The complex world of flexible benefits and CPF in Singapore

Employers in Singapore are increasingly introducing flexible benefits schemes as they compete to attract the scarce talents they need. These schemes often offer a basket of benefits that staff can select from, each representing a different value.

At the core of all benefits schemes in Singapore is the Central Provident Fund (CPF). As companies build out their supplemental benefits schemes, they must be careful to ensure that they are correctly reflecting the value of the benefits in CPF payments, as the rules are complex and can be confusing.

The background story

Traditionally, employers in Singapore provided employee benefits that were limited to medical and dental care, either subscribed through managed healthcare schemes from insurers or reimbursement of actual expenses incurred. With skills in short supply, employers began to broaden their employee benefits as part of their workforce strategy, offering more choices and empowerment to employees by using an employee benefits budget.

This may include further medical and dental benefits such as health screening and vision care, gym memberships, festive bonuses, and even groceries. Such schemes are commonly referred to as “flexible benefits” and they typically have a fixed financial limit for claims per year. HR practitioners and payroll administrators need to pay attention to the CPF payable rules that apply to each of these benefits.

Implications for CPF payments 

The various types of benefits that companies award to their employees are subject to payment of CPF. In recent years, the CPF Board conducted audits and discovered that many employers failed to pay CPF on reimbursements made under flexible benefits schemes. Many employers, HR and payroll practitioners are still under the impression that any reimbursements to employees based on receipts and actual spending do not attract CPF payments.

This is a common error that can result in employers incurring penalties, such as fines of up to S$10,000. Imprisonment of up to seven years may also be applicable.

Common errors made by employers

HR practitioners and payroll administrators are under the impression that all reimbursements to employees based on receipts and actual spending do not attract CPF liability. This is another common error that can result in employers incurring penalties for failing to comply with CPF-payable regulations.

CPF contributions are payable if the flexible benefits are made as cash payments to employees for expenditure that was not incurred on behalf of the employer, such as:

• employee groceries;
• home renovation; or
• a contractual payment for a child’s education.

However, CPF contributions are not payable if the flexible benefits are given in kind, such as:

• a watch;
• a car;
• a pen; or
• a gift on the birth of an employee’s child.

CPF contributions are also not payable for genuine reimbursement of expenditure that employees incur that would otherwise be incurred by the employer, such as:

• office equipment that may be used at home on behalf of the company;
• training courses and examination fees, where the training forms a part of the employer’s training programme; or
• subscriptions to professional publications.

The cost of all medical-related benefits for the employee and their dependents are also excluded from payment of CPF.

CPF contributions are not required for employees’ holiday expenses (accommodation in hotels, chalets, holiday bungalows, tour packages, and air tickets for overseas holidays). However, fixed payment to employees for vacation is CPF-payable.

Similarly, direct payments to employees to cover house rental costs are subject to CPF, but if the rental payment is made directly to the landlord, then the payments are exempt from CPF.

Wherever an amount is reimbursed it must not exceed the expenditure actually incurred. It is therefore important that HR practitioners and payroll administrators fully understand when CPF should and should not be paid when reimbursing flexible benefits to their employees.

The above examples only represent a small subset of the different benefits that may be included in a flexible benefits scheme. When combined with the different rates for payment of CPF for Singapore citizens and qualifying permanent residents, banded by age, it is easy to see how complex the CPF system is and how easy it is to get something wrong.

Employers must also be aware of the taxable and non-taxable treatment for flexible benefits. A benefit in kind, such as giving a watch, does not attract CPF, but is taxable. Others, such as medical and dental benefits, do not attract CPF and are not taxable.

Very often, employers may confuse the liability of CPF with taxation. It is not easy for employers to accurately reflect an employee’s salary and CPF contributions, especially when they have many reimbursement claims from their employees.

Next actions

Employers, HR, and payroll practitioners should review all of the benefits made available to employees, and ensure that CPF payments are included in the benefit cost of those relevant. It is essential to get this right to avoid sanction by the CPF Board, following an audit. With potentially significant penalties, employers would be well-advised to seek professional help if they are unsure of how to set up their HR policies and reflect correct CPF payments in their payroll systems.

About the author

Aileen Ng is a specialist HR and Payroll Consultant with TMF Singapore. TMF Group offers expert help in compliance with regulations relating to employee payroll and benefits administration.