SINGAPORE - Increase in enforcement on Central Provident Fund contribution errors
The Central Provident Fund (CPF) Board has been tightening its audit procedures on compliance in relation to employer contributions. Heavy penalties and fines may be imposed and even prosecution of the responsible officers where lapses in compliance are discovered. It is important for employers to be aware of the compliance requirements for contributions to the CPF Board.
CPF is a compulsory and detailed savings scheme for working Singapore citizens and permanent residents employed in Singapore. It is funded by mandatory contributions from employers and employees.
One of the CPF Board’s main aims is to ensure correct contributions are made to employees’ accounts. They have embarked on an extensive audit, based on complaints lodged by employees or whistle-blowers to recover contributions owed to employees by employers.
As the CPF Board has stepped up its audit activity in recent years, it is paramount for employers to know the requirements of CPF contributions to ensure compliance.
Classification of Ordinary Wages (OW) and Additional Wages (AW)
One of the main areas of under contribution relates to the misclassification of monthly payments as OW instead of AW. OW is not just wages granted wholly and exclusively in respect of an individual’s employment in that month, it has to be payable before the due date of CPF contribution.
It is common amongst employers to regard monthly payments such as overtime payments and monthly commissions as OW without the payments meeting the payable date requirement for OW. This may result in under contribution, as the wage limit for contributions in respect of OW and AW is different. Such errors often result in under contribution specifically where the monthly OW threshold has already been met. When the payment is reclassified as AW, additional contributions will be due.
A flexible benefits scheme allows employees to choose from a list of benefits, incur the expense of his/her choice, and claim reimbursements from the employer.
Remuneration in kind is not subject to contributions. Where benefits are provided through claims of expenses, if they are not incurred for business purposes they will be subject to CPF contributions. To ascertain if CPF contributions are required, the nature of each expense claim has to be examined to check if it is for a business purpose.
Per Diem is a fixed amount given to defray the costs of daily living expenses when an employee is on an overseas business trip. Commonly, employers will not contribute to the CPF on such payments as they regard them as business expenses.
The CPF Board requires contributions to be made in respect of all fixed allowances. Employers must be able to show proof to the CPF Board that their Per Diem is to reimburse employees for business expenses and are therefore not subject to CPF contributions. To that end, the CPF Board expects Per Diem claims to be supported by documents or receipts.
Currently, the CPF Board regards a per diem given to employees without any supporting documents or receipts as a fixed allowance and CPF contributions are required.
Overtime meal allowance claim
Employers frequently allow employees working overtime to claim an overtime meal reimbursement of a fixed sum, on the basis that there is proof of overtime worked.
If the overtime meal allowance is claimed without supporting receipts, it will be regarded as a fixed allowance and will increase the wages of the employee.
As a result of the many audits conducted by the CPF Board, the Board has included further guidelines as to how certain items are to be treated for CPF purpose, e.g. unpaid leave, back pay etc.
Enforcement of CPF contributions
The CPF Board will seek to recover all under contributions from employers based on their back year payroll records; there is no statute of limitation. Non-payment of CPF contributions is regarded as late payment to the individual employees and interest on late payments is calculated daily at the rate of 1.5% per month ( 18% per annum) starting from the first day of the following month after the contributions are due (e.g. interest for January contributions will be calculated from 1 February).
BDO comment: Next steps
In view of the CPF Board strengthening their audit processes and being increasingly proactive with their audits on employers, companies are recommended to review their CPF process to be prepared should the CPF Board conduct an audit of their CPF contribution process. Some preliminary questions that the company can ask its HR/Payroll Team:
- Are there irregular monthly payments that should be classified as AW instead of OW?
- Are there claims for expenses that are private benefits to the employees and not subject to CPF contributions?
- Are reimbursements processed off payroll being tracked and subject to CPF contributions?
Wu Soo Mee