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Salary Deduction: A Guide for Employers in Singapore

Salary deductions, a topic that often generates questions and concerns, are crucial to understand from both legal and moral standpoints. In this guide, we will explore the ins and outs of salary deductions for employers in Singapore, offering insights, tips, and advice to help you maintain a balanced and respectful employer-employee relationship.

Whether you're a business owner or HR professional, this comprehensive guide will equip you with the knowledge and tools to navigate the intricacies of salary deductions effectively. So, let's dive in and demystify the world of salary deductions in Singapore!

What are some examples of allowable salary deductions in Singapore?

If your employees are covered under the Employment Act in Singapore, deductions can only be made for specific, well-defined reasons. Below are the only circumstances in which you can deduct salaries from your employees:

Absence from work

When it comes to handling employee absences as an employer, it's important to maintain a balanced approach. For monthly-rated employees, salary deductions for absences are a possibility. Here's how you can calculate these deductions:

  • Authorised Absences (Incomplete Month): Deduct the appropriate amount when an employee has authorised absences during an incomplete month.
  • Unauthorised Absences (Gross Rate of Pay): Calculate the deduction based on the employee's gross rate of pay in the event of unauthorised absences.

Balancing fairness and consistency in managing employee attendance helps create a workplace where expectations are clear and employees are held accountable for their attendance.

Damage or loss of money or goods

When it comes to damage or loss of company money, goods, work gear, tools, equipment, or vehicles for which an employee is responsible, salary deductions may apply. In such situations, as an employer, it's important to follow these steps:

  • Investigate responsibility: Conduct a fair inquiry to establish whether the employee is directly at fault.
  • Two-way communication: Prior to initiating any deductions, give the employee the opportunity to explain the circumstances that led to the damage or loss.
  • Fair deduction: Deduct an amount not exceeding 25% of the employee's one-month's salary, ensuring that this deduction is made as a one-time lump sum payment.

Maintaining open communication and fairness is key to addressing such situations and promoting trust and accountability within the workplace.

Supplying accommodation, amenities, and services

As an employer, you have the option to deduct employees' salaries for offerings like accommodation, amenities, and services that they have willingly accepted and that go beyond standard expectations. These may include valuable benefits such as childcare services, recreation facilities, and more, exceeding what is reasonably required by your organisation.

A few key points to note before initiating any deduction:

  • To ensure compliance with regulations, it's crucial to obtain prior approval from the Commissioner for Labour before initiating any deductions in these cases.
  • Moreover, remember that the total deductions for these accommodations, amenities, and services should always align with their actual value, ensuring they do not surpass 25% of the employee's salary for the relevant salary period.

This approach underscores your commitment to providing a fulfilling workplace and employee-centric benefits, all while maintaining transparency and fairness in salary deductions.

Advances, loans, overpaid salary or unearned employment benefits recovery

As an employer, it's important to maintain a structured approach when it comes to recovering advances, loans, overpaid salaries, or unearned employment benefits provided to your employees. Here's how you can go about it:

  • Advances: For advances extended to employees, deductions can be made in manageable instalments spread over a period of up to 12 months. Each instalment should not exceed 25% of the employee's salary for the corresponding salary period.
  • Loans: In the case of loans granted to employees, you can deduct the repayment amount in instalments. Like advances, each instalment should not exceed 25% of the employee's salary for the relevant salary period.
  • Overpaid salary and unearned benefits: When it comes to overpaid salary or unearned employment benefits, employers can recover the full amount from the employee.

This responsible approach helps employees manage their financial commitments while ensuring that the organisation's financial agreements are honoured, all while maintaining fairness and transparency.

CPF contribution

Employers are responsible for deducting salary for CPF contributions, a pivotal component of Singapore's social security system.

How much CPF contribution is deducted from an employee's salary?

This table summarises the contribution rates for Singapore Citizens and Singapore Permanent Residents (from the third year and onwards) for monthly wages > $750 from 1 January 2023:

Employee’s age By Employee (% of wage)
55 and below 20
Above 55 - 60 15
Above 60 - 65 9.5
Above 65 - 70 7
Above 70 5

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 on, it will go up to $6,800.
  • From January 2025 on, it will increase to $7,400.
  • From January 2026 on, the CPF monthly salary ceiling will reach $8,000.

Tip: Learn everything you need to know about CPF contributions from our “CPF guide for employers” or use our CPF calculators to calculate CPF for Singapore Citizens or CPF for Singapore Permanent Residents!

Payments to any registered cooperative society

Deductions are permitted for payments to registered cooperative societies, provided your employees have given written consent.

