme (TMIS)
The Transferable Medical Insurance Scheme is an enhanced group hospitalisation and surgical insurance that companies can purchase for their employees. It extends inpatients coverage up to a maximum of 12 months even after an employee leaves the company.
If your employee joins a company that has also implemented a Transferable Medical Insurance Scheme, they can keep their coverage even if they develop a pre-existing illness. If they were to lose your employer-provided coverage, any new health conditions they develop may be excluded in future policies they get.
Similarly, the transferable Medical Insurance Scheme increases a companies tax deduction limit to 2% of an employee’s remuneration, instead of 1%. Companies need to offer the Transferable Medical Insurance Scheme to at least 50% of their local employees to qualify.
#3 Providing A Shield Plan
Under this scheme, companies can pay the premiums on behalf of their employees’ MediShield Life plan or Integrated Shield Plan.
For new employees who may have a different plan from the one offered by the company, you can simply credit the amount you would have contributed to their MediSave Account.
Similarly, companies also receive a 2% tax deduction limit on their employee’s remuneration, instead of the usual 1% limit.
For your employees, there can be varying tax implications depending on how your company pays for employees’ Shield plans. If your company pays the insurance company directly, on behalf of employees, employees will be taxed on the full amount. This is because the payment constitutes a benefit-in-kind provided by the employer.
However, employees will not be taxed if a reimbursement of the premium is paid into their MediSave Accounts, subject to a limit of $2,730 a year.
What If You Want To Provide Ad-Hoc MediSave Contributions?
To encourage more companies to go beyond their legal obligations to safeguard their employees’ long-term healthcare needs, companies can receive additional tax deductions up to the 2% limit for the amount of ad-hoc MediSave contributions even if you are not adopting any of the portable medical benefits schemes.
However, the limit of the additional contributions remains at $2,730 per employee, per year.
Should I Just Pay My Employees A Higher Salary?
This is the obvious question – wouldn’t employees just want to be paid a higher salary rather than receive such perks?
The answer is less straightforward. The first consideration is taxes – such schemes save the company and employees taxes they would otherwise have to pay. In large organisations, this potentially adds up to a substantial amount.
A second consideration is that companies can provide more meaningful medical benefits, that employees can bring with them even after they leave the company. This can also be a hallmark of generous and great companies that do not try to leverage on such plans when negotiating to keep employees.
Such benefits, when paired with other wellness, health or medical allowances, to pay unused credits into their MediSave Accounts, provide greater transparency for employees. It also doesn’t compel employees to use such allowances for the sake of using their entitlement.
Companies that care for their employees’ long-term medical needs, either through a comprehensive Shield Plan or by helping employees reach the Basic Healthcare Sum (BHS) faster can be seen as choice employers.
Unfortunately, such conscientious medical safety nets provided by companies may only be appreciated much later in an employee’s career.
At the end of the day, a higher salary can be a very good motivator, and companies should balance salary with benefits of any type.
You can also benefit from government schemes to automate your HR management solutions. This can ease the burden of manually doing it on your own, as well as ensure timely and accurate payroll regardless of unplanned disruptions. Moreover, you also get to enjoy up to 6 months free subscription via the Start Digital Programme.
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