Guide to the Progressive Wage Credit Scheme (PWCS)
7 minute read
Implemented during the Singapore Budget, the Progressive Wage Credit Scheme (PWCS) is an enhancement to the WCS that provides further financial assistance to businesses.
Keep reading to learn more about the PWCS and how it can help you as an SME owner.
What is the Progressive Wage Credit Scheme?
The Progressive Wage Credit Scheme is a transitional wage support program that was introduced during the Singapore Budget 2022. It aims to co-fund wage increases for lower-wage workers between 2022 and 2026.
The scheme was designed to help employers better cope with the upcoming mandatory wage increases for workers who receive lower wages via the Local Qualifying Salary and Progressive Wage Model requirements, as well as voluntary wage increases for lower-wage workers.
Given the current economic uncertainty, the government will provide some support to employers to increase the wages of employees who fall just short of the first wage tier (i.e earning more than S$2,500 but less than S$3,000).
Companies will be respectively reimbursed for the payouts by the Inland Revenue Authority of Singapore (IRAS).
How does the scheme work?
The following are some of the PWCS’s features:
- Residents earning up to S$2,500 per month on a monthly basis are primarily targeted. Funding provided from 2022 to 2026. The S$2,500 pay ceiling for the revised Workfare Income Supplement program is the same.
- Employees earning more than S$2,500 per month but less than S$3,000 per month are eligible for additional support. Given the current economic uncertainty, the government will help these employees who fall short of the first wage category. Extra support will be available from 2022 to 2024.
- The average gross monthly wage rise has to be a minimum of S$100 in every qualifying year for businesses to be eligible for the PWCS award.
- Co-fund wage increases each valid year for the next two years. For instance, the increase in wages in 2022 will be supported in the qualifying year of 2022, as well as in 2023 if it is maintained. Employers can use this strategy to manage the year-over-year compounding effect of compensation increases.
Who is entitled to the scheme?
You will qualify if your employees meet the following conditions:
- Singapore Citizen or Permanent Resident.
- In the preceding year, received CPF contributions from a single employer for a minimum of three months.
- In the qualifying year, worked for a minimum of three months with corresponding CPF contributions Received an average gross monthly wage increase of at least S$100 in the qualifying year.
- Annual wage that is below Tier 1 ($2,500 and lower) or Tier 2 ($2,500 to $3,000) salary ceilings.
The great news is that if your company meets all the aforementioned requirements, you’re automatically enrolled in the scheme. You’ll be notified of your eligibility and qualifying amount through a letter from the Inland Revenue Authority of Singapore (IRAS).
Who is excluded from the scheme?
Let’s take a look at the official exclusion list of those who can’t benefit from this credit scheme:
- State Organs, Departments and Ministries, and Statutory Boards are examples of local government agencies
- Government-run and -assisted schools
- Grassroots Units and PA Services
- Foreign Military Units
- Foreign companies’ representative officers, foreign trade associations, foreign government agencies
- Foreign nonprofit organizations/foreign chambers/foreign law practices
- Bank Representative Offices
- Insurance Representative Officers
- News Bureaus (which are representative offices)
- Other Financial Representative Offices (registered with MAS)
Do also note that wages given to business owners, such as sole proprietors or sole proprietorships, partnership partners, or both a director and a shareholder of a corporation, will not be eligible for the credit scheme because the program is intended to encourage wage increases for employees.
How will payouts be calculated?
For every eligible employee, the Progressive Wage Credit will be calculated based on the co-funding levels depending on the respective tier.
|Qualifying Year||First Tier||Second Tier|
|Gross Monthly Wage Ceiling <S$2,500||Gross Monthly Wage Ceiling >S$2,500 and <S$3,000|
To calculate your payout, simply use your co-funding level and apply it to either formula below:
- Co-funding level (1st Tier) x Wage Increase x No. of months of CPF contributions made by employer = Wage Credit
- Co-funding level (2nd Tier) x Wage Increase x No. of months of CPF contributions made by employer = Wage Credit
The amount of wage increase that qualifies an employee for co-funding is referred to as the qualifying wage increase. It mainly comprises two parts:
- The gross monthly wage rise granted in the qualifying year, up to the relevant wage ceiling
- The increased gross monthly wage given in the previous year (if it is sustained).
How can I apply for the scheme?
Employers don’t have to apply for PWCS as wage data is automatically calculated.
Payouts for Income Tax/GST will be made to qualifying employers through their GIRO bank accounts.
Compensation is credited to PayNow Corporate-registered bank accounts for those without GIRO accounts. Employers who haven’t yet enrolled in the direct crediting options must do so in order to get their compensation.
The PWCS payout due to qualified employers for every qualifying year will be informed by IRAS, and they will receive the payout by Q1 of the following year (i.e. payout for 2022 can be expected in Q1 of 2023).
Other frequently asked questions
Let’s go through some of the more common questions for employers and businesses in Singapore.
Is the Progressive Wage Credit Scheme (PWCS) the same as the Wage Credit Scheme?
No, the PWCS is not to be confused with the WCS. The WCS was a temporary program designed to assist businesses in their transformation efforts and encourage workers to share productivity gains and ended in March 2022.
Are part-timers and contract workers eligible under the PWCS?
Yes, the Scheme is open to all part-time, hourly rated, contract, and full-time employees who are paid CPF contributions by their employers and meet all other qualifying criteria.
Is the PWCS taxable?
The Progressive Wage Credit is a government subsidy that assists firms in covering the costs of wage increases. As a result, in the hands of the employers, it is considered taxable income.
The payouts will be taxed in the appropriate Year of Assessment (YA), which is the same as the year they were received.
Individuals (including sole proprietors) and partnerships don’t need to report the Wage Credit payout on their income tax returns (Form B/B1 or Form P) because it will be included in IRAS’ tax assessments for the relevant YA.
Companies, on the other hand, must declare the Wage Credit payment in the relevant YA’s income tax return (Form C/Form C-S).
How are wages verified?
The wages are verified by the employer’s mandatory CPF contributions to the employee. Employers should not make compulsory CPF contributions to those who aren’t actually their employees.
That’s it! You are now familiar with all the details about the Progressive Wage Credit Scheme.
If you need more info or help with accounting, tax, and payroll management, feel free to reach out to Sleek. We offer expert services so that you don’t have to worry about paperwork, legal regulations, and taxes.
Sleek’s experts will always be there to help you steer your business the right way. Don’t hesitate and contact Sleek now to take your business to a whole new level.