Other purposes

Employers can make deductions for other purposes that directly benefit the employee, contingent upon written consent. Here are some key points to take note of as an employer if you are planning to deduct your employee’s salary for other purposes:

  • Consent-driven: Employees can provide written consent for deductions that benefit them, with the flexibility to withdraw this consent at any time.
  • Employee-centric: These deductions should focus on serving the best interests of the employee and should be feasible for the employer to manage.
  • Exclusionary: Beyond the above, employers should refrain from deducting an employee's salary for purposes that do not directly benefit the employee, such as liquidated damages.
  • Compliant and legal: All deductions must align with the law and should not contravene any legal regulations. For example, employers cannot deduct the salaries of foreign workers to recover levy costs.

Is the Skills Development Levy (SDL) deducted from an employee’s salary?

The Skills Development Levy (SDL) is a mandatory levy imposed on employers. SDL is not a deduction from an employee's pay; rather, the employer is solely responsible for paying it. This levy goes towards funding workforce training and development initiatives in Singapore.

As an employer, you need to pay SDL at a rate of 0.25% of your employees' monthly remuneration. This levy is capped at a maximum of $11.25 per month for each employee. It's crucial to ensure you comply with this requirement to support Singapore's continuous investment in skill development.

Tip: Learn more about SDL from our “Skills Development Levy (SDL) guide for employers in Singapore”!

What is the maximum amount of salary deduction?

From an employer's perspective, it's essential to understand the limitations on salary deductions. Here's what you should know:

  • Maximum deduction: Your ability to deduct an employee's salary is capped at 50% of their total salary payable for any given salary period.
  • Exemptions: This 50% limit does not apply to deductions made for:
    • Absence from work
    • Recovery of advances, loans, overpaid salaries, or unearned employment benefits
    • Payments made with the employee's consent to registered cooperative societies, including subscriptions, entrance fees, loan instalments, interest, and other dues payable
  • Contract termination: It's worth noting that when an employee's contract of service is terminated, the cumulative authorised deduction may exceed the 50% threshold, factoring in their final salary payment.

Understanding and adhering to these limits ensure that salary deductions remain fair and compliant with the law, promoting a harmonious working relationship.

What are some examples of unauthorised deductions from salaries?

Unauthorised deductions not only violate employment regulations but can also harm your relationship with your employees. Here are some examples:

  • Salary deductions without written consent: Any deductions made from an employee's salary, whether for loans, salary advances, or goods and services, must have the employee's written consent.
  • Training costs: You cannot deduct expenses related to training or courses that are beneficial to the company, such as job-specific certifications or skill enhancement programmes.
  • Uniforms and work attire: Employers are responsible for providing uniforms or work attire to employees. You cannot deduct the cost of these items from your employees' salaries.
  • Cost of tools and equipment: Employers must provide necessary tools and equipment for their employees' work. Deducting the cost of these items from an employee's salary is not permitted.
  • Damaged equipment or losses: You can't hold employees financially responsible for damaged equipment or losses unless it is proven that the employee's actions were deliberate or due to gross negligence.
  • Shortfalls in cash registers: You cannot deduct money from an employee's salary to cover shortfalls in cash registers unless there is clear evidence of deliberate misconduct.
  • Condition of employment: Deductions should not be made as a condition for employing or continuing to employ an individual.
  • Costs related to employment: It's also not allowed to deduct your employee’s salary for costs associated with an employee's work, including work pass renewal, security bonds, medical insurance, repatriation costs, compulsory training, medical fees, and levy payments.

Remember, unauthorised deductions can lead to legal complications and damage your company's reputation, so it's crucial to adhere to the regulations and maintain a transparent and fair approach to salary deductions.

Is it compulsory to show salary deductions on my employees’ itemised payslips? 

Yes, it is compulsory to include a breakdown of salary deductions in your employees' itemised payslips, according to the Ministry of Manpower (MOM). This requirement ensures transparency and helps employees understand how their salaries are calculated and where deductions have been made.

Tip: Learn more about itemised payslips and what the other key items are to include in “The itemised payslip guide for employers in Singapore”!

For foreign workers, what should I do before deducting my employee’s salary?

As an employer, it's crucial to understand the necessary steps before making any deductions from your foreign workers' salaries. Here's what you should do:

  • Obtain the employee’s consent: Before initiating any reductions or implementing new deductions, your employees' written consent is a must. This practice emphasises transparency and mutual agreement.
  • Notify the Ministry of Manpower (MOM):
    • For Work Permit holders: Ensure you inform MOM of any salary changes via WP Online.
    • For EP or S Pass holders: Submit the request to MOM through EP eService at least one month prior to reducing their salary.
  • Work Permit status’ consideration: It's important to note that you are not permitted to alter the salary of an employee whose Work Permit has not been issued yet.

Tip: Check out these guides if you’d like to learn more about hiring foreign workers:

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Salary deductions are a key item to include in itemised payslips, as required by MOM. If payslips are not generated in a timely manner or are full of errors, it can have a negative impact on productivity and morale. A good HR software is therefore an essential tool for any business that wants to keep on top of its HR obligations.

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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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