Foreign companies looking to set up a business in Singapore must be aware of the Wage Credit Scheme (WCS), which is crucial for managing the wage increases of employees. The scheme ensures the companies are given wage credit payouts to handle expenses as they transform.
Businesses get transitional support through the wage credit scheme as it minimises near-term pressures. However, over the years, this scheme has undergone a range of updates, like the Progressive Wage Credit Scheme (PWCS), which has considerably enhanced the nature of the benefits.
In this article, we provide a comprehensive guide to how the wage credit scheme evolved, including the mechanisms of the new program, their eligibility criteria, and what makes the wage credit payout taxable.
An Overview of the Wage Credit Scheme (WCS) in Singapore
Before we delve into the details of the scheme and how it benefits eligible employers, let us look at what a wage credit scheme in Singapore is, including its key features.
What is the WCS?
The Singapore government introduced the Wage Credit Scheme, or WCS, in 2013 as part of its plan to enhance workforce productivity and support businesses in their efforts to increase wages. The scheme is designed to co-fund wage increases for employees in Singapore by providing them with wage credits.
Over the years, the WCS has proven to be an effective solution for small and medium enterprises (SMEs) in Singapore, as they face incredible challenges to maintain the increases in salaries amidst economic uncertainties.
Under the WCS program, Singaporean employees with a gross monthly wage of S$4,000 or less were given at least S$50 wage credit to co-fund wage increases. This scheme was in place until March 2022, after which it was replaced by the Progressive Wage Credit Scheme (PWCS) enhancement. In March 2024, the Singapore government further updated the PWCS to reflect present wage increases in the country. The government is co-funding this till 2026, as designated in the 2022 Budget.
Key Features of the WCS
To take advantage of the Wage Credit Scheme in Singapore, you must understand the following key features of the program:
- Target Group: The credit scheme is only for Singaporean employees earning up to S$4,000 per month. However, the salaries given to business owners, including sole proprietors and company directors, are not covered by this scheme.
- Co-funding Rates: The Singapore government sponsors only a percentage of the wage increases—up to 20% in the initial years when the WCS program was introduced. The support gradually reduced in the subsequent years.
- Duration: The WCS was available for wage increases given between 2013 and 2022.
Automatic Eligibility: Employers did not need to apply for the scheme; eligibility and wage payouts were automatically determined by the Inland Revenue Authority of Singapore (IRAS) based on Central Provident Fund (CPF) records.
Introduction to the Progressive Wage Credit Scheme (PWCS)
Now that you have a brief idea of the old wage credit scheme given to qualified employers in Singapore, let us find out about the new program, the Progressive Wage Credit Scheme, including how it works and its rates.
What is the Progressive Wage Credit Scheme (PWCS)?
The Singapore government introduced the Progressive Wage Credit Scheme (PWCS) as an enhancement to the previous WCS program as part of the 2022 Budget. The PWCS specifically targets lower-wage workers, providing businesses with additional financial support to sustain wage increases from 2022 to 2026.
Through this scheme, businesses can manage rising wage costs while also providing fair compensation to employees. The PWCS is aligned with the broader government objectives of uplifting lower-wage workers through the local qualifying salary (LQS) and progressive wage model (PWM) requirements.
The newly initiated PWCS program supports Singaporean workers who earn slightly above the first wage tier. This helps businesses in Singapore, especially SMEs, to counter the economic challenges they face in maintaining the salary increase for these employees.
How Does the PWCS Work?
Similar to the previous wage credit scheme, PWCS also works as a co-funding mechanism to tackle wage increases for Singaporean employees at a tier-based level of funding. The eligibility of employees is determined based on which co-funding level they fall under. This categorises Singapore workers into two wage tiers:
- Tier 1: For employees earning up to S$2,500 per month.
- Tier 2: For employees earning more than S$2,500 but less than S$3,000 per month.
One critical aspect of the PWCS is that it encourages companies to share their productivity gains with their employees, ensuring that the workers benefit from business growth.
The government provides varying levels of co-funding depending on the wage tier and the year, with the highest co-funding rates in the early years (2022-2023) and gradually decreasing rates through 2026.
Co-Funding Rates for PWCS
The scheme is designed to help businesses manage the compounding effect of wage increases by co-funding the increments not just in the year they are given, but also in the subsequent year if the wage increase is sustained.
| Qualifying Year | First Tier (monthly salary of S$2,500 or less) | Second Tier (monthly salary S$2,500-3,000) |
|---|---|---|
| 2022 | 75% | 45% |
| 2023 | 75% | 45% |
| 2024 | 50% | 30% |
| Single Tier (gross monthly salary of up to S$3,000) | ||
| 2025 | NA | 30% |
| 2026 | NA | 15% |
As per the March 2024 update, the rate begins at 75% for first-tier employees earning up to S$2,500 per month for the 2022 qualifying year and remains the same for 2023, but for 2024 it will reduce to 50%. For second-tier employees earning above S$2,500 to up to S$3,000 per month, the revised wage credit is 45% in the 2022 and 2023 qualifying years, which is further reduced to 30% in 2024. After 2024, there will be a single wage tier of up to a S$3,000 monthly wage limit. The co-funding rates will be 30% and 15% for the 2025 and 2026 qualifying years, respectively.
