How Much More Will Employers Have To Pay For CPF Contributions Following Singapore Budget 2023

Finance Minister Lawrence Wong announced three changes to the CPF contribution scheme in this year’s Budget 2023 that will affect employers and employees as early as 1 September 2023.

While some segments of employees may cheer these latest announcements as it would mean receiving a potentially higher overall wage without any salary increment, employers, on the other hand, would soon face a higher wage cost.  

Here’s how much more employers will have to potentially incur because of the new changes in CPF contribution rates in the coming years.

Current Employer’s CPF Contribution Obligations

Employers in Singapore are required to make CPF contributions for employees who are Singaporeans or Permanent Residents and earn a total wage of more than $50 a month. This comprises the employer’s and employee’s shares, which are 17% and 20%, respectively, for workers age 55 and below. However, the employer is entitled to claim back the employee’s share when paying the monthly wages.

The current Ordinary Wage ceiling for CPF contributions, which was last revised in 2016, is capped at $6,000 per month. While the maximum annual CPF contributions for all wages received, which include Additional Wages like performance bonuses, have a ceiling limit of $102,000.

This means that an employer currently needs to pay CPF contributions on up to $6,000 per month for ordinary wages or on up to $102,000 per year if additional wages are included.

Read Also: Complete Guide To Employer’s CPF Contributions In Singapore (2023)

Monthly CPF Contribution Ceiling Will Be Raised From $6,000 To $8,000 By 2026

Starting from 1 September 2023, the CPF monthly salary ceiling will be raised from $6,000 to $6,300. It will eventually be raised to $8,000 beginning 1 January 2026. However, the CPF annual salary ceiling of $102,000 will remain unchanged. These changes will take effect incrementally in the following four steps to allow employers and employees to adjust accordingly:

Changes In CPF Monthly Salary Ceiling
 CPF Monthly Salary CeilingCPF Annual Salary Ceiling
From 1 September 2023$6,300 (+$300)
From 1 January 2024$6,800 (+$500)
From 1 January 2025$7,400 (+$600)
From 1 January 2026$8,000 (+$600)

Read Also: 3 Ways Employers Can Contribute To Their Employee’s CPF (Beyond Mandatory Contributions)

What This Means For Employers:

Currently, for an employee below 55 years of age earning $8,000 per month, the employer’s share of CPF monthly salary contribution would amount to $1,020, or $12,240 per year.

With the new change, the total employer’s CPF contribution amount will increase by $204, or to $12,444 per worker in 2023.

The total CPF contribution amount per year will then increase to $13,872 (or +$1,632 more than the current rate) in 2024, to $15,096 (or +$2,856) in 2025, and eventually to $16,320 (or +$4,080) in 2026.

 CPF Monthly Salary CeilingEmployer’s CPF Monthly Contribution (17%)Yearly Employer’s CPF Contribution
2022  $6,000$1,020$12,240
2023  $6,000 (Jan – Aug)
$6,300 (Sep – Dec)
$1,020 (Jan – Aug)
$1,071 (Sep – Dec)
$8,160 (Jan – Aug)
$4,284 (Sep – Dec)
Total: $12,444 (+$204)
2025$7,400$1,258$15,096 (+$2,856)
2026$8,000$1,360$16,320 (+$4,080)
Table 1: Employer’s Monthly CPF Contribution

Based on the above numbers, it may seem that employers will face a higher wage cost of $4,080 for each worker earning $8,000 or more in the coming years. However, this assumption is based only on ordinary wages and does not account for the additional wage component.

If we factor in the additional wages, employers may not necessarily incur higher CPF contribution costs for their workers who earn above $8,000, even with the change, given that the CPF Annual Salary Ceiling remains unchanged at $102,000.

For example, assume an employee under the age of 55 earns $8,000 a month and receives a four-month bonus. Currently, the employer has to make a total CPF contribution consisting of the monthly salary component of $12,240 (see above Table 1) and the additional wage component of $5,100 (see Calculation 1: 2022), which adds up to $17,340. This amount is also the employer’s CPF contribution limit, based on the Annual Salary Ceiling.

