Central provident fund contributions
The Central Provident Fund (CPF) in Singapore is a mandatory savings scheme designed to support Singaporeans and Permanent Residents in their retirement, healthcare, and housing needs. Both employees and employers are required to contribute to the CPF, with contribution rates varying based on the employee's age and salary.
The contributions are allocated across three main accounts: the Ordinary Account for retirement and housing, the Special Account for retirement, and the MediSave Account for healthcare expenses. This system not only ensures financial security in retirement but also facilitates access to essential services throughout an individual's life.
What are Central Provident Fund (CPF) contribution rates for employers in Singapore for Year 2025?
From January 1, 2025, the Central Provident Fund (CPF) contribution rates for employers in Singapore will see adjustments, particularly for senior workers. The changes are designed to enhance retirement savings for employees aged 55 to 65. Here are the key details regarding the contribution rates for salaries increasing SGD 750 per month:
Employee's age (years) | Employer's rate | Employee's rate | Total rate |
---|---|---|---|
55 and below | 17% | 20% | 37% |
Above 55 to 60 | 15.5% | 17% | 32.5% |
Above 60 to 65 | 12% | 11.5% | 23.5% |
Above 65 to 70 | 9% | 7.5% | 16.5% |
Above 70 | 7.5% | 5% | 12.5% |
Additional Changes The Ordinary Wage ceiling will increase to SG$7,400 from January 1, 2025, allowing higher wages to attract CPF contributions. This ceiling will further rise to SG$8,000 by 2026.
Are CPF contributions compulsory for all employees, including part-time and contract workers?
CPF contributions are mandatory for most employees in Singapore as long as they meet the following criteria:
- Singapore Citizens or Permanent Residents,
- Earning more than SGD 50 per month,
- Engaged under a contract of service (employment contract) with their employer.
Exceptions for CPF Contributions for certain categories of people.
While CPF is generally compulsory, certain categories of workers are exempt, including:
- Foreigners working in Singapore: This includes non-residents who are not Singapore Citizens or Permanent Residents (PRs).
- Domestic workers: Individuals employed in domestic work, such as maids, are exempt from CPF contributions.
- Selected students: Certain students may qualify for CPF contribution exemptions based on specific criteria set by the CPF Board.
- Employees of UN Organizations: Those working for the United Nations or its agencies stationed in Singapore are also exempt from CPF contributions.
CPF obligations for Permanent Residents and Foreigners
All Permanent Residents, working in Singapore, are required to contribute to the CPF once their PR status is approved. During first two years of permanent residency CPF rates are lower. From third year of residency must apply "full" CPF rates.
CPF contributions are payable even Singapore PR / citizen works in Singapore for foreign (overseas) employer.
If a PR / citizens work overseas, they are not required to make CPF contributions during that period, but their CPF account remains active, earning interest on existing funds.
However, if an employee who is a Singapore Citizen or Permanent Resident is assigned overseas for short-term work, such as business trips, client meetings, or training, CPF contributions are still required.
Foreigners working in Singapore do not contribute to CPF unless they obtain Permanent Residency.
How do I calculate the CPF contributions I need to make as an employer?
Calculating CPF contributions as an employer in Singapore involves understanding the employee's age, salary, and citizenship status.
- Determine Employee Status: Identify if the employee is a Singapore Citizen, Permanent Resident (PR), or foreign worker.
- Check Salary Threshold: Ensure the employee's monthly salary exceeds $50 to qualify for CPF contributions.
- Identify Employee Age: Determine the employee's age group to apply the correct contribution rates.
- Break Down Salary Composition: Classify the salary into ordinary wages and additional wages (if applicable).
- Refer to CPF Contribution Rates: Use the CPF contribution tables to find the applicable rates based on the employee's age and status.
- Calculate Contributions: Compute the employee's contribution based on their salary. Compute the employer's contribution based on the same salary.
You can use CPF calculator (calculates only CPF) or salary/wages calculator that calculates all taxes and creates payslip.
Optimizing CPF Contributions
Employers can optimize their CPF contributions to benefit both the company and their employees through several strategies.
- Understand Contribution Caps and Rates. Keep updated on the current CPF contribution rates and salary caps. Need to take into account that if ordinary wages/salary exceeds certain amount, then no obligation to pay CPF contributions above the amount. So employer and employee can agree regarding monthly salary taking into account ceilings for current year.
- Need to take into account that CPF contributions ceiling is different for ordinary wages (OW)and additional wages (AW). So it is useful to structure (OW/AW) wages according to needs of employee and employer. And employee has rights to CPF relief only on compulsory CPF contributions.
