How Central Provident Fund (CPF) Affects Your Salary

When we apply for a job, one important consideration we make to assess whether the job is worthwhile centres on the salary package being offered. For many of us, the gross monthly salary is the only dollar amount which interests us. What about the Central Provident Fund (CPF) contribution? How much do you know about CPF and its impact on your pocket?

What’s in Your Salary

In general, a salary package can be divided in fixed and variable component. Fixed component generally consists of your basic salary and allowances (such as transport etc). Variable component typically includes your over-time pay, bonuses, commissions etc. To understand your salary package, you have to be aware of the necessary evil, Central Provident Fund (CPF).

Central Provident Fund (CPF)

CPF typically comprises 36% of your total salary package. You should note the following points when considering CPF and salary package.

1. Which of your salary component attracts CPF? (Warning, Information overload ahead)

CPF contributions are computed based on the employee’s total wages for a calendar month. Under the CPF Act, wages are defined as remuneration in money due or granted to an employee in respect of his employment. These include overtime pay, allowances, cash awards, commissions and bonuses. Annex A shows a general guide to the types of payments that attract CPF contributions.

TYPES OF PAYMENTS THAT ATTRACT CPF CONTRIBUTIONSThe table below is a general guide as to when CPF is payable. 
Type of Payment
Anniversary Cash Award
Payment to employees on company’s anniversary
Annual Wage Supplement/ Bonus
Payment to employees at the end of the financial year
Attendance Allowance
Payment for good work and attendance
Payment to employees based on percentage of sales achieved
Cost of Living Allowance
Payment as part of employee’s wages
Dirt Allowance Payment for performing field duties
Education Allowance
Contractual payment for education of employee’s children
Payment made under employee’s self-improvement programme
Education/Training Reimbursement
Reimbursement of course and examination fees as part of employee’s training programme
Entertainment Allowance
Reimbursement for entertaining company’s clients
Extra Duty Allowance
Payment made for extra work done; e.g. night duty, overtime, public holiday, acting allowance etc.
Festival Allowance
Cash gift (e.g. hongbao) given to employees during festive season
Finders Introduction Fees
Payment to employees for introducing workers to company
Payment to employees for good service while still in employment
Payment to employees upon termination of employment, i.e. compensation in nature
Grooming Allowance
Payment to employees for enhancement of appearance
Hair Cut Allowance Payment to employees for enhancement of appearance
Handphone & Pager Allowance Payments to employees Yes
Handphone & Pager Forms part of the employer’s expenditure & paid directly to third party e.g. service provider No
Handphone & Pager Reimbursement Reimbursement for actual expenses incurred for official purposes No
Holiday Allowance
Fixed payment to employees for vacation
Variable sum given as reimbursement for holiday expenses incurred by employees
Housing/Rental Subsidy
Payment to employees as housing rent
Housing Reimbursement
Forms part of the employer’s expenditure and paid directly to third party e. g. landlord
Incentive Allowance
Cash payment incentive
Incentive in kind e. g. token gifts
Laundry Reimbursement
Reimbursement for laundry expenses to uniformed employees
Laundry Allowance Payment for laundry expenses for personal clothing of employees
Leave Pay
Payment in lieu of leave
Long Service Award
Cash award for long service
Cash award given to employees with at least 5 years’ service and every subsequent period of not less than 5 years’ service, i.e. 5,10,15 and so on, and the cash award does not exceed the employee’s Ordinary Wages for the month in which it is given.If the Long Service Award exceeds the Ordinary Wages, CPF is still
payable on the amount in excess of the Ordinary Wages.
Maternity Allowance
Payment to female employees during confinement and in addition to monthly salaries
Maternity Subsidy
Reimbursement paid under company’s maternity expenses scheme
Meal Allowance
Monthly lump sum payment to employees
Meal Reimbursement
Reimbursement for staying beyond working hours i.e. overtime
Personal Clothing Allowance
Payment to employees to enhance appearance
Probation Period Pay
Wages for employees on probation
Productivity Award
Cash award for staff productivity
Gifts in Kind
Award in kind e.g. token gifts
Sales Performance Award
Payment for attaining sales target
Service Charge
Collection by hotels/restaurants and distributed as part of wages to employees
Staff Welfare Benefits
Gifts in kind to employees on their marriage or birth of their children
Stand-by Allowance Payment for stand-by duties
Student Pay
Wages paid to employees/registered students,
including students who work after completing their “A” level examinations
Wages paid to registered students as follows:
a. School students working during their gazetted school holidays. (N.A. for tertiary students)
b. ‘N’ & ‘O’ level school leavers working during the gazetted school holidays.
c. “A” level students working during school holidays before their “A” level examinations.
Registered students of any overseas tertiary education
institution who are employed as follows:
a. The student is employed without a letter from the tertiary education institution stating that the training is
required as part of the student’s curriculum
b. The student is employed with
the employer submitting a letter from the tertiary
institution to CPFB, stating that the training is
required as part of the student’s curriculum, and
the training period does not exceed 6 months
Registered students employed during vacation or term, under training programme approved by the following institutions:
a. National University of Singapore
b. Nanyang Technological University
c. Singapore Management University
d. Nanyang Polytechnic
e. Ngee Ann Polytechnic
f. Singapore Polytechnic
g. Temasek Polytechnic
h. Republic Polytechnic
i. Institute of Technical Education
Termination Benefits
Retirement gratuity, retrenchment pay, ex-gratia payment, salary in lieu of notice, severance pay, compensation for loss of employment
Payment of temporary lay-off benefits
Cash collected from customers to augment wages of hotel and restaurant employees
Transport Allowance
Payment to subsidise employees’ transport expenses
Reimbursement for travel in the line of official duty
Reimbursement for travel between home and workplace beyond normal working hours e.g. rest days and public holidays
Reimbursement for travel from home/office to the place of assignment (not the normal place of work)
Reimbursement for actual transport expenses where the employer is obliged to provide transport for employees and where the transport is not available
Workmen’s Compensation
Payment awarded for injuries under the Workmen’s Compensation Act


