Central Provident Fund (CPF) is a mandatory savings scheme funded by contributions from employers and employees. CPF is one of the scheme which the function is to ensure that Singaporeans have enough money for their retirement days, to pay their medical bills, and to buy a home with. For this purpose, it becomes mandatory for every Singaporean worker to put away some percentages of their monthly income in their CPF accounts. Employers also have their part to contribute on each worker’s CPF accounts.
As we see in the table, most employees have close to 37% of CPF contribution rate and then the rate will decline as they grow older. In the recent changes, the retirement and re-employment age will go up gradually by 2020 and 2030. When the changes are completed, the workers below 60 years old will enjoy the full rate of CPF contribution and it will go down after the age of 60 and 70.
Aside from the contribution rate, did you know that there is a cap or a limit on how much you can contribute to your CPF account each month?
CPF Contribution CAP
It is known as CPF contribution ceiling which is part of CPF contribution cap. There are two part of the limit: Ordinary Wage Ceiling and Additional Wage Ceiling.
The first one, Ordinary Wage (OW) Ceiling. It is the cap on your monthly salary and currently is capped at $6,000. This means that the first $6,000 of employee monthly salary is subject of CPF contribution which will get deducted for CPF. The amount above that will not have any portion deducted for CPF. This also means that employer doesn’t need to contribute to employee’s CPF account for the amount above $6,000.
The other one is Additional Wage (AW) Ceiling which is a CPF contribution cap for additional wages, such as bonuses. The AW Ceiling is applied on a per employer on a yearly basis. Employer is required to limit and monitor the additional wage of the employees to prevent refund of excess payment. This also to avoid a situation where refund can’t be made due to insufficient fund of employee’s CPF accounts.
There is a formula to calculate AW Ceiling:
$102,000 – Total Ordinary Wages subject to CPF for the year = AW Ceiling
How do this apply?
For example you have $8,500 salary per month and you get $15,000 bonus for a year.
The OW Ceiling is $6,000, so that your $6,000 is subject of CPF whereas your $2,500 won’t be touched by CPF.
Next, we calculate your AW Ceiling.
$102,000 – ($6,000 x 12) = $30,000
So that, $30,000 is your Additional Wage Ceiling. It is the maximum amount subject to CPF. The yearly bonus is $20,000 which is lower than the cap. That means, the entire annual bonus is subject to CPF.
To make it easier on how you can calculate CPF contribution, you can get use HR and Payroll system which will automatically calculate payroll and deduct for CPF. HR system also stay update with the government compliance and make sure that your company is in line with compliance.
To make it easier on how you can calculate CPF contribution, you can get use HR and Payroll system which will automatically calculate payroll and deduct for CPF. HR system also stay update with the government compliance and make sure that your company is in line with compliance.
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