Calculation 1: 2022

Additional Wages = $8,000x4months = $32,000
$102,000 – ($6,000x12months) = $30,000
Employer’s share = $30,000×0.17= $5,100

In 2026, with the revised CPF monthly ceiling of $8,000, the employer’s monthly CPF contribution would amount to $16,320 (see Table 1) and $1,020 (see Calculation 2) for the additional wage component.

Calculation 2: 2026

Additional Wages = $8000x4months = $32,000
$102,000 – ($8,000x12months) = $6,000
Employer’s share = $6,000×0.17= $1,020

In this scenario, even though the employer’s share of the total CPF contribution is the same as in 2022, the employees benefit by receiving a higher monthly CPF contribution each month instead of waiting for bonuses at the end of the year. This would benefit more middle-income employees who have a higher basic salary. They could achieve their retirement adequacy faster given the compounding effects of the accumulated interest.

Read Also: Additional Wage (AW) Ceiling: How Much CPF Contributions To Make For Bonus & Leave Encashment To Employees

Higher CPF Contribution Rates For Senior Workers In 2024

The total CPF contribution rate for older workers, aged 55 to 70, will be stepped up by 1% to 1.5% in 2024. The higher rates would be borne by both employees and employers, contributing between 0.5% and 1% each. 

The change is in line with the recommendation by the Tripartite Workgroup on Older Workers, which would allow older workers to enjoy higher CPF contribution rates to their Special Account by 2030.

When the CPF contribution rates for senior workers were previously increased in 2022 and 2023, employers were given support with a one-year CPF Transition Offset. The Offset, which is equivalent to half the increase in the CPF contribution rate for the year, was meant to help businesses deal with the increase in business costs.

Following the announcement in Budget 2023, businesses will be given a similar offset of 0.25%, equivalent to half of the increase in the CPF contribution rate in 2024.  

Table 2 – Source: MOF – Budget 2023: Annex E4

For example, the employer’s CPF contribution share for an older worker, aged 57 and earning $4,000, would increase by 0.5% to 15% from 2024, or $600. This is a rise of $40 per month or $480 a year, from 2024. The amount that the employer would receive from the CPF Transition Offset in 2024 would be equivalent to half of the increase, which is $20 per month or $240 a year.

No doubt the increased cost may affect businesses hiring older workers, but businesses can deal with these changes by improving their productivity and providing opportunities for their employees to reskill and upskill to take on higher-level jobs.

Read Also: Senior Worker CPF Contribution Rates And CPF Transition Offset Scheme: What Businesses Need To Know

Platform Companies Need To Make CPF Contributions To Platform Workers Below 30 From 2024  

Lastly, Platform Companies would need to make CPF contributions to their Platform Workers who are below 30 years old from 2024. Platform workers above 30 can also voluntarily opt in to the Aligned CPF Contributions Rates, which will boost their savings in the CPF Ordinary and Special Accounts.

The move, recommended by the Advisory Committee on Platform Workers, would see the CPF contribution rates for platform workers be stepped up over five years until they hit the prevailing rates of 20% for workers and 17% for employers.

While these changes would mean lower take-home pay for platform workers, they are meant to boost their total earnings and strengthen their housing and retirement adequacy. To further help Singaporean Platform Workers (including from platform work and other employment sources) earning $2,500 on this transition, the government will introduce the PW CPF Transition Support (PCTS). It will offset part of the Platform Workers’ share of the year-on-year increase in CPF contribution rates from Years 1 to 4.  

For Platform Companies, this requirement may lead to incurring high costs and lowering their competitiveness as they may likely pass on the increased costs to consumers.

Read Also: 12 Ways (Including CPF and Work Injury Compensation) That Platform Workers In Singapore Will Have Better Job Protection From 2024

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