The Wage Credit Scheme offers employers a partial reimbursement on the salaries they pay to employees if they sustain an annual wage increase of at least S$50 per person.
The Wage Credit Scheme (WCS) is just one of the ways that Singapore’s government is looking to support business owners like you. By co-funding a percentage of the increase you give your employees, this government grant helps you adjust to the rising costs of paying wages and still share productivity gains with your workforce. It’s a win-win.
Through the WCS, a business owner like you is able to raise your employee’s pay to higher amounts over shorter time periods (without having to feel too much of a pinch on your bottom line). Getting a meaningful wage increase is also a great incentive for staff, isn’t it? So you can see how this can also have a direct effect on overall productivity, and more often than not, a positive effect on staff retention.
The biggest upside of this employer tax credit applies to you, the business owner. It affords you the opportunity to focus on the important things, like growing your business operations so you can stay competitive (we know it’s tough out there). At the end of the tax year, you get a percentage of what you pay in wage increases reimbursed to you by the government. You don’t even need to apply for it. It’s all done automatically thanks to the Inland Revenue Authority. If this is all sounding a bit complicated, don’t worry. We’ll break down all the details for you along the way. But first let’s go back to when it started.
When was the Wage Credit Scheme introduced?
Singapore’s Ministry of Finance introduced the Wage Credit Scheme in 2013. In fact, it was initially intended to be just a three-year scheme that supported wage increases made over 2013 - 2015. To sustain support for businesses, it was then extended for two years (2016 to 2017) and then further extended in Budget 2018 for three more years (2018, 2019, 2020). Over the years, the co-funding ratio has decreased from 40% and in 2020, it will be stepped down to 10%.
Who is eligible for the Wage Credit Scheme?
If you want to benefit from the Wage Credit Scheme, here’s the qualifying criteria you’ll need to meet:
- Be a Singapore-registered business.
- Have Singaporean employees who earn a gross monthly wage of up to S$4,000 per person (this includes full-time, part-time and casual employees).
- Give wage increases of at least S$50 (per person) to employees who are on your payroll for at least three months (or sustain the gross monthly wage increase of at least S$50 over the previous 2 years).
- Pay the mandatory Central Provident Fund (CPF) contributions for at least three months in the qualifying year, to the CPF board.
Kate’s been a full-time employer of Joe’s boutique bakery in Singapore since February 2017. That year she earned a total basic wage of S$1550 but after an exceptional performance in 2018, Joe increased her wages by S$100. The next year, she received an increase of just S$50. Because Joe’s had Kate on his payroll since February of 2017 and sustained her increase since then, he’s eligible for the WCS.
How do I calculate gross monthly wage?
Simple. To work out gross monthly wage, take the total wages (including basic salary, overtime and any bonuses) you pay an employee in a calendar year and divide that by the number of months that CPF contributions were made. It’s also important to note that there’s a salary threshold of S$4,000 that applies to WCS.
In 2019, Joe had Kate on his payroll for a total of 12 months. Her basic monthly wage was S$1700, she also got a food allowance of S$100 every month and a December bonus of S$1000. Her gross monthly wage for that year was S$1800.
What if I just sustain the same wage increase for an employer?
In this case, the government will co-fund according to the percentages outlined in Budget. It was sustained at 20% in 2018 and then following that, was stepped down to 15% in 2019 and 10% in 2020. So as an employer, if you sustain the same wage increase (of at least S$50) year-on-year, that very welcome co-funding will continue according to those specific percentages.
Joe has a stalwart server who been employed since he first opened the doors of his boutique bakery back in 2016. In 2017, Joe gave a monthly wage increase of S$200, which has stayed the same year-on-year but hasn’t gone up since then. So Joe is still eligible for WCS, but the exact amount decreases according to the annual percentage changes.
2017: 20% of S$200 = S$40 x 12 months = S$480
2018: 20% of S$200 = S$40 x 12 months = S$480
2019: 15% of S$200 = S$30 x 12 months = S$360
2020: 10% of S$200 = S$20 x 12 months = S$240
What if I have new hires?
Employees can have been on the payroll of a different employer in the preceding year, but they must be on the payroll of a single employer - i.e you - for at least 3 months in the qualifying year if you’re going to be eligible for WCS.
Joe’s bakery became very popular in 2017 and he needed more help to keep up with the growing demand. In November that year, he recruited, Annie, a great pastry chef who had previously worked at another bakery down the street for 3 years. By April 2018, Joe would be eligible for a Wage Credit of 15% of Jane’s gross monthly salary for the 4 months she’d been working at his bakery.
What if I give an employee a pay raise one year, but don’t sustain it the following year?
Sometimes even our top performers can lose their professional mojo. So if you’ve given a wage increase over 2 consecutive years and then choose not to sustain it, you’ll continue to receive a Wage Credit on the initial increase that was given, for a period of 12 months.
