So does it mean that IF our salary is above 6K, both employer and employee only pay CPF for the first 6K?
CPF distinguishes between "Ordinary Wages" and "Additional Wages."
Ordinary Wages (OW) are typically your regular monthly salary. Let's suppose your gross monthly salary is $7,500. (Let's also assume you're below age 55.)
Additional Wages (AW) include bonuses, commissions, and other variable pay elements. Let's suppose you receive a traditional $7,500 as a 13th month annual bonus, another $5,000 bonus, and a $5,000 commission.
Compulsory contributions apply to your first $6,000 of OW per month. So, in this example, you contribute 20% (20% on the first $6,000 = $1,200), and your employer contributes 17% (17% on the first $6,000 = $1,020), for a total CPF contribution (across all three accounts) of $2,220. Your take home pay is $7,500 minus $1,200 = $6,300. Your employer's contribution is
above (in addition to) the $7,500. By law, that's how this is supposed to work for CPF contributions: the employer's is additional, above advertised pay, not subtracted.
OK, now let's add in the AW. Compulsory contributions are per the same percentages on the first $30,000 of AW per year (in this example at least). In this example AW totals to $17,500, less than $30,000, so the full amount is subject to compulsory contributions. You'd contribute your 20% ($3,500), and your employer tops up with their 17% ($2,975). Your take home from these bonuses and commissions is $14,000.
Now let's suppose that your employer made a mistake and actually calculated CPF contributions on the full $7,500 instead of the $6,000 cap (for OW). Over the course of the year that's $18,000 of income subject to CPF contributions that shouldn't have been. You contributed $3,600 (20% of that), and your employer topped up 17% ($3,060). Yes, in this example, your take home pay was lower than it should have been, but you got more free money from your employer, paid into your CPF accounts. If either your employer or CPF corrects this problem then you lose that extra $3,060 that your employer shouldn't have paid into your accounts. That correction hurts you, only you. You would lose that 17% top up ($3,060 of tax free income) plus the tax relief on $3,600 (since your contribution was tax free, too).
So "be careful what you wish for." If your employer finds this mistake and wants to correct it, your employer can do it, with or without your permission. It's a mistake, and mistakes can be corrected (if your employer decides to act soon enough). But
you probably don't want such mistakes corrected. Don't lie, but it would be in your interest not to have this error corrected -- even if it means that some of your voluntary contribution is returned because the mistake pushed you over.
What you don't want is for this mistake to be corrected
and too much of your voluntary contribution to be returned, without interest. That combination would be the worst possible outcome. So if you already know your employer is trying to correct this, get involved with CPF to make sure they don't refund what they shouldn't be refunding. But if your employer isn't trying to correct this problem, you probably don't want to suggest that they do.
Note, the Board called me on 31 Dec for some clarification.
