Employee bonuses are a great way to say thanks to your staff for all their hard work. But what's the best way to go about it?
In this guide, we'll give you advice on the most common types of bonuses and whether they are subject to CPF so that you can make an informed decision. Read on to find out more!
Annual Wage Supplement (AWS), or 13th month bonus
The AWS (or 13th month bonus) is a one-month bonus given to employees at the end of the year.
This bonus is not mandatory in all countries or industries, and some companies may have specific criteria for determining eligibility for receiving a 13th month bonus, such as meeting performance goals or being employed for a certain period of time.
A performance bonus, also known as a performance incentive or performance pay, is a form of compensation that rewards an employee for exceeding expectations in their job performance. This bonus can be given on top of their regular salary and may be based on individual performance or company-wide accomplishments.
Some potential benefits of offering a performance bonus are:
1. Improved performance and productivity - performance bonuses provide an added incentive for employees to work harder and strive for success in their roles. This can lead to increased output and better overall performance for the company.
2. Enhanced employee satisfaction and motivation - receiving performance bonuses can make employees feel recognized and valued for their hard work, which can improve job satisfaction and motivation levels.
3. Attracting top talent - offering performance bonuses can make a company more attractive to potential job candidates, as it shows a focus on rewarding excellent performance.
4. Improved retention rates - providing performance bonuses can also encourage employees to stay with the company, as they know their hard work will be acknowledged and rewarded.
Overall, performance bonuses have the potential to positively impact a company's performance and success. However, it is important for companies to clearly define what performance criteria will qualify for a bonus and ensure fair distribution among employees.
A sign-on bonus is a sum of money given to a new employee as an incentive for joining a company. It is typically given at the beginning of employment and may be part of the overall compensation package. Some sign-on bonuses are one-time offers, while others may be given in installments over time.
Sign-on bonuses can vary greatly in amount depending on factors such as the industry, level of experience required for the position, and current demand for talent. A sign-on bonus may also be used to make up for a lower salary offer.
It is important for companies to consider any conditions or restrictions that may be attached to the sign-on bonus. For example, an employee will be given a required length of employment or repayment if he/she leaves the company within a certain time frame.
A referral bonus, also known as a referral incentive or referral program, is a sum of money given to an employee for successfully referring a candidate who is hired by the company. Referral bonuses vary in amount and may depend on the candidate's job level or salary.
Referral bonuses can serve as an effective recruiting tool for companies looking to tap into their employees' networks and bring in high-quality candidates. They also provide added motivation for employees to refer individuals they know would be a good fit for the company.
A retention bonus is offered to employees to encourage them to stay with the company for a certain period of time. This type of bonus may be given as a lump sum or in periodic payments, and is often tied to performance goals or specific milestones.
Retention bonuses can help companies retain valuable talent and reduce turnover costs. However, it is important for employers to carefully consider who should receive these bonuses and how they align with overall business goals.
Ultimately, retention bonuses can be a useful tool for keeping top performers on board, but should not be relied upon as the sole means of retention. It's important for employers to also focus on creating a positive work environment and offering opportunities for growth and development in order to truly retain the talented folks!
Employee stock options
Employee stock options are a form of employee compensation in which the employee is granted the right to purchase company stock at a set price, known as the exercise price, within a specified time period. This can serve as a bonus or incentive for employee performance and loyalty.
Some potential benefits of giving out employee stock options are:
- Gives employees ownership in the company - First, employee stock options give employees ownership in the company and align their financial interests with that of the company's success. This can create a sense of loyalty and drive employee performance.
- Attract and retain top talents - Furthermore, employee stock options can also serve as a way to attract and retain top talents in a competitive job market.
- Does not require an immediate cash outlay - On the financial side, offering employee stock options does not require an immediate cash outlay as compared to giving out bonuses.
However, designing an Employee Stock Ownership Plan (ESOP) can be complex. You need to also consider some of these potential challenges:
- Communication: It can be difficult to clearly communicate the benefits and responsibilities of ESOP participation to employees.
- Employee buy-in: Not all employees may see the value in owning a stake in the company or may not want to take on additional financial responsibility.
