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Ordinary Wages (OW) and Additional Wages (AW) guide for employers in Singapore

For employers and HR professionals in Singapore, grasping the distinction between Ordinary Wages and Additional Wages holds significance. CPF contributions are calculated based on the Total Wages due to the employee within a calendar month, subject to distinct limits for Ordinary Wages and Additional Wages. Read on as we dive deeper into the nuances of Ordinary Wages versus Additional Wages for a comprehensive understanding!

What are Ordinary Wages (OA)?

Ordinary Wages (OW) refer to wages due or granted wholly and exclusively for an employee's employment in that month. OW includes allowances (such as food allowances and overtime payments) earned by an employee in the month.

For wages to be classified as Ordinary Wages (OW) for the month, they must satisfy both conditions below:

  • The wages are due or granted wholly or exclusively in respect of an employee’s employment during that month, and
  • The wages for that month are payable by the 14th of the following month.

Note: Wages that are not classified as OW will be Additional Wages (AW) for the month.

Example 1: Overtime performed in a calendar month

If an employee works overtime during this month and is paid by the 14th of the following month, it will be considered an Ordinary Wage (OW). Otherwise, it will be considered an Additional Wage (AW).

Overtime period Payable date for overtime pay Wage classification CPF payable by
1-30 June 10 July OW for June 14 July
1-30 June 31 July AW for July 14 August

Example 2: Overtime performed across two calendar months

Overtime period Payable date for overtime pay Wage classification CPF payable by
15 June - 15 July 30 July Overtime pay for 15-30 June = AW for July
Overtime pay for 1-15 July = OW for July		 14 August

Tip: Learn more about overtime pay in “The overtime pay guide for employers in Singapore”!

What are Additional Wages (AW)? 

Additional Wages (AW) refer to wages that are not granted wholly and exclusively for the month, such as annual bonuses, leave pay, and incentive payments such as long service awards.

Is the Annual Wage Supplement (AWS) considered an Additional Wage (AW)?

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. AWS is therefore considered Additional Wages.

Is commission considered an Additional Wage?

It depends. Regular monthly commission is classified as an Ordinary Wage, whereas ad-hoc non-monthly commission, quarterly, or yearly commission are considered Additional Wages.

Tip: Learn about the most common types of bonuses and whether they are subject to CPF in our “Bonus guide for employers in Singapore”!

What are some payments that are not considered wages and therefore are not subject to CPF contributions?

It is important to note that some payments are not considered wages and therefore do not attract CPF contributions. Here are some common examples:

  • Termination or retrenchment benefit: This is not considered a wage as the compensation is not given for services or work done by the employee.
  • Reimbursement: This is not considered a wage if these expenses are incurred on behalf of the employer for official purposes. The reimbursement amount must also not exceed the expenses incurred. Here are some examples of reimbursement:
    • Entertainment expenses incurred for an entertaining company’s clients
    • Training and development expenses for courses and examination fees as part of employment
    • Meal expenses incurred for staying beyond working hours
  • Benefit-in-kind: Non-cash benefits or gifts given to employees are not considered wages. 
  • Flexible benefits: Reimbursement of medical and dental expenses incurred by employees and dependents (spouse and child) are not considered wages.

What is the CPF Ceiling for Ordinary Wages?

The CPF Ordinary Wages Ceiling refers to the maximum amount of monthly income that is subject to CPF contributions. 

As announced in the Singapore Budget 2023, the CPF Ordinary Wages Ceiling will increase in stages from $6,000 to $8,000 by 2026. Here is the timeline of the increases:

  • From September 2023, the CPF Ordinary Wages Ceiling will be raised from $6,000 to $6,300.
  • From January 2024, it will go up to $6,800.
  • From January 2025, it will increase to $7,400.
  • From January 2026, the CPF monthly salary ceiling will reach $8,000.

What is the CPF Ceiling for Additional Wages?

