Explain why CPF on a bonus is worked out differently from CPF on your monthly salary.
A bonus or AWS usually reaches your bank account smaller than the figure in your contract, and many people plan with the larger number. The gap is the employee CPF deduction, which comes off a bonus in the same way it comes off your salary. Your salary arrives every month, so you get used to that deduction. A bonus comes only once or twice a year, so it is easy to forget that the same deduction applies. As your pay rises, a second rule starts to matter: CPF applies only up to set limits, and those limits change how you should compare job offers.
CPF puts pay into two groups. Ordinary wages are pay earned for work in a given month and received in that month, such as your basic salary and any regular allowances paid with it. Additional wages are payments not tied to the work of one particular month, such as the AWS, a performance bonus, or leave encashment when you leave a job. The CPF Board's website gives full definitions of both, with examples of each. If you can't tell which group a payslip item belongs to, look it up there.
CPF applies to both groups. Your share is deducted from each, and your employer adds its own share. Additional wages use the same age-based contribution rates as your salary. Because your employer's share is added on top of the bonus, more goes into your CPF account than the net amount on your payslip shows.
Hui Min's contract pays one month of AWS in December, which for her is S$4,000. All the amounts in her case, and in the job offers further down, are made-up examples. Before it arrived, she had planned a flight to Taipei in March and meant to save the rest.
On her payslip, the AWS line has its own CPF deduction of S$800, so S$3,200 reaches her bank (S$4,000 - S$800 = S$3,200). She still books the flight, but she has to lower the amount she planned to save. There was no mistake on the payslip. CPF handles bonuses differently from monthly salary, and her employer also paid its share on top, so her CPF account received more than her net pay shows.
The CPF Board sets two ceilings. The monthly ordinary wage ceiling is the most ordinary wages in a month that can attract CPF. Any pay above it in that month gets no CPF from you or from your employer.
The additional wage ceiling is a yearly cap on additional wages that attract CPF. It is worked out as a yearly limit on total wages minus the ordinary wages that have already attracted CPF. The CPF Board website explains the formula. If your ordinary wages for the year have already used up most of this ceiling, part of a large bonus may get no CPF. Most first jobbers won't run into this, but it is one reason to check both ceilings every year.
The monthly ceiling has gone up in several steps in recent years, so any figure you remember is probably out of date. Most fresh graduates earn well under it, though a few years of raises can bring you closer to it than you might expect. To check where you stand, get your monthly salary and any bonus or AWS from your contract, find both current ceilings on the CPF Board website (including the formula for the additional wage ceiling), and compare each of your figures with them.
Below the monthly ceiling, a higher salary brings more employer CPF. Above it, a higher salary brings no extra employer CPF. Say the monthly ceiling is S$6,000, a figure used purely for illustration and not the real one. You have two offers, one at S$9,000 a month and one at S$6,000. Both attract CPF on the same S$6,000 a month. The extra S$3,000 in the bigger offer (S$9,000 - S$6,000) is all cash and adds nothing to your CPF. You can spend or invest that cash as you choose, and some people prefer having that flexibility.
The offer comparison sheet in Lesson 1.4 counts employer CPF as part of an offer's advantage. If you multiply the full salary by the contribution rate, the gap between the offers will look bigger than it is. Look up the current monthly ceiling first. For any offer that pays more than the ceiling, work out employer CPF on the ceiling amount and put that figure in the sheet's CPF row. Treat any pay above the ceiling as cash, with no CPF on it.
Employee CPF always comes off a bonus or AWS before it reaches you. Work out the net amount first and make your plans with that figure. Bonuses and AWS arrive once or twice a year, so leave them out of your monthly budget and decide what to do with each one when it comes in. Lesson 4.1, "Start from take-home pay and next year's tax bill", builds a budget that works this way.
Looking up the current ceilings on the CPF Board website takes about five minutes. Have your monthly salary and any bonus or AWS in your contract with you when you look, so you can compare each figure with the ceilings straight away.
Look up the current ordinary and additional wage ceilings on the CPF Board website. Write down whether either one affects your pay.
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