While salary discussions often revolve around attractive figures and competitive packages, what truly matters to your employees is what they take home at the end of the day—their net salary. As an employer in Singapore, understanding net salary isn't just about numbers; it's about ensuring your workforce feels valued and financially secure.
In this comprehensive guide, we're here to equip you with the knowledge you need to know about net salary, from its definition and calculation to deciphering deductions. Let’s get started!
What is net salary?
Net salary, often referred to as net pay or take-home pay, represents the actual amount of money an employee receives from their employer after all the necessary deductions have been made. These deductions may include CPF contributions, Self-Help Groups (SHG) contributions, and other ad-hoc deductions such as absences from work.
In simpler terms, it's the income that lands in an employee's bank account, ready to be used for his or her own personal financial purposes.
Understanding net salary is crucial because it is the real income that an employee has at their disposal to cover living expenses, savings, and discretionary spending. It is a tangible reward for their hard work.
What’s the difference between net salary and gross salary?
To grasp the concept fully, it's essential to differentiate between net salary and gross salary.
Gross salary is the total amount of money an employee earns before any deductions or taxes are applied. It encompasses not only the base salary but also various allowances, bonuses, and other forms of compensation.
Net salary, on the other hand, is the remaining amount after all mandatory deductions (e.g., CPF contributions) have been subtracted from the gross salary.
In essence, the key difference lies in what an employee earns versus what they take home. Gross salary is the total earnings, while net salary is the actual income an employee receives.
How do I calculate net salary?
Calculating net salary is a fundamental aspect of managing payroll for your employees in Singapore. It's not just about knowing the gross figures; it's about ensuring that your employees receive their correct take-home pay after all deductions are accounted for. Here's a step-by-step guide to help you calculate net salary accurately:
Step 1: Determine gross salary
Start by determining the gross salary of your employee. Gross salary is the total amount an employee earns before any deductions or taxes. It includes their basic salary, overtime pay, bonuses, allowances, and any other forms of compensation.
Learn everything you need to know about gross salary in “Gross Salary: A Guide for Employers in Singapore”!
Step 2: Calculate an employee’s CPF contribution
CPF contribution rates vary depending on the employee's age and wage. This table summarises the contribution rates for Singapore Citizens and Singapore Permanent Residents (from the third year and onwards) who earn a monthly wage of more than $750.
Employee’s age (years)
By employee (% of wage)
55 and below
20
Above 55 to 60
15
Above 60 to 65
9.5
Above 65 to 70
7
Above 70
5
Ensure that you calculate the CPF contributions accurately based on the applicable rates and also the CPF ceiling, which you can learn more about in our comprehensive CPF guide for employers in Singapore!
Step 3: Calculate Self-Help Group (SHG) Contributions
SHG contributions are collected by employers on behalf of employees, and the contribution rates vary depending on the Self-Help Group the employees are contributing to and also their total monthly wages.
Some ad-hoc salary deductions that are acceptable by the Ministry of Manpower (MOM) include:
Absence from work
Damage or loss of money or goods
As an employer, you should hold an inquiry to determine if your employee is at fault before deducting his or her salary.
The employer should not deduct more than 25% of one month’s salary from your employee.
Supplying accommodation that your employee have accepted
Supplying amenities and services that the Commissioner for Labour has authorised and that your employees have accepted. Some examples include:
Childcare services
Recreation facilities
Recovery of advances, loans, overpaid salary or unearned employee benefits
What is the maximum amount of deduction?
The maximum amount of deduction from your employee’s salary is typically capped at 50% of his or her total salary payable in any one salary period.
This 50% limit does not apply to deductions made for:
Absence from work
Recovery of advances, loans, overpaid salary, or unearned employment benefits
Payments, with your consent, to registered co-operative societies for subscriptions, entrance fees, loan instalments, interest, and other dues payable
It's worth noting that when your employee’s contract of service is terminated, the total authorised deduction may exceed 50% of his or her final salary payment.
Step 5: Calculate net salary
Finally, to calculate the net salary, subtract the total deductions (Steps 2-4) from the gross salary (Step 1). The result is the amount your employee will receive as their net salary or take-home pay.
Remember that net salary calculations require accuracy and compliance with Singapore's employment regulations. Errors in calculating the net salary can lead to legal issues and dissatisfaction among your employees.
Do you know that it is also mandatory to issue itemised payslips to all your employees detailing key items such as basic salary, additional payment (e.g., bonuses, allowances, etc.), deductions (e.g., CPF contributions, ad-hoc deductions), and net salary?
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Reach out to us if you are keen for a free demo on how we can help you save hours and give you some peace of mind on payroll and other HR matters so that you can focus on your business and people.
