Annual Wage Supplement Singapore Guide - How it Calculate?

Every year, Singapore employees look forward to the Annual Wage Supplement (AWS), an extra payment added to their annual salary. It’s usually given at the end of the year.

Annual Wage Supplement (AWS), known as "13th month pay," is common in Singapore. It started in 1972 for government workers to help reduce the pay gap with private sector jobs, and now both public and private sectors offer it.

Annual Wage Supplement (AWS) is "13th month payment", an extra payment for employees' annual salary. AWS is not required by law. Whether you get it depends on your employment contract or any agreements made. Employers are encouraged to give AWS to reward employees for their hard work. Employees can negotiate for a lower amount of AWS if the company has a bad year.

AWS is not mandatory, so employers can choose whether to offer it and how much to pay. Although AWS is common in Singaporean employers, but it isn’t required by law. Unless it's stated in an employment contract or union agreement, employees don't have a legal right to receive it.

Since AWS is not required by law, it is based on agreements in documents like:

• Employment contracts

• Company employment handbooks

• Collective agreements for unionized companies

Also, if no AWS was paid before August 26, 1988, the AWS cannot exceed one month's salary.

Annual Wage Supplement (AWS) is different from performance bonuses. The amount of AWS usually stays the same, while performance bonuses can vary based on the company's financial results and each employee's contribution. Additionally, bonuses can be paid at any time throughout the year, not just at the end.

Yes, the Annual Wage Supplement (AWS) is taxable. The AWS is considered part of your taxable income. Inland Revenue Authority of Singapore (IRAS) treats AWS as taxable income. This means you will pay income tax on the amount you receive from AWS, just like you do on your regular salary.

In Singapore, both employers and employees must contribute to the CPF, which is a mandatory savings plan for retirement, healthcare, and housing.

Under the Central Provident Fund Act 1953, the Annual Wage Supplement (AWS) is considered money paid for work, including bonuses. This means it requires CPF contributions.

The additional wage CPF ceiling is calculated as follows:

$102,000 - Total Ordinary Wages subject to CPF for the year

It's important to clearly outline its terms in employee contracts if you include AWS in their compensation. This ensures everyone understands how it works. Here are some key points to consider:

• Meaning of AWS: Clearly explain that the Annual Wage Supplement is an extra, discretionary payment given to show appreciation, typically once a year.

• Eligibility Criteria: Outline who qualifies for AWS, including any minimum service period or conditions that must be met.
• Discretionary Nature: State that AWS is at the employer's discretion and not guaranteed, helping to manage expectations.
• Calculation Basis: Formula for calculating AWS, include details, such as using basic salary or months worked.
• Payment Schedule: Specify when AWS will be paid, often alongside the December salary, to set clear expectations.
• Impact on Other Benefits: Explain how AWS affects other benefits like CPF contributions, bonuses, and leave entitlements.
• Tax Treatment: Include information on whether AWS is subject to income tax and any other relevant tax details.
• Review Clause: Mention that the AWS terms, including eligibility and payment amounts, may be reviewed periodically to adjust for business needs.
• Termination and Prorated AWS: Clarify how AWS will be handled for employees who start or leave mid-year, including whether it will be prorated based on their length of service.

AWS is not required by law, how it is prorated depends on the terms in the employment contract.

Here are two common methods to prorate AWS for employees who join mid-year:

• Basic Salary ÷ 365 days x Days Worked

• Basic Salary ÷ 12 months x Months Worked

For new employees who haven’t worked a full year, their AWS can be prorated based on how long they have been with the company.

Yes, if a company experiences significantly poor business performance, employers can negotiate a lower AWS with employees.

It's important to communicate clearly with your employees to prevent misunderstandings and ensure transparency in this process.

Yes, Singapore Permanent Residents (PRs) usually eligible for the Annual Wage Supplement (AWS). However, this can depend on the company's policies. Singapore PRs should ask their employers to find out if they will receive AWS.