Singapore Wage Credit Scheme (WCS)

A transitional wage support program called the Progressive Wage Credit Scheme was introduced in the Singapore Budget 2022. Between 2022 and 2026, it intends to co-fund wage hikes for lower-paid workers.

The program was created to assist employers in managing impending obligatory wage increases for workers who currently receive lower pay due to the Local Qualified Salary and Progressive Wage Model regulations and lower-paying employees’ voluntary wage increases.

The government will offer some assistance to employers so they can raise the pay of workers who are slightly above the first wage tier (i.e., earning more than S$2,500 but less than S$3,000) in light of the current state of the economy.

Businesses will be reimbursed for the payments in turn by Singapore’s Internal Revenue Authority ( IRAS).

FEATURES OF THE PWCS

• The main target population is residents with monthly incomes of up to S$2,500. From 2022 through 2026, funding will be distributed. The updated Workfare Income Supplement scheme maintains the same salary cap of S$2,500.
• Workers who make more than S$2,500 but less than S$3,000 per month are eligible for further assistance. The government will assist these workers who fall below the first salary bracket given the current state of the economy. From 2022 to 2024, more support will be offered.
• For enterprises to qualify for the PWCS award, the average gross monthly pay increase must be at least S$100 in each qualifying year.
• Over the next two years, co-fund salary increases will be applied to each valid year. For instance, if the pay increase in 2022 is maintained, it will be funded both in the qualifying year of 2022 and in 2023. This tactic can be used by employers to control the compounding effect of annual compensation increases.

WHO IS QUALIFIED FOR THE SCHEME?

• Singaporean national or lawful resident.
• Received CPF payments from a single employer for at least three months in the previous year.
• Worked for a minimum of three months during the qualifying year and made the required CPF contributions. Received a minimum $100 increase in average gross monthly pay during the qualifying year.
• An annual wage that falls below the pay ceilings for Tier 1 ($2,500 and below) or Tier 2 ($2,500 to $3,000).

The applicant is registered in the program automatically if their business satisfies the aforementioned criteria. An official letter from Singapore’s Inland Revenue Authority will inform them of their qualifications and eligibility.

WHO IS EXCLUDED FROM THE SCHEME?

• Local government entities include State Organs, Departments and Ministries, and Statutory Boards.
• government-run and -supported schools
• Units at the grassroots and PA services
• units of foreign military
• Foreign trade associations, foreign government agencies, and representatives of foreign businesses
• Foreign nonprofits, foreign chambers, and foreign legal firms
• Representative Bank Offices
• Officials who represent insurance
• News Agencies (which are representative offices)
• Offices of other financial representatives (registered with MAS)

Because the program is designed to encourage employee pay increases, wages paid to business owners such as sole proprietors or sole proprietorships, partnership partners, or both a director and a shareholder of a corporation will not be eligible.

HOW ARE THE PAYOUTS CALCULATED?

The Progressive Wage Credit will be determined based on the co-funding levels for each eligible employee according to the appropriate tier.

Payouts Calculated

Simply add the co-funding level to either formula below to determine the payout:

1. Co-funding level (1st Tier) x Wage Increase x No. of months of CPF contributions made by employer = Wage Credit
2. Co-funding level (2nd Tier) x Wage Increase x No. of months of CPF contributions made by employer = Wage Credit

The qualifying wage rise is the wage increase that makes an employee eligible for co-funding. It consists primarily of two parts:

• The increase in gross monthly pay provided during the qualifying year up to the applicable salary ceiling
• Increased gross monthly income from the previous year (if it is sustained).

Gross Monthly Wage

When the number of months in which CPF contributions were made is divided by the total salaries provided by the employer to the employee throughout the calendar year, the result is the gross monthly wage. 

The CPF payments that the employer makes for the employee during the year are used to calculate the total earnings given to an employee. The basic salary and any additional wages, like bonuses and overtime pay, are included in the total wages, but the employer’s CPF contributions are not.

Example of WCS 

• If an employer increases an employee’s gross monthly salary by $200 in 2013 and the rise is maintained for the next two years, the government will co-fund 40% of the $200 wage increase.
• If there are additional $200 wage increases in 2014 and 2015, the government will contribute 40% of those increases, for a total wage rise of $400 and $600 in those years, respectively.
• After three years, the business has increased the employee’s pay by a total of $14,400, and the government has contributed an additional $5,760.

HOW TO APPLY FOR THE PWCS SCHEME?

Employers do not need to apply for PWCS because wage data is calculated automatically.

Qualifying employers will receive income tax and GST payments through their GIRO bank accounts.

For those without GIRO accounts, compensation is credited to bank accounts registered with PayNow Corporate. Employers must sign up for direct crediting if they haven’t already in order to get payment.

IRAS will advise qualified employers of the PWCS payout due for each qualifying year, and they will receive the payout by the first quarter of the following year (i.e. payout for 2022 can be expected in Q1 of 2023).

How do employers receive the payout?

Payments are automatically credited to the employer’s GIRO bank account for income tax and GST. For individuals who don’t have GIRO accounts, the payment will be credited to their PayNow Corporate-registered bank account1. Employers will have to sign up for these direct crediting ways if they are not already using them in order to collect their reimbursements.

How will the Government detect abuse of PWCS?

Any effort to take advantage of the program is taken seriously by the government. PWCS reimbursements may be withheld from offenders, and they may also be charged under Section 420 of the Criminal Code, which carries a maximum 10-year prison sentence and a fine. 

The government has implemented a strong anti-gaming framework and used data from various sources to identify hazards in order to detect potential abuses. The Government will take into account all pertinent facts and circumstances and, when necessary, perform extensive verifications when determining whether an arrangement is oppressive.

IRAS won’t issue the PWCS payouts until they are happy with the review’s outcome.

Is the Wage Credit payout taxable?

A government grant known as the Wage Credit payment helped to co-finance wage increases for the staff. As a result, it was regarded as income that the employers had to pay taxes on. The payouts were subject to taxation in the applicable Year of Assessment, which corresponds to the year that they received the payouts.

The Wage Credit payout received by individuals (including sole proprietors and partnerships) was automatically included by IRAS in their tax assessments for the applicable Year, therefore they were not required to report it on their income tax returns (Form B/B1 or Form P).

Nonetheless, businesses must report the Wage Credit payment they received on their Form C/Form C-S income tax return for the applicable Year.

Refer to Singapore Tax Season 2023 for more information.

BENEFITS OF THE WCS IN SINGAPORE

The benefits for eligible employers and employees include:

• Cost savings for employers – The government co-funds a percentage of qualifying wage increases, which helps to alleviate some of the cost burden of wage increases for employers.
• Wage increases for employees – The scheme incentivizes employers to provide wage increases to Singaporean employees, which can help to improve employee morale and retention.
• Improved competitiveness for businesses – By providing cost savings to businesses, it helps to improve their competitiveness and sustainability.
• Economic growth – By incentivizing businesses to increase wages, it helps to boost consumer spending and economic growth.

Contact us at Relin Consultants – Leading Global Business Set Up Partners for further assistance.