The Additional Wages Ceiling applies to all Singapore Citizens as well as Singapore Permanent Residents. 

Example 1: Employee earns less than $6,000 of Ordinary Wage (OW)

Employee A is below 55 years old and earns a monthly salary of $5,000. Given that $102,000 is the Total Ordinary Wages subjected to CPF for the year.

He will be receiving a Total Additional Wage (AW) of $50,000 in 2023. 

Estimated Additional Wage (AW) Ceiling = $102,000 - ($5,000 x 12) = $42,000

Edit
Month in Year 2023 OW paid ($) OW subject to CPF ($) CPF payable on OW (Employer) ($) CPF payable on OW (Employee) ($) AW paid ($) AW subject to CPF ($) CPF payable on AW (Employer) ($) CPF payable on AW (Employee) ($)
Jan 5,000 5,000 850 1,000
Feb 5,000 5,000 850 1,000
Mar 5,000 5,000 850 1,000
Apr 5,000 5,000 850 1,000
May 5,000 5,000 850 1,000
Jun 5,000 5,000 850 1,000 25,000 25,000 4,250 5,000
Jul 5,000 5,000 850 1,000
Aug 5,000 5,000 850 1,000
Sep 5,000 5,000 850 1,000
Oct 5,000 5,000 850 1,000
Nov 5,000 5,000 850 1,000
Dec 5,000 5,000 850 1,000 25,000 17,000 2,890 3,400
Total 60,000 60,000 10,200 12,000 50,000 42,000 7,140 8,400

Example 2: Employee earns more than $6,000 of Ordinary Wage (OW)

Employee A is below 55 years old and earns a monthly salary of $7,000. He will be receiving a Total Additional Wage (AW) of $50,000 in 2023.

Estimated Additional Wage (AW) Ceiling = $102,000 - ($6,000 x 8 + $6,300* x 4) = $28,800

*From September 2023, the CPF Ordinary Wages Ceiling will be raised from $6,000 to $6,300.

Edit
Month in Year 2023 OW paid ($) OW subject to CPF ($) CPF payable on OW (Employer) ($) CPF payable on OW (Employee) ($) AW paid ($) AW subject to CPF ($) CPF payable on AW (Employer) ($) CPF payable on AW (Employee) ($)
Jan 7,000 6,000 1,020 1,200
Feb 7,000 6,000 1,020 1,200
Mar 7,000 6,000 1,020 1,200
Apr 7,000 6,000 1,020 1,200
May 7,000 6,000 1,020 1,200
Jun 7,000 6,000 1,020 1,200 25,000 25,000 4,250 5,000
Jul 7,000 6,000 1,020 1,200
Aug 7,000 6,000 1,020 1,200
Sep 7,000 6,300 1,071 1,260
Oct 7,000 6,300 1,071 1,260
Nov 7,000 6,300 1,071 1,260
Dec 7,000 6,300 1,071 1,260 25,000 3,800 646 760
Total 84,000 73,200 12,444 14,640 50,000 28,800 4,896 5,760

Tip: Check out our comprehensive CPF guide for employers for everything you need to know about CPF! We have also created two free calculators for you to calculate your employee’s CPF contributions with ease:

Simplify CPF calculations for Ordinary Wages and Additional Wages with Payboy HR software!

CPF calculations for Ordinary Wages (OW) and Additional Wages (AW) can be complex, especially if you are managing a big team of employees. But fret not, as Payboy HR software is here to help! 

With our fully compliant, customisable, and integrated payroll processing module, you can automate the CPF calculations and also enjoy additional features that are designed to save you time and effort.

  1. 100% compliance and 100% peace of mind
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    • Automatically generate itemised payslips for your employees.
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    • We’ll fit into your ecosystem seamlessly and keep your finance team happy. Learn more about our seamless integrations with Xero, Financio, and Quickbooks.

Streamline your HR processes with Payboy today!

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With our wide range of modules, you can customise a solution to meet the specific needs of your business:

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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.
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