CPF rules are changing in September, time to review your payroll

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As announced in the 2023 Budget in February, the CPF headline rules are changing from 1 September 2023. However, the change will already have impacted some employees since the start of the year and there are likely to be companies who are unaware of this. 

The Central Provident Fund (CPF) monthly cap on ordinary wages (OW), wages for work performed in that same month, will increase from SGD 6,000 to SGD 6,300 from 1 September. But with this change, it will also affect the residual amount of additional wages (AW), such as bonuses, paid during the year that are subject to CPF. 

If your payroll has already paid bonuses this year, there may be CPF adjustments to consider on overpaid CPF AW contributions. 

It may also be a good time for companies to take the opportunity of these changing rules to review all of their payroll processes. Payroll in Singapore may seem straightforward compared to other jurisdictions, and therefore payroll management is often neglected despite its importance.

Nonetheless there are complicated areas that may be overlooked, and recent trends show that companies are taking the initiative to conduct self-assessments.

Payroll errors have made headlines

We'd like to highlight two examples that shed light on how small errors can snowball into greater monetary cost and administratively-challenging corrections.

  • In June 2023, a national media network in Singapore disclosed that a wrong payroll formula led to historical corrections going back 13 years, affecting over 2,000 records. [1]
  • Similarly, in 2020, errors in human resource (HR) inputs impacted over 3,000 individuals in the civil service, amounting to around S$10 million in compensation repayments. [2]

Although the impact to each unique individual may be small, the cumulative impact will be substantial operationally and can also be damaging to the organisation's reputation.

The reality is that correcting errors is a painstaking and often costly process as there is no statute of limitations for CPF. Companies may need to correct 10 to 15+ years of records and bear the cost of these errors - both in terms of additional tax and CPF as well as penalties, interest and the cost to rectify the errors.

Naturally, a higher headcount or a longer period to rectify would magnify this impact further. Rectification may become more complex when it involves employees who have left the company, and even more so if tax clearance is involved. 


We share some key areas that we recommend companies to focus on during their payroll reviews. A periodic check on these, to ensure that the tax and CPF treatments are still relevant, will definitely go a long way to minimising painful rectification exercises.

Payroll Codes

A common occurrence is that payroll codes could be rolled forward, copied from existing codes and new codes created each year. Over time, duplicates or incorrect codes are kept on system – this seemingly harmless inaction sometimes may become a nightmare.

Errors in wage-type mapping and tax coding is often a challenging exercise to rectify especially to employers with large employee population as they can be easily overlooked for many years. As seen from the recent news, the cost to companies can also be significant.

Payroll Process

Establishing a robust payroll process is essential to avoid or minimise the potential impact of mis-categorisations or miscalculations. This process also includes completing tax clearance returns accurately and submitting these timely. Given that this is an employer obligation, any errors could lead to employers being penalised or held liable for the taxes unpaid.

Tax and payroll treatments are not always aligned, adding to the importance of having tightened checks and balances to minimize errors. Some common challenges that we see include payroll teams struggling to code retrenchment payments (which can be a substantial sum), incentive payments (for e.g. commissions) and overtime pay accurately for tax and CPF purposes.

Change in legislation

Changes to CPF or tax rules for individuals may require reviews or updates to existing payroll processes and codes. The HR team or process owner should stay up to date with these changes and be aware of the impact to the employee population and reporting obligations.


The Inland Revenue Authority of Singapore (IRAS) and CPF Board take action if there are errors uncovered on the returns submitted by employers. Both can also raise queries to investigate further if there are frequent and/or substantial issues identified.

Penalties can be up to 400% of the amount of tax undercharged, a fine of up to SGD 50,000 and/or imprisonment for up to five years.

Where errors are identified before queries from the IRAS, the company could voluntarily correct the errors and qualify for reduced penalties (subject to approval). 

The Voluntary Disclosure Program (VDP) encourages taxpayers to come forward to volunteer past reporting mistakes in a timely manner and can only be submitted where there are no ongoing queries from IRAS.

CPF imposes 1.5% late payment interest charged levied per month on non-compliance, on top of composition fines, and penalties (minimum interest payable is SGD 5).

There is no similar voluntary disclosure concession with the CPF Board, and therefore interest compounded and repayment of the shortfall of contributions will need to be made as soon as possible to limit any incremental impact to the company.

Often, many are unaware of these errors until they surface from audits or reviews from external providers.

We have seen cases of disgruntled employees who goes straight to the CPF Board or the IRAS on their particular case which has led to a wider review on the company’s payroll compliance as a whole.

These incidents highlight the importance of diligent payroll management, and serves as a good reminder that compliance with tax reporting and payroll matters should go hand in hand and be addressed collectively.


Reach out to our team if you would like to have a conversation on the above or if we can assist in any way. 


[1] Mediacorp repays about 2,300 past and present employees affected by inaccurate leave encashment formula, Channel NewsAsia, June 2023

[2] S$10 million compensation to be paid to 3,000 current and former civil servants due to errors in HR records, Channel NewsAsia, November 2020