Compulsory vs Voluntary Contributions
Differences Between Compulsory and Voluntary Employer Contributions
Compulsory contributions are mandated by the CPF Act and are based on employees' Ordinary and Additional wages. These contributions apply to Singapore Citizens (SCs) and Singapore Permanent Residents (SPRs) employed in Singapore.
- Tax Treatment: Compulsory contributions are not taxable. This means that both employers and employees do not incur tax liabilities on these amounts contributed to the CPF.
- Contribution Rates: The rates are determined by the employee's wages and the employee's age. For instance, the total mandatory contribution rate is currently 37%, comprising 20% from the employer and 17% from the employee, subject to a monthly salary ceiling that is gradually increasing from S$6,800 (from Jan 1, 2024) to S$8,000 by January 2026.
Voluntary contributions, on the other hand, are not mandated and can be made by employers or employees above the compulsory contribution levels. Key Features of Voluntary Contributions:
- Nature: These contributions are entirely voluntary, meaning there is no legal requirement for employers or employees to make them. They can be made to the CPF accounts of the individual or their loved ones, including spouses, parents, and siblings.
- Tax Treatment: Unlike compulsory contributions, voluntary contributions are taxable. This means that any amount contributed voluntarily by an employer will be subject to taxation.
- Annual Limit: The total amount that can be contributed voluntarily is capped at the difference between the CPF Annual Limit (S$37,740) and the mandatory contributions made during the year. For example, if an employee's mandatory contributions total S$22,200, the maximum voluntary contribution allowable would be S$15,540.
Taxation Implications of Voluntary Contributions
Employers can choose to make voluntary contributions that exceed the statutory rates. However, these contributions must be carefully managed due to their tax implications.
- Benefits: Voluntary contributions can enhance an employee's retirement savings and potentially improve their future payouts from the CPF, as they accumulate interest over time. They can also be a form of employee benefit that enhances job satisfaction and retention.
- Restrictions: Once made, voluntary contributions are irreversible, meaning the funds cannot be withdrawn until the employee reaches retirement age. This aspect requires employees to be confident in their decision to contribute voluntarily, as it locks away funds for the long term.
Making CPF Contributions
CPF Contribution Due Dates
In Singapore, the due date for employers to make Central Provident Fund (CPF) contributions is the last day of the calendar month for which wages are paid. However, there is a grace period allowing employers to make contributions until the 14th of the following month without incurring penalties.
Filing CPF Contributions
The process for filing CPF contributions involves several key steps:
- Calculate CPF Contributions: Determine the amount based on the employee’s age, citizenship, and total wages (ordinary and additional wages).
- Prepare CPF Submission Number (CSN): Ensure your company has a valid CSN, which is necessary for all CPF transactions.
- Monthly Submission: Submit the CPF contribution details and make payments using the CPF e-Submit@web system, accessible via the CPF website.
- Reconciliation: Regularly or at least at the end of the year, reconcile the CPF amounts contributed with actual salaries paid and adjust for any discrepancies in the following month's submission. If discrepancies are found, adjustments must be made immediately and no later than one year from the date of the original CPF contribution payment.
The deadline for submitting CPF contributions is the 14th of the following month after the wages are paid.
Penalties for Late or Non-Payment
Failure to pay CPF contributions on time can result in significant penalties. If contributions are not made by the due date, a late payment interest of 1.5% per month is charged, starting from the first day after the due date. Additionally, if payment is not completed by the 14th of the following month, enforcement actions may be initiated, leading to potential fines and legal consequences. Penalties can include:
- A fine of up to $5,000 for first-time offenses or imprisonment for up to 6 months.
- For repeat offenders, fines can reach $10,000 with imprisonment for up to 12 months.
- If an employer deducts employee contributions but fails to remit them, the penalties can be even more severe, including fines up to $10,000 and imprisonment for up to 7 years.
Record Keeping Requirements for Employers
Employers in Singapore are required to maintain specific records related to Central Provident Fund (CPF) contributions to comply with legal obligations.
Regarding duration of keeping CPF related records. In some legislation there is requirement to keep CPF payments records for a period of not less than 2 years. But taking into account that for corporate income tax purposes must maintain all records for at least 5 years, then there are advise to keep CPF related records for at least five years from the relevant Year of Assessment.
Types of Records to Maintain
- CPF Contribution Records: Detailed records of the CPF contributions made for each employee, including both the employer's and employee's shares.
- Salary Records: Documentation of all salary payments, including ordinary wages (OW) and additional wages (AW), which are crucial for calculating CPF contributions.
- Supporting Documents: Keep any supporting documentation that justifies the CPF contributions, such as payroll records and bank statements showing payments made.
- Adjustment Records: If there are any adjustments to previously declared CPF amounts, maintain records of these changes, including the reasons and any supporting documentation.
- Employee Personal Information: This includes employment contracts, identification documents, and any other relevant employee information that may impact CPF contributions.