Calculating CPF Contributions
Under the Central Provident Fund Act, all remuneration in money due or granted to an employee in respect of their employment, including overtime pay, allowances, cash awards, commission and bonuses, is treated as wages. CPF contributions are computed based on the employee's wages. The CPF contributions payable on an employee's wages depends on the type of wages—ordinary wages or additional wages.
The ordinary CPF contribution of employer and employee depends on the total wages of the employee, and the employee's age and the corresponding age group, and the contribution rates during the fiscal year.
This topic discusses how to:
Calculate normal CPF contributions.
Calculate voluntary CPF contributions.
Calculate additional CPF contributions.
CPF contributions must be paid for all employees other than foreign workers (and maybe a few odd exceptions, like employees working overseas or students). Contributions are made by employees and by employers. For reporting purposes, it is necessary to record the CPF paid on ordinary wages and additional wages separately. There are therefore four normal CPF deductions:
CPF ORD EE — Employee Ordinary CPF.
CPF ADD EE — Employee Additional CPF.
CPF ORD ER — Employer Ordinary CPF.
CPF ADD ER — Employer Additional CPF.
These CPF deductions apply to most of the workforce, so the deduction assignments are by eligibility group. A generation control CPF GC NORMAL which uses formula CPF FM NORMAL GC is attached to exclude foreign workers and to determine whether the payee is eligible for CPF contribution. (Only Singapore citizens and permanent resident are eligible). For the rare exceptions, you can override at the payee level.
Since the calculation of the four parts of the CPF contributions are related, a single pre-processing formula CPF FM CALCULATION, attached to all the CPF deductions, calculates the amounts. The formula is only required once, but is attached to all CPF deductions in case there are overrides.
CPF contributions must always be calculated and paid to the CPF Board monthly. To cater for pay frequencies other than monthly, the CPF calculation is calculated every period, based on month-to-date wages. CPF already calculated for previous periods in the month is then subtracted to give the current period contributions.
Working with The CPF FM CALCULATION Formula
The formula CPF FM CALCULATION calculates the normal CPF to be contributed by the employer as well as the employee (payee). The calculated amounts are stored in variables for use in the deduction amount fields.
The formula calculates the normal CPF using the following elements:
The array CPF AR RATES retrieves the appropriate rates for the employee. The total wages are needed first to find the right wage bracket in the look-up. The following variables are returned:
Total CPF Calculation Variables
Payee CPF Calculation Variables
A
Percentage of Ordinary Wages
I
Percentage of Ordinary Wages
B
Percentage of NPVP & NPC
J
Percentage of NPVP & NPC
C
Limit on Ordinary CPF
K
Limit on Ordinary CPF
D
Wages Base Amount
L
Wages Base Amount
E
Numerator
M
Numerator
F
Denominator
N
Denominator
G
Percentage of Additional Wages
O
Percentage of Additional Wages
H
Wages Type
P
The formula makes use of various other formulae and GP elements. The Variable CPF VR SECTOR stores the sector in which the employee works. All CPF deduction calculations are based on the sector of the employee.
Voluntary CPF deductions are set up the same way as the normal CPF deductions. They use the same pre-process formula, CPF FM CALCULATION. However, as eligibility will be by individual assignments, they have no generation control.
There are two voluntary CPF deductions:
CPF VOL ER — Employer Voluntary CPF.
CPF VOL EE — Employee Voluntary CPF.
Voluntary CPF can be used in two situations:
Paying normal CPF for foreign workers or others not normally liable for CPF. In this case, the amount calculated in the pre-process formula is used.
Paying extra CPF for employees already contributing the normal CPF. In this case, the amount is overridden on the deduction assignment rather than using the standard CPF amounts.
Note: If the Voluntary CPF is for an overseas posting, set the IRS VR OVERSEAS variable on the SOVR's page of the Deduction Assignment to 'Y' (or any non-blank value) to indicate an overseas posting. This is used on Inland Revenue reports.
With the final pay for each year, the limit on additional CPF needs to be recalculated based on actual wages for the year. If the limit is higher than that of the previous year, extra CPF contributions may need to be made. If the limit is lower, some contributions may need to be reclaimed from the CPF Board. This reconciliation needs to be carried out in December for all employees who received additional wages during the year. It also needs to be done in the final pay for employees who are terminating.
Two deductions are used for the adjustment: One for the employer's share and one for the employee's (payee's) share.
CPF ADD ER — Employer Additional CPF.
CPF ADD EE — Employee Additional CPF.
The generation control CPF GC ADD ADJUST, using the formula CPF FM ADD ADJ GC, determines whether the payee is eligible for CPF adjustment.
Calculating the Additional CPF Adjustment Deduction
The generation control formula CPF FM ADD ADJ GC is used to calculate the additional CPF adjustment deduction when:
The month of the period end date is December, or
The segment end date is equal to the payee's termination date, and
Additional wages YTD accumulator > zero, and
Citizenship status is not '6' (foreign worker)
As with the normal CPF deductions, the pre-process formula performs the actual calculation for both the employer and payee CPF contributions. The amounts calculated are stored in variables, which will be used as the amounts. The CPF FM ADD ADJ GC formula determines whether the employee (payee) is eligible for CPF adjustment using the following elements:
The new limit is calculated based on current earnings. Both the old limit and the new limit variables default to 999,999,999,999 - (no limit).