Joe decided to give his barista, Daniel, an increase of S$200 in 2017. This meant Joe got a Wage Credit payout of 20% which came to S$480. The next year, he gave Dan the same increase of S$200, which took his Wage Credit payout to S$960. Over time, Dan’s standards dropped and Joe decided not to give him an increase. So in 2019, Joe is only eligible for 15% of the initial increase (S$200) that he gave.
What if my employee earns more than S$4,000 as a result of the pay raise?
Remember that S$4,000 threshold we mentioned? This is where it applies. Any portion of a wage increase that brings an employer’s gross monthly wage above that amount is not eligible for co-funding.
Joe’s star pastry chef, Victoria, earns a gross monthly salary of S$3,750 in 2018 and after a sterling year she’s rewarded with a pay increase of S$400. This takes her gross monthly wage in 2019 to S$4150 which is S$150 above the Wage Credit ceiling. That means Joe’s only eligible for S$250 of that monthly wage increase. He’s paid out 15% of S$250 for all 12 months of that year (S$37,5 per month), which comes to a total of S$450.
What if I hire someone who is fresh out of grad school?
In the case of hiring someone with no previous work experience, the wage increase will be calculated over their first year of employment.
Joe employs an intern, Sam, to help in the kitchen in 2018. He will only be eligible for Wage Credit payouts according to wage increases given to Sam in 2019.
Do I need to apply for Wage Credit?
You’ll be very glad to know that as an employer, you don’t need to apply for WCS payouts. All you need to do is make sure you meet the criteria mentioned above. You will be automatically notified regarding the amount that you’ll receive - in the form of a letter from the Inland Revenue Authority of Singapore (IRAS).
Who doesn’t qualify for the Wage Credit Scheme?
Government-related organisations and those that aren’t registered in Singapore are excluded from the WCS scheme. Here’s a detailed list of all entities that don’t quality, listed in alphabetical order:
- Consulates, Trade Offices, Embassies and High Commissions;
- Financial Representatives registered with the Money Authority of Singapore which include Bank, and Insurance Representative Offices;
- Foreign Chambers and Law Practices;
- Foreign Government Agencies and Trade Associations;
- Foreign Military Units;
- Foreign Non-profit Organisations;
- Foreign or Local Entities that are unregistered;
- Government Schools, and Government-aided Schools;
- Grassroots Units and People’s Association Services;
- International Organisations;
- Local Government Agencies which include Ministries and Departments as well as Statutory Boards;
- Representative Offices of Foreign Companies;
- Representative Offices of News Bureaus.
You also won’t be eligible to claim for this tax grant if you are the business owner of the same entity (in other words you can’t claim if you are the sole proprietor of a sole proprietorship, both a shareholder and a director of a company, or a partner of the partnership.)
To recap on a bit more detail, you can take a look at the employer’s exclusion list outlined by the IRAS.
How is Wage Credit calculated & can I work out what I’ll be paid?
As an employer, you can use the WCS Calculator to estimate the Wage Credit you will receive based on the wages given to your employees.
New to the scheme and want to work out what you will be paid?
The IRAS has created a simple tool to help you calculate payments. You can download the WCS calculator (.xlsl 1.35 MB)
Are you an employer who has already been profiting from the WCS scheme?
There’s a handy PDF that the IRAS has created which includes various illustrations and worked scenarios of the WCS in action. It also unpacks various calculation samples that you might find useful
How do I receive a Wage Credit payout?
Wage Credit payouts happen once a year, in March. The amount you are paid out is calculated based on a sum of all wage increases you’ve given employees in the previous year.
Though cheques were issued in the past, the IRAS has now adopted exclusively digital payment modes. As of March 2020, all WCS payouts will be credited directly to your registered bank account through PayNow Corporate or your company’s GIRO bank account (which you use for Income Tax and GST). If you haven’t already set up your PayNow Corporate account or registered on GIRO, it’s best to get that done ASAP to avoid any payout delays or complications down the line.
Is my Wage Credit payout taxable?
A Wage Credit payout is granted by government. Because of that, it’s also taxable. So any payouts you receive through the WCS will be taxed in the relevant Year of Assessment (YA) that corresponds to the year that your payout was received.
So for Joe’s YA 2019, the tax assessment will happen from the period of 1 January 2018 to 1 January 2018. Any repayments he earns through the WCS will happen in March of the YA, and he can use them to offset any of his outstanding tax. When he fills in his next Tax Return, he can declare the Wage Credit he earns as “Other Income”.
If you’re an individual (which includes sole proprietors) or a partnership, you don’t need to worry about declaring the payout you receive on your income tax return because it’ll be automatically included in your IRAS tax assessment. But if you own a limited company like Joe’s Bakery, you’ll need to declare any Wage Credit you earn in your income tax return form each YA.
When is Singapore’s tax year?
The tax year in Singapore runs from 1 January to 31 December annually. So as an employee, any tax you’re charged, or reimbursed for, in a particular Year of Assessment (YA) is based on the calendar year preceding that.