You will be able to explain why CPF on a bonus works differently from CPF on your monthly salary.
In December, Hui Min's contract pays her one month of AWS. She has already decided what the S$4,000 is for: a flight to Taipei in March and the rest into savings. Then the payslip arrives and the AWS line has its own CPF deduction. In this example, S$800 comes off it, and S$3,200 reaches her bank. The flight is still on. The savings plan needs a new number.
Nothing went wrong. CPF treats a bonus differently from a monthly salary, and once you see how, the December payslip stops being a surprise. It also changes how you compare a high salary with a smaller one. The figures in this lesson are made-up examples.
CPF sorts your pay into two kinds. Ordinary wages are the pay you earn for work in a given month and receive in that month: your basic salary, and regular allowances paid with it. Additional wages are payments that are not tied to the work of one particular month, such as the AWS, a performance bonus, or a leave encashment when you leave a job.
Both attract CPF. Your employee share is deducted from them and your employer adds its share, at the same age-based rates as your salary. That is why Hui Min's AWS shrank on the way to her bank account. Her employer also paid its own share on top, so the AWS put more into her CPF than her payslip's net line suggests.
The CPF Board's website has the full definitions, with examples of what counts as each. If a payment on your payslip does not obviously fit either group, that is the place to check.
CPF does not apply to every dollar you earn. There is a monthly ceiling on ordinary wages: pay above it in a month attracts no CPF at all, from you or your employer. And there is a ceiling on additional wages for the year, which the CPF Board works out from a yearly limit on total wages minus the ordinary wages that have already attracted CPF. Its website explains the formula.
Both ceilings are set by the CPF Board. The monthly one has gone up in several steps in recent years, so treat any figure you remember as out of date and look up the current ones each year. Most fresh graduates earn well under the monthly ceiling, but it is worth knowing where it sits, because a few years of raises can bring you closer to it than you expect.
Here is where it matters for a job offer. Imagine, purely for illustration, that the monthly ceiling were S$6,000. Two offers pay S$9,000 and S$6,000 a month.
Below the ceiling, a higher salary brings more employer CPF with it. Above the ceiling, it does not. Both offers here would attract CPF on the same S$6,000 each month. The extra S$3,000 in the bigger offer is all cash, which you can spend or invest as you like, but it adds nothing to your CPF.
That cuts both ways. The cash is more flexible, which some people prefer. But if you were counting employer CPF as part of the bigger offer's advantage, as the sheet in lesson 1.4 does, you would overstate the gap if you multiplied the full salary by the rate. That is why the CPF row in your sheet should use the ceiling, not the salary, once pay goes above it.
The same logic applies to a large bonus. If your ordinary wages for the year already use up most of the additional wage ceiling, part of a big bonus may attract no CPF. For most first jobbers this will not happen, but it is the reason the ceilings are worth a minute each year.
The practical lesson from Hui Min's December is that a bonus or AWS never arrives in full. Your employee CPF comes off it first, and you have none of the monthly rhythm to remind you. When you plan what a bonus is for, plan with the net amount.
The other point is about timing. Because the AWS and bonuses come once or twice a year, they belong in your plan as decisions you make when they land, not as part of your monthly budget. Lesson 4.1, Start from take-home pay and next year's tax bill, builds the budget that way.
Finding the current ceilings takes about five minutes on the CPF Board website. Have your monthly salary and any bonus or AWS in your contract to hand when you go looking, so you can hold each figure up against the ceilings straight away.
Find the current ordinary and additional wage ceilings on the CPF Board website and write whether either affects your pay.
Junxiong-WFG Organisation is an authorised representative of AIA Financial Advisers Private Limited (Reg. No. 201715016G).