The Annual Wage Supplement (AWS) serves as a vital recognition of employees' year-round contributions. In this comprehensive guide, we delve into AWS eligibility, calculations, taxation, and address common questions. Dive into the intricacies of AWS with us, gaining valuable insights to aid your decision-making if you're considering offering AWS to your employees!
What is the Annual Wage Supplement (AWS) in Singapore?
Annual Wage Supplement (AWS), also known as the 13th-month payment, is a fixed sum paid to employees on top of their regular monthly salary. It serves as a token of appreciation and a reward for their contributions throughout the year. The idea is simple: a little extra to brighten the festive season and recognise employees' dedication.
Are employers in Singapore obligated to provide Annual Wage Supplement?
AWS is not mandatory, and it’s at the discretion of employers to decide whether to implement AWS and the amount to be paid. However, it's essential to note that once AWS is implemented, employers should adhere to the agreed terms to maintain trust within the company.
Am I entitled to Annual Wage Supplement and how is it calculated?
As AWS is not required by law, it is therefore determined by the agreement outlined in various documents such as:
- Employment contract
- Company's employment handbook
- Collective agreement if the company is unionised.
Additionally, it's important to note that AWS cannot surpass one month's salary if no AWS was paid before 26 August 1988.
What Annual Wage Supplement terms should I include in the employee contract?
Given that AWS is not mandated by law, it is therefore crucial to explicitly define the terms in the employee contract if you choose to include AWS in the overall compensation package for your employees. This ensures transparency and sets clear expectations regarding the discretionary nature of AWS within your organisation. Here are some key terms you may consider, including:
- Definition of AWS: Clearly define what the Annual Wage Supplement entails in your organisation. Specify that AWS is a discretionary, additional payment provided to employees as a token of appreciation, usually given once a year.
- Eligibility criteria: Outline the criteria that determine an employee's eligibility for AWS. Specify any minimum service period or other conditions that employees must meet to qualify.
- Discretionary nature: Clearly state that AWS is a discretionary payment at the employer's discretion and not an automatic entitlement. This helps manage employee expectations and emphasises that the decision to provide AWS lies with the employer.
- Calculation basis: If your organisation has a specific formula for calculating AWS, include the details in the contract. This may involve using factors such as basic salary, months worked, or other performance-related metrics.
- Payment schedule: Specify when AWS will be paid. Common practices include disbursing AWS concurrently with the December salary, as a year-end payment. Provide clarity on the timing to manage employee expectations.
- Impact on other benefits: Clarify how AWS may impact other employee benefits, such as CPF contributions, bonuses, and leave entitlements. Ensure that the contract addresses any adjustments or considerations related to these benefits.
- Tax treatment: Include information on the tax treatment of AWS. Specify whether AWS is subject to income tax and any other relevant tax-related details. This provides transparency for employees regarding the financial implications of receiving AWS.
- Review and modification clause: Include a clause stating that the terms of AWS, including eligibility criteria and payment amounts, are subject to periodic review. This allows the employer to adjust the AWS policy as needed, based on business conditions or other factors.
- Termination and pro-rated AWS: Clarify the policy regarding AWS for employees who join or leave the company mid-year. Specify whether AWS will be pro-rated based on the employee's length of service during the AWS calculation period.
How to prorate Annual Wage Supplement?
Since AWS is not required by law, pro-ration of AWS will depend on the terms of the employment contract. Here are 2 common calculation methods that you can consider to prorate AWS for employees who join mid-year:
- Basic salary/365 days x days worked in the year
- Basic salary/12 months x months worked in the year
Is Annual Wage Supplement subjected to CPF and taxes?
As stated on the Central Provident Fund (CPF) Board, the Annual Wage Supplement (AWS) falls under the category of "remuneration in money," encompassing bonuses, and is therefore subject to CPF contributions.
Likewise, the Inland Revenue Authority of Singapore (IRAS) classifies AWS as taxable income,
treating it akin to salary and other forms of remuneration.
Tip: Check out our CPF guide for employers to learn more about CPF contributions for additional wages such as AWS and other bonus types.
How to calculate the amount of AWS that is subjected to CPF contribution?
Additional Wages refer to wages such as AWS, annual bonuses, leave pay, and incentive payments such as long service awards and they are subjected to CPF contribution as well.
The additional wage CPF ceiling is computed as:
$102,000* - Total Ordinary Wages subjected to CPF for the year
Tip: With Payboy’s payroll processing module, you can adjust pay items such as AWS and bonuses and automate the calculation of CPF contributions. Moreover, you can do e-submission of CPF contributions through Payboy’s portal.
Can Annual Wage Supplement be decreased?
Yes, in cases of significantly poor business performance, employers can negotiate a lower AWS amount with employees.
Always remember that clear communication with your employees is crucial to preventing misunderstandings and ensuring transparency in the decision-making process.
Are Singapore Permanent Residents (PR) eligible for the Annual Wage Supplement?
Yes, Singapore Permanent Residents (PRs) are generally eligible for the Annual Wage Supplement (AWS). However, eligibility may vary depending on the company's policies. It is advisable for PRs to check with their employers regarding the AWS policy and whether PRs are included in the distribution.
Can foreigners have Annual Wage Supplement in Singapore?
Yes, foreigners working in Singapore can be eligible for the Annual Wage Supplement (AWS). Similar to PRs, eligibility depends on the company's policies. Employers may have different criteria, so it is recommended for foreign employees to enquire with their respective employers about AWS inclusion.
Do contract workers get Annual Wage Supplement?
The eligibility of contract workers for the Annual Wage Supplement (AWS) depends on the company's policies. In some cases, companies may include contract workers in the AWS scheme, while others may exclude them. Contract workers should check with their employers to understand the AWS policy and whether it applies to their employment status.
How is Annual Wage Supplement different from regular salary or bonuses?
It's important to note that the AWS stands apart from bonuses linked to performance. AWS tends to maintain a consistent amount, whereas performance bonuses fluctuate based on both company financials and individual employee input. Collectively, AWS and bonuses constitute the variable wage components of your employee's compensation package.
Tip: Explore other bonuses that you can include in your employee salary package in our "Bonus guide for employers in Singapore" to thank them for their hard work!
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