Techblog
How to capitalise on the Wage Credit Scheme
The idea of businesses sharing productivity gains with their workers through higher wages is a sound one. Helping companies along is the Ministry of Finance's Wage Credit Scheme.
By the myBusiness techblog team
For companies seeking a little help in the current tight labour market, the Wage Credit Scheme (WCS) sees the government co-funding 40 percent of wage increases for Singaporean employees earning up to a gross monthly wage of S$4,000. In a nutshell, this means companies can raise the pay of their workers in higher amounts and shorter times, while getting up to 40 percent in reimbursements from the authorities on a yearly basis.
The scheme has been made easy for businesses, with no application required and funds automatically paid to qualifying companies. The WCS runs from 2013 to 2015.
Considering that the scheme is expected to cost Singapore's coffers some S$3.6 billion over three years, this is no small change.
So how can a business like yours tap on the scheme's funds to benefit from it?
First, understand who is eligible
To qualify for co-funding, the following criteria must apply:
- The employee has to be a Singapore citizen, and must have been employed for at least three months the previous year.
- The employee must earn a gross monthly wage of up to and including S$4,000.
- The employer must have paid the employee CPF contributions for at least three months in the calendar year.
- The increase in an employee's gross monthly wage over the preceding year must be at least S$50 to qualify for wage credits.
Take note that government-related entities and entities not registered in Singapore are excluded from the scheme. Also, once an employee's gross monthly wage exceeds S$4,000, the portion of the wage increase that brings the gross monthly wage above S$4,000 will not be eligible for co-funding under the WCS. Say your worker currently earns S$3,800 a month, and you plan to increase his wages by S$300. Only S$200 of that monthly wage increase will be eligible for co-funding.
How does it work?
To understand how the WCS works, here's a simple illustration.
- Say you plan to increase your worker's gross monthly pay by S$200 in 2013 and sustain this over the next two years as a way to incentivise or retain your staff.
- The Singapore government will then reimburse you 40 percent of the $200, which works out to S$80 each month, or S$5,760 over three years.
- Your share works out to 60 percent or S$120 a month that you pay in wage increases. Over three years, that comes up to S$8,640 instead of the full S$14,400 in wage increases that you pay after reimbursement.
For more what-if scenarios that you may have, check out the IRAS Web site which gives various illustrations by way of explanation. Alternatively, you can try out the WCS calculator. Or if you have further queries, learn more here.
Caveats to beware
The WCS was created to help businesses facing restructuring in a tight labour market where tightening foreign worker policies and the need for productivity growth are applying pressure on company bottom lines. The scheme would work to defray the cost of raising wages for SMEs.
However, panellists at a forum earlier this year voiced concern over whether the WCS would bring about productivity increases. Most companies will also be cautious of wage increases due to the uncertain economic climate, reported Channel News Asia.
In his welcome address in April, Singapore Manufacturers’ Federation (SMF) Secretary-General Lam Joon Khoi counselled for care. He highlighted that the scheme may appear simple and uncomplicated, but there is still "a need to plan for it and to look into strategy and sustainability of package increase".
With the reimbursement coming in only yearly-the first payout is in quarter 2 of 2014, and the last payout in 2016-the scheme does not provide immediate relief to wage costs. It has also been clarified that the wage credit is taxable for employers, which effectively reduces cost savings to business owners.
However, the main concern that most companies have asked of the WCS is what will happen when the scheme ends in 2015. According to an Ernst & Young Solutions partner, companies that rely on the scheme without attendant productivity increases will be in trouble after 2015.
Nevertheless, NTUC Secretary-General Lim Swee Say has this to advise, and that is that "the right question for businesses to ask today and the next three years, really, is not about whether after three years, the WCS will continue". He adds that the right question is how can companies "make best use of the WCS over the next three years to upgrade operations, productivity and wages of the workers, and do so in such a way that beyond this scheme, they will still be sustainable".