Bonus 2015: Better to pay in Dec 2015?
Holiday seasons are near and this is time of the year where companies start their annual appraisal of their staff and decide on the bonus amount (if any).
Typically, companies will pay out these bonus anytime between Dec to Chinese New Year period. For this year’s bonus, the timing on when the bonus is paid will have an impact on how much more CPF contributions does the employee and employer need to pay for these bonus.
What is CPF?
The Central Provident Fund (CPF) is a comprehensive social security system that enables working Singapore Citizens and Permanent Residents to set aside funds for retirement.
Both employees and employers make monthly CPF contributions based on the wages earned by the employee for that specific month. In CPF context, there are 2 types of wages:
1) Ordinary Wages (OW) are:
· wages due or granted wholly and exclusively in respect of an employee's employment in that month; and
· wages payable before the due date for payment of CPF contributions for that month.
2) Additional Wages (AW) are:
· wages which are not granted wholly and exclusively for the month; or
· wages made at intervals of more than a month.
Bonus are considered to be additional wages in CPF’s context.
Why is it better to pay bonus in Dec 2015 than 2016?
Currently, employee and employers contribute 20% and 16% respectively for ordinary wages but up to the wage ceiling of $5,000. In Jan 2016, the ordinary wages ceiling will be raised from $5000 to $6000.
Below is an example of the additional contribution for ordinary wages for an employee with $6,000 monthly salary.
Employer and employee will be contributing an additional $360 combined on a monthly basis.
What is not so obvious to most companies is that the additional wages ceiling in Singapore is a formula based on Ordinary Wage ceiling and when it is raised the additional wage ceiling will automatically increase.
Below is the formula for additional wage ceiling.
17 x Ordinary Wage Ceiling - Total OW subject to CPF for the year
Please refer to the following URL on CPF AW Ceiling
In 2015, the effective AW ceiling for an employee with a monthly pay of $6,000 is $25,000. This ceiling will be raised to $30,000 from 1 Jan 2016.
Taking the same employee with $6,000 salary. Assuming that he/she is paid the same $30,000 as bonus for both 2015 and 2016.
Combined, the employee and employer will be contributing an additional $1,800 if the bonus is paid out in 2016.
Conclusion, for business that are intending to payout bonus in excess of $25,000 for 2015. It might be worth your while to expedite the bonus allocation process and pay them out by Dec 2015.
By Steve Koh
AG Net Pte Ltd
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