2. Wage Ceiling for CPF Contribution

Did you know that there is cap to your wages which is subject to CPF contribution? To keep things simple, you should note that the first $5,000 of your ordinary wages are subject to CPF. So if you’re earning more than $5,000, time to take note.

Ordinary Wages are wages due or granted wholly and exclusively in respect of an employee’s employment in that month and payable before the due date for payment of CPF contributions for that month.

3. CPF Contribution Rate

For the purpose of this article, we assume all our readers earns a salary above $1,500. CPF contribution rate is as follows:

Employer Employee Remarks
35 Years and Below 16% 20% -
Above 35 – 50 Years 16% 20% -
Above 50 – 55 Years 12% (+2%) 18% (+0.5%) Additional Contribution Effective Sep 12
Above 55 – 60 Years 9 (+1.5%) 12.5% (+0.5%)
Above 60 – 65 Years 6.5% (+0.5%) 7.5%
Above 65 Years 5% 6.5% -

View full contribution table here.  Additional contribution effective from Sep 2012, as announced in Budget 2012.

4. Conclusion

The CPF plays a major portion in our salary package, accounting for as much as 36% of our total salary (up to maximum of $1,800). Basically all your common salary items such as commission, allowances, bonuses, and over-time pay are subject to CPF contribution.

Example 1:

For a person aged 40 earning a salary of $6,000, his/her take-home pay is $5,000, and his total salary (including employer CPF) is $6,800. “Retained earnings” (73.5%)

Example 2:

For a person aged 25 earning a salary of $3,000, his/her take-home pay is $2,400, and his total salary (including employer CPF) is $3,480. “Retained earnings”  (68.9%)

Example 3:

For a person aged 50 earning a salary of $4,000, his/her take-home pay is $3,260, and his total salary (including employer CPF) is $4,560. “Retained earnings”  (71.5%)

Example 4:

For a person aged 45 earning a salary of $10,000, his/her take-home pay is $9,000, and his total salary (including employer CPF) is $10,800. “Retained earnings”  (83.3%)

The above illustrations highlights an interesting point, which is if you are earning a lower salary (below $5,000), your percentage of retained salary is lower than if you were earning a higher salary. This to me is contrary to “logic”, which taught me that the lower the salary a person earns, the more money he/she should need. Instead, the lower income earners are structurally diverted to “save more” for the “future”.  Perhaps this is the underlying root cause of income disparity as high income earners gain comparative advantage through higher “capital reserve” and “easier access” to capital to succeed in the capitalistic system.


1.  Central Provident Fund

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