## Overview: Additional Wage (AW) Ceiling

If you are a Singapore-based citizen or anyone who owns a business in Singapore, you should know that CPF contributions are necessary for everyone working in that nation. Every month, a worker submits at least 17% from his/her wage into their Central Provident Fund account. Apart from that, some workers also submit 20% of their salary. The Singapore CPF contributions are restricted to the starting $6,000 on their monthly wage. This limit is termed the Ordinary Wage Ceiling (OWC).

Another known CPF structure is the Additional Wage Ceiling. The workers should be aware of this CPF contribution, and it is calculated every year or before a worker drops out from the firm.

## What Is Meant By Additional Wage?

These are the kind of salaries which aren’t given exclusively and completely to the worker for the month. To put in simple words, Additional Wages are supplied to the workers as a separate way of remuneration. This has nothing to do with their monthly wage. Examples of additional wages include, leave pay, annual bonus, incentive payments, and several other payments that done intervals extending 1 month.

**To explain this term better, let’s consider this example:**

If an employee working in your firm gets paid his/her annual commission because they had done a commendable job at meeting their annual sales target, this would then be counted as an Addition Wage. But, if the employee gets his/her commission with their fixed monthly wage, depending on the fact if they have succeeded in hitting their monthly sales target, then this is termed as their month’s Ordinary Wage.

## How Do You Calculate Additional Wage (AW)?

The Additional Wage Ceiling is responsible for setting the maximum value of Additional Wage on which the employee will have to pay their Central Provident Fund contributions every year. Like the Ordinary Wage, the ceiling is restricted to the monthly wage of $6,000, the Additional Wage Ceiling is calculated on the per worker per year foundation.

So, by this we can understand that if a worker stayed in a Firm X from January to March, but then drops out and starts working in Firm Y from March to December, his/her Additional Wage Ceiling gets calculated twice. The first one would be considered for Firm X and the other one for Firm Y.

**Formula to Calculate AW ceiling**

You can compute the Additional Wage Ceiling value by using the formula:

AW Ceiling = ($102,000) – (Ordinary Wages subject to CPF for the year)

## When To Calculate Additional Wage (AW) Ceiling?

After discussing what is Additional Wage, and how to calculate it, let’s now talk about situations when you need to calculate the Additional Wage Ceiling. As per the CPF board, one should compute the Additional Wage Ceiling twice every year. There are certain steps of calculating the AW Ceiling, let’s learn more about them:

**1 ^{st} Step:**

At the beginning of the year, businesses must first compute the Additional Wage Ceiling by utilizing the present year’s projected monthly Ordinary Wage. Let’s understand using an example,

Monthly Wage of Worker | The formula for Additional Wage | Computed Additional Wage Ceiling |
---|---|---|

$2,000 | $102,000 – ($2,000 x 12) | $78,000 |

Now, according to this example if the worker gets $2,000 a month, then according to the formula of AW Ceiling, the Additional Wage Ceiling of the employee will be computed as $78,000.

**2 ^{nd} Step:**

There can be 3 instances where companies should re-compute the Additional Wage Ceiling depending on the Ordinary Wage that was paid for that year. The 3 situations are:

- By the year-end
- When an employee resigns
- On modifications in the salary of an employee

If there is any deficit in the amount of contribution, then the remaining amount should be submitted with the Central Provident Fund contribution by the year-end, or in the worker’s last working month.

For instance, if a worker gets a raise or faces deduction in his/her monthly wage after the estimation of the AW, to reflect his/her new salary company must re-compute the worker’s AW. If there is any deficit or gap, it should be given to the worker by the year-end, or during his/her last working month.

## Understanding Additional Wage Via Examples

Now that you know the formula for calculating the Additional Wage, let’s take some scenarios and understand how will this formula be implied:

**Example 1:**

Monthly Wage of Worker | Calculation According to Formula | Calculated Additional Wage |
---|---|---|

$3,000 | $102,000 – ($3,000 x 12) = $66,000 | $66,000 |

So, if the worker gets presented with a year-end bonus of $5,000, the whole bonus will fall under the Central Provident Fund Contributions as it is a part of the Additional Wage Ceiling. But in the situation where the worker gets a bonus of $50,000 at the end of the year, the maximum Additional Wage which will get submitted in the CPF account will be $45,000. The rest $5,000 won’t be needed for any worker’s CPF account.

**Example 2:**

Monthly Wage of Worker | Calculation According to Formula | Calculated Additional Wage |
---|---|---|

$4,000 | $102,000 – ($4,000 x 12) = $54,000 | $54,000 |

In this example, the worker’s additional wage is found to be $54,000. Now, if the employee gets a yearly bonus and also has a leave salary left which sums up to $52,000 annually, then the whole total of $52,000 will get subjected to the worker and employer’s CPF accounts.

If you are an employer, it is necessary that you correctly calculate the additional wage ceiling. Why so? Because a correct AW calculation will help you keep a track of your CPF contribution. It helps you keep a check that the amount you’re submitting in the CPF account isn’t less or more, but accurate.

## Why Is It Necessary To Differentiate OW & AW Properly?

The CPF accounts are estimated depending on a worker’s complete salary. Therefore, it’s important that companies correctly classify both, Ordinary Wage and Additional Wage, as there are separate ceilings for both of them. An incorrect computation can affect the rate of payable CPF contribution.

### Conclusion

A worker’s complete salary for any given month is the total of his/her OW (Ordinary Wage) and the AW (Additional Wage) that’s given to him/her during that month. By now you must have understood the basic concept of Additional Wage.

In this article we focused on making you learn about Additional Wage, why is it necessary to understand the difference between OW & AW, how to calculate AW, and when to calculate it. Next, we also mentioned some examples, using which you can get a clearer understanding of the topic.

We at ODINT Consulting work with the motive of providing our clients with the best possible service. So, if you’re a new entrepreneur, or an experienced one, but need assistance with your business, feel free to contact us.

## FAQ’s

It refers to a salary that is due to be given to a worker completely based on service for that particular month. It includes several allowances that a worker earns in a month.

The salary that is not given for a particular month, but granted in the form of leave pay, bonuses, and incentives, is known as Additional Wage.