Central Provident Fund is a comprehensive savings plan in Singapore that seeks to safeguard the employee's future retirement needs. It is a compulsory social security savings plan which is contributed by both the employer and the employee. This contribution goes towards funding the healthcare, housing, and retirement needs of employees. Every Singapore citizen and Singapore Permanent Residents working under a contract of service or under part-time or permanent basis are mandated to submit monthly CPF contributions. Singapore citizens and Singapore permanent residents who are working in overseas contributions can also make their CPF contributions at their own will.
CPF contributions are made to three accounts which include:
Ordinary Account: this is the account that is primarily set for employee’s retirement and housing needs. It also caters for other needs like higher education and investments.
Medisave Account: This account caters for any hospitalization and medical insurance. This is in a quest to improve and meet employee’s healthcare needs.
Special Account: This is basically to safeguard the employee’s retirement-related financial obligations. It is for investments at old age preferably after retirement to ensure the employee gets a financial reprieve in old age. All of this can be confusing and our payroll service can help.
When and How Should I Submit CPF Contributions For My Employees?
Every employee who earns over SDG 50 every month should have CPF contributions submitted by the employer every month. For employees earning over SDG 500 per month, the employer is entitled to recover the employee’s share from his/her wages. In a situation where the employee is entitled to other allowances and payments like meal allowances, transport, and other payments, CPF contribution is also payable to these allowances. These other payments include:
- Cash incentives like Good Service Awards
- Overtime pay – only entitled to workmen and employees with monthly basic salaries not exceeding $4,500 and $2,500 respectively.
- Allowances like transport, meal, laundry etc.
Is CPF Contribution Only Based on Monthly Salary?
CPF contributions are arrived at by summing up total wages of the employees in a given calendar month. This calculation is based on the sum of employee’s ordinary wages for a given month and the additional wages paid to the employee in that given month.
Every employer is required to correctly classify wages as either Ordinary or Additional wages because it will affect the amount of CPF contributions. They are explained as follows:
These are wages or benefits paid to an employee after the end of the month for services rendered. An example is the monthly salary paid to the employee at the end of every month. The current Ordinary wages maximum limit is at $6,000 whereby the CPF contributions are calculated based on this limit.
These are wages made without any specific timeline and are just awarded at intervals of more than a month. They are not paid wholly and exclusively for the month.
Additional Wages maximum amount is applied on a per employer per year basis. It is advisable for employers to strictly examine contributions based on Additional Wages of their employees to avoid refund of excess payments. This may create a faulty in a situation where the refund cannot be processed due to inadequate funds in the employee account.
As an Employer what are my CPF Contribution Rates?
CPF contributions vary depending on employee’s age, citizenship, and total monthly wages. The contribution rate is dictated by employees category that he/she falls into. For Singapore Citizens, contribution rates are calculated from the third year onwards and apply to the private sector and public sector non-pensionable employees.
For Singapore Permanent Residents, contribution rates are applicable in the first 2 years of obtaining their SPR status. Singapore employers are not mandated to submit CPF contributions for their foreign employees until he/she obtains SPR status. The employer and employee pay a lower rate known as graduated employer-graduated employee contribution rate in the first two years of acquiring SPR status and contribute normal rates from the third year onwards.
Penalties for Failure to Submit CPF Contributions
Failure to comply with CPF act will result in the following penalties:
- An interest rate of 18% per annum will be charged on every late payment beginning from the first day of subsequent month contributions are due.
- A fine of up to $10,000 is imposed or imprisonment of up to seven years or both charges if you deduct your employees but fail to submit to CPF.
- Repeat offenders are liable to a jail term of up to 12 months or a fine of up to $10,000 and not less than $2,000 per offense.
Learn more about filing IR8A.