- Legal considerations: ESOPs involve complying with a variety of laws and regulations, including those related to securities, tax, and labor.
- Funding: ESOPs typically require significant financial resources, both for initial set-up costs and ongoing expenses such as administrative fees and purchasing shares for new employees.
- Sustainability: ESOPs may require ongoing financial support from the company, and there is a risk that the program may not be sustainable in the long term.
Of course, there are many other types of bonuses that employers can offer, but the above are some commonly used options.
Now, let’s take a look at some factors to consider while deciding what kind of bonuses to offer your employees.
How do I decide what kind of employee bonus to give out as an employer?
As an employer, there are a few key considerations to keep in mind when deciding on the type of employee bonus to offer.
- First, it is important to consider the company's overall financial situation and budget for bonuses. It would not be feasible to offer extravagant bonuses if the company cannot afford it.
- Additionally, it is important to think about the specific needs and desires of your employees. For example, offering a cash bonus may be appreciated by some employees but others may prefer additional vacation time or opportunities for professional development.
- It is also important to consider the effects that the chosen bonus will have on employee morale and motivation. Will it effectively recognize and reward their hard work? Will it incentivize them to continue performing well in their roles in the long run?
Overall, carefully assessing the company's financial situation, employee desires, and potential impact on morale can help inform your decision on what type of employee bonus to offer.
Is it compulsory for employers to pay their employees AWS, bonus or variable payment?
MOM's website on variable wage components says that it is not necessary to pay an AWS, bonus, or variable payment unless it is written in the employment contract or collective agreement.
However, it is encouraged to reward employees for their contributions to the company, which may help to boost morale as well as increase productivity and loyalty!
If business results are bad, employers can try to negotiate for a lower AWS amount.
Are CPF contributions payable on bonus?
Yes, it is! As stated on the CPF website, CPF contributions are payable on any type of cash bonus1 given to your employees, such as AWS (13th month bonus), sign-on bonus, retention bonus, etc.
Stocks or shares given in kind to your employees with no cash payment are not subject to CPF contributions2.
1Are CPF contributions payable on bonus?
2Are CPF contributions payable on stocks or shares offered to my employees?
How is CPF calculated for bonus or additional wage?
The additional wage ceiling is computed as:
$102,000* - Total Ordinary Wage subject to CPF for the year
*Equivalent to 17 months x Ordinary Wage ceiling of $6,000
Bonus tip: Check out our CPF guide for employers for more information.
When are the CPF contributions due?
Employers are required to submit and pay the CPF contributions by the 14th of the following month (or the next working day if the 14th falls on a Saturday, Sunday, or Public Holiday).
What will happen if an employer submits CPF contributions late?
For employers who fail to submit and pay CPF contributions by the 14th of the following month (or the next working day if the 14th falls on a Saturday, Sunday, or Public Holiday), there will be a late payment interest charged at 1.5% per month, commencing from the first day after the due date.
Can I use any payroll software to submit my employees’ CPF contributions?
Yes! In fact, you can do e-submission of CPF contributions through Payboy’s portal.
The following are automatically included in the CPF file generated by Payboy:
- CPF contributions for each individual employee
- Self Help Group (SHG) for each individual employee
Here’s the useful guide on “How to generate CPF e-submit file” with our payroll software.
Benefits of using Payboy payroll module:
- 100% compliant and 100% peace of mind
- Prepare your e-submission of CPF contributions with a few simple clicks on Payboy!
- Covers any work arrangement
- Working with full timers, part timers, freelancers and contract staff? We’ll take care of the unique payroll requirements for each working arrangement.
- Transparent, Accurate and Simple
- Full visibility on how payroll is calculated automatically based on shifts, attendance, leave and submitted claims, within an intuitive experience.
- Fully integrated with your preferred platforms
- We’ll fit into your ecosystem seamlessly and keep your finance team happy. Check out our full list of integrations.
You can also manage the performance review process with your employees more effectively by using our module for performance appraisal.
Are there any SME grants available if I’m interested in using Payboy HR and payroll software?
Yes, Payboy is eligible under the PSG Grant! You can find our answers to your questions regarding the PSG grant here.
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