What is CPF?

Central Provident Fund (CPF) is a critical component of the country’s employment framework, designed to ensure the financial well-being of employees and contribute to their long-term security. As an employer, here is what you need to know about CPF:

Mandatory Contributions:

Employers are required to make CPF contributions on behalf of their employees. These contributions are mandatory and form an integral part of the overall employment package.
CPF contributions are calculated based on a percentage of the employee’s wages, including both Ordinary Wages (regular salary) and Additional Wages (such as bonuses and commissions).

Contribution Rates:

CPF contribution rates are set by the government and are subject to periodic revisions. The rates vary based on the employee’s age and the type of wages (Ordinary or Additional).
Employers must stay updated on the prevailing CPF contribution rates to ensure compliance with regulations.

Differentiating Ordinary and Additional Wages:

Employers need to accurately distinguish between Ordinary Wages and Additional Wages when calculating CPF contributions.
Ordinary Wages include regular salary components, while Additional Wages encompass irregular income sources like bonuses and commissions.

Age-Specific Rates:

CPF contribution rates differ for employees of different age groups. Employers must apply the appropriate rates based on the age of each employee.
Higher contribution rates are typically applicable for younger employees to enhance their retirement savings.

Residency Rates:

CPF contributions also depend on the residency status of employees, whether they are Singaporean citizens, Permanent Residents (PRs), or hold other residency statuses.
Employers must apply the correct residence rates when calculating CPF contributions.

Record Keeping:

Employers are required to maintain accurate and detailed records of CPF contributions for each employee. This includes information on Ordinary Wages, Additional Wages, and other relevant details.
Keeping organized records ensures compliance with CPF regulations and facilitates any necessary audits.

Accurate Calculation:

Accurate calculation of CPF contributions is crucial to avoid penalties for shortfalls or complications arising from overpayments.
Employers may utilize tools like Excel with Power Query to streamline and automate CPF calculations, reducing the risk of errors.

Employee Communication:

Employers should communicate CPF-related information clearly to employees. This includes details about contribution rates, the breakdown of CPF accounts, and the importance of CPF in financial planning.

CPF Calculation in Excel

Most people assume that CPF calculation is pretty straightforward and there is no need to fret about it. Isn’t it simply 20% of employee salary and 17% of employer portion?

CPF is not kept at $6800 of the employee pay

For those who are earning between $750 and $6800 from Jan 2024, that is correct. But if staff earns more than $6800, the percentage decreases because the maximum amount to be deducted is kept to a maximum of $6800 of their salary. Amounts higher than this do not attract any CPF, except for commissions and variable components of their pay. That would attract more salary but the limit is kept at $102K for the whole year. That is the first complication.

Therefore, to accurately perform CPF calculations in Excel or any other software, you need to separate the pay into ordinary wages and additional wages.

The treatment of Ordinary and Additional Wages?

Ordinary Wages are paid every month. Ordinary wages include basic wages, overtime pay, monthly performance bonuses, allowances, monthly commissions, and monthly cash incentives. The definition of ordinary wages refers to wages paid monthly.

If the commission is paid every quarter, then it is considered additional wages. The same should apply to performance bonuses and cash incentives.

A CPF program can help you calculate the CPF of ordinary wages but it is your payroll guy who needs to identify the additional wages to be paid.

Upon identifying the additional wages, the calculation of CPF on additional wages becomes tedious and time-consuming. This is not someone with basic Excel skills can complete flawlessly.

You need someone skilled in Excel, knows Power Query and get data from folder function to get this done proficiently every month.