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How Year-end Bonus Computation will Affect Employee Payroll Management

Every year end, some employees will be entitled to bonus payouts such as AWS, Variable Bonus or Performance Bonus on top of their monthly salary. Bonus computation is dependent on the individual’s performance alongside the company’s annual performance. Companies who have done exceptionally well in the year may offer massive bonuses up to 52 months

While it is the duty of the employer to disburse the bonus timely to the employees, there are things in bonus payroll processing they need to be mindful about. An example is the CPF computation based on the bonus. According to MOM law, it has to be as accurate as possible.

What Is A Bonus For Wokers

In Singapore, there are 2 types of bonus:

  • Annual Wage Supplement or 13th Month Bonus (AWS)
  • Performance Bonus / Variable Bonus

A bonus is a one-time payment made to employees in recognition of their contributions to the company. It is typically available at the end of the year. Bonus payments are not required unless stated otherwise in the employment contract or collective agreement. 

The bonus is a variable wage component of the monthly salary. The AWS is a single annual payment on top of the total annual wage of the employee. AWS is not required. Payment is determined by your employment contract or collective agreement. Employers are encouraged to provide AWS to their employees as a form of compensation for their contributions to the company’s success. If business results are exceptionally poor for the year, your employer may be able to negotiate a lower amount of AWS.

Why Employees Get Bonus

Bonuses are often issued to recognise and reward employees for exceptional performance or for meeting certain performance targets. It reflects the company’s appreciation towards their employees and serves as a morale booster to retain talent.

There is a year end appraisal or yearly appraisal (some bonuses given out in March) which determines the performance of the employees. Normally, the hiring manager will go through the SMART objectives with the employees.

Employees may get lower bonuses even if the management board can see that he or she has sincerely put in the hard work. This is because the company’s overall profit results, or even other KPIs, such as QA audits, do not perform well. However, it’s important to reward the employees well in order to justify the results that are being produced out of their hard work, whether or not it comes from the bonus or other measurements, such as salary increment or promotion.

How Bonus Affects Payroll Processing

Although under the Employment Act, employers are not mandated to issue bonuses to employees, the bonus wage component is still subject to MOM laws. However, under the CPF Act, the bonus is included in the wages as they are due to be granted to the person in respect of his or her employment.

CPF Computation

Bonuses are classified as additional wages (AW), and the amount of AW for the year that is subject to CPF contributions is limited by an annual AW ceiling. It is important for HR to comply with MOM laws that the bonuses given out to workers are subject to CPF contributions.

Read this article for CPF computation for payroll processing

How Jusixty Helps In Better Bonus Computation

It can be a hassle to compute bonuses, and yet the CPF is based on the bonus for many employees. 1 employee is not enough to justify the process viability. Imagine doing this for more than 150 employees in the SME!