The government has also introduced a new wage cut-off from the 2024 qualifying year onwards to support employees with a monthly salary of more than S$4,000. This is to ensure that the PWCS is still supporting lower-wage employees.
Eligibility Criteria for PWCS
Foreign companies trying to set up business in Singapore must know about the eligibility criteria of the PWCS program, including the exclusions, to draw maximum benefit from it.
Who is Eligible?
To qualify for the PWCS, employees should fulfil the following conditions:
- Citizenship: The employee is eligible for the wage credit only if they are a Singapore citizen or permanent resident of the country.
- CPF Contributions: The benefit cannot be obtained for working in different ventures. Only Singaporean employees who have had CPF contributions from a single employer for at least three months in the preceding year are eligible for the PWCS.
- Wage Criteria: The employee’s gross monthly wage must fall within the specified tiers (≤ S$2,500 or S$2,500 – S$3,000).
- Wage Increase: The employee must have received a gross monthly wage increase of at least S$100 in the qualifying year.
Eligible employers who want to use the PWCS to maintain wage hikes need not apply for the program individually. The benefit is given to companies automatically based on CPF contributions, and the IRAS notifies qualifying employers.
Who is Eligible?
The following entities are excluded from benefiting from the PWCS:
- Government agencies, statutory boards, and other local government bodies.
- Government-assisted schools, grassroots units, and certain foreign entities, such as foreign law practices and trade associations.
- Wages given to business owners, including sole proprietors, partnership partners, or company directors who are also shareholders, are not eligible for the credit scheme.
Calculating PWCS Payouts
Businesses operating in Singapore should know how PWCS payouts are calculated to understand how much financial assistance they can get from them.
How Are the Payouts Calculated?
Payouts under the PWCS are calculated based on the co-funding levels determined by the wage tier and the qualifying year. The basic formula for calculating the wage credit is:
- Tier 1: Co-funding level x wage increase x number of months of CPF contributions.
- Tier 2: Co-funding level x wage increase x number of months of CPF contributions.
For a Tier 1 employee with a salary of S$2,500 or less, the PWCS payout is S$1,800 for a S$200 wage increase in 2022 if their employer has contributed CPF for the last 12 months. This payout is calculated as:
75% x S$200 x 12 = S$1800 in 2022
If this wage increase is sustained into 2023, the employer would receive an additional S$1,800 under the same calculation method. For the 2024 qualifying year, the wage benefit amount will change to S$1,200 if the same wage increase remains.
50% x S$200 x 12 = S$1200 in 2024
Application Process for PWCS
While there is no extensive application procedure for the PWCS, you need to register to get the wage credit payouts.
How to Apply
Employers do not need to manually apply for the PWCS. Payouts are automatically calculated and disbursed by IRAS based on the CPF contributions made by the employer. Payments are credited to the employer’s GIRO bank account or PayNow Corporate-registered bank account. There are no PWCS payments made through cheques as per the February 2024 arrangement with GIRO.
The 2024 update further states that payouts can be withheld if the required documents and declarations are not provided by the company. This is necessary to review the eligibility of PWCS. The IRAS disburses the payouts only after a thorough review of the documents.
Registering for the direct credit options ensures that the employer automatically receives the payouts in their bank account. This is crucial for timely payouts, as you can lose out on financial support if you do not register.
How Can InCorp Help?
In the above discussion, you can see how the Wage Credit Scheme aims to reduce the financial strain on companies in Singapore by helping them bear the wage increases. The WCS and its enhanced version, the Progressive Wage Credit Scheme (PWCS), are vital components of Singapore’s effort to support businesses and uplift lower-wage workers. Both of these schemes are essential for managing labour costs while ensuring that workers receive fair compensation.
Hence, companies should ensure that they are meeting the eligibility requirements, like proper CPF record maintenance and registering for direct credit. InCorp Asia can help you assess the Wage Credit Scheme. Our team of tax experts, accounting professionals, and payroll specialists will help you comply with the conditions laid down in the schemes.
FAQs about WCS and the Progressive Wage Credit Scheme (PWCS)
- No, the PWCS is an enhancement of the original WCS. While both schemes provide wage support to businesses, the PWCS specifically targets lower-wage workers and has more focused eligibility criteria aligned with Singapore’s progressive wage policies.
- Yes, the PWCS covers part-time, hourly-rated, contract, and full-time employees, provided they receive CPF contributions and meet the other qualifying criteria.
- Yes, the Progressive Wage Credit is considered taxable income for employers, making the wage credit scheme payout taxable. The payouts will be taxed in the Year of Assessment (YA), corresponding to the year they were received. Employers must declare the Wage Credit in their income tax returns, while individuals and partnerships will have this included in IRAS’ tax assessments automatically.
- Since wages are verified through the mandatory CPF contributions made by the employer, companies must file CPFs accurately for the wage credit payout received. Employers should ensure that CPF contributions are correctly attributed to legitimate employees to avoid being disqualified from the scheme.
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