The old limit is calculated based on last year's earnings.
If additional wages for the current year exceed the new limit and the new limit is less than the old limit, the employer can claim a refund from the CPF Board. The message Additional CPF Refund due informs you of this.
If their current year additional wages exceeded the old limit and the old limit was less than the new limit, additional CPF needs to be calculated. The historical rule CPF HR ADD ADJUST, using formula CPF FM ADD ADJ SEG calculates the adjustments (total CPF and payee CPF) for the year.
Calculating CPF Adjustments
If their current year additional wages exceeded the old limit and the old limit was less than the new limit, additional CPF needs to be calculated. The historical rule CPF HR ADD ADJUST, using formula CPF FM ADD ADJ SEG calculates the adjustments (total CPF and payee CPF) for the year as follows:
The processing period should be going back from the end date of the previous month, to 01/01 (1st January) of the current year, based on period end date. (Generally, it will start from 30/11, that is, 30th November, but for terminating employees, it will be a different month.)
The historical rule returns the following fields for use in the calculation — CPF ADD WAGES YTD (additional wages year-to-date accumulator), CPF ADD WAGES SEG (additional wages segment accumulator), CPF VR RT PCT ADD (employer percent variable), CPF VR RT RPCT ADD, (employee percent variable).
Processing of the historical rule stops when CPF ADD WAGES YTD are less than or equal to the old limit.
The formula CPF FM ADD ADJ SEG executed for each segment recalculates the additional CPF using the original rate applicable in each month, but based on the new limit. The difference between the original CPF amounts and the recalculated CPF amounts are returned in variables.
Calculating Additional CPF Adjustments in the Segment
The formula CPF FM ADD ADJ SEG calculates the additional CPF adjustment in the segment, which is called by the historical rule CPF HR ADD ADJUST.
This formula is executed for each segment returned by the historical rule. It recalculates additional CPF using the original rate, but based on the new limit. The difference between the original CPF amounts and the recalculated CPF amounts are returned in variables (Extra Emplr CPF and Extra Ee CPF). The processing is as follows:
If there were additional wages included in the segment and CPF was not calculated on them, the extra CPF that should have been taken is calculated.
If you hit the limit this month, just the CPF on wages up to the limit is calculated.
The CPF is calculated using the rates that were stored during the original calculation.
Method to Estimated Additional Wage Ceiling
There are two methods of calculating the additional wage limit for CPF contribution for the year (as of September 1, 2011):
The user can select the option based on the business need. The user decides the logic for the ordinary wages limit calculation for the current year, which is used to calculate the additional wage limit to CPF contribution.
The user can select a Variable CPF VR CALC OPTION, which holds the user option to choose the logic of an ordinary wage limit calculation. The additional wage limit is defined by subtracting the option (1 or 2) from the Total CPF Ceiling. The options are:
Option 1: CPF VR CALC OPTION = 1. Previous year’s CPF contributed Ordinary wage YTD value. This is the default option.
Option 2: CPF VR CALC OPTION = 2. Current year’s Ordinary wage CPF contribution YTD plus the Current month Ordinary wage limit projecting for the remaining months of the current year.
Option 3: CPF VR CALC OPTION = 3. (As of year 2012) Actual current year’s Ordinary wage CPF contribution YTD. Set the variable’s value to 3 to use the actual current year’s Ordinary wage CPF contribution YTD as a ordinary wage limit while calculating the current year additional wage limit.
For New Hire, Turning PR, and Terminated employees, as well as during the year end (December) process, the system uses the actual Current year Ordinary wage CPF contribution YTD value. The system calculates the additional wage limit using this formula:
Total CPF Ceiling – (Current year Ordinary wage CPF contribution YTD) = Additional wage LimitAllow the user to override the ordinary wage limit calculated using the above logics at pay entity, pay group, and payee levels, giving the user flexibility to maintain the employee’s ordinary wage estimation for the year.
A variable CPF VR EE OW EST can be used to hold the user maintained employee’s estimated ordinary wage.
As delivered, this variable can be overridden at pay entity, pay group and payee levels, which provides the flexibility to maintain the employee’s ordinary wage estimation. Users can leave the variable unaltered if they want to use the system-calculated ordinary wages limit to calculate the addition wage limit to CPF contribution.
Note: For this method, system does not take into account the user maintained estimated ordinary wage limit for terminated employees and during the year end process.
Storing Additional Wage History
The system stores the Additional wages paid out for each month, the amount contributed to CPF based on the additional wage limit, and the rates applied thereon to calculate the additional CPF.
The following records hold the history data:
GPSG_CPF_AW_HIS
GPSG_CPF_AWH_VW
This additional wage history data can be used while doing the additional CPF re-adjustment for terminations and year end processing.
If there is a shortfall in the additional wage CPF contribution for terminations and year end processing, the system will calculate the CPF by using the appropriate rates instead of using the current month rate.