What is the Difference Between Wages, Salaries and Remuneration?
Are you about to take the next step in your career, considering a job offer, or perhaps you are an employer striving to foster clarity and understanding in your organisation? Whether you are an employee or an employer, understanding payment-related terminologies and concepts is crucial to understanding your employment obligations or rights.
This article aims to explain the different terms that are used when discussing payments associated with performing work. It will cover:
What is Remuneration?
Remuneration refers to the total financial compensation that an employee receives from their employer for their work and services.
The following table sets out the definitions of each form of remuneration:
|Forms of remuneration||Definition||Mandatory or Non-Mandatory|
|CPF contributions||Contributions to employee’s Central Provident Fund (CPF)
CPF is a social security savings scheme where the total CPF contributions for an employee comprise the employee’s share of the contribution and that of the employer’s. CPF contributions range from 12.5% to 37% of your monthly wages (depending on the employee’s age) and are payable to employees who are Singapore Citizens and Singapore Permanent Residents.
Note: For more information on whether CPF contributions are applicable to you and the relevant contribution rates, please refer to our article on CPF contribution.
|Overtime payments||Additional compensation for hours worked beyond the standard workweek
Note: For more information on your eligibility to claim overtime pay, please refer to the Ministry of Manpower’s website.
|Bonuses||Lump-sum payments based on performance, company profits or other criteria||Not mandatory unless specified in the employment contract|
|Commissions||A percentage-based payment tied to sales or specific business targets|
|Incentive payments||Rewards for achieving specific goals|
|Allowance||Supplement payment for work-related expenses such as travelling expenses and subscriptions paid to professional bodies|
Within this umbrella of remuneration, you will find both wages and salary, which are two common ways an employer pays an employee for their contribution to the company. This article will delve into wages and salaries in the subsequent sections.
What are Wages?
Under the Central Provident Fund (CPF) Act, wages are defined as remuneration in money, including any bonuses that are due or granted to a person in respect of his employment. In other words, they are payments for hours worked or days spent on the job. This payment structure is particularly suited for roles where working hours can fluctuate and job tasks may vary. This means that wages credit units of work as opposed to periodic payments, like a salary.
For example, you get a job offer to work as a part-time sales associate at a retail store where your job scope involves assisting customers, restocking shelves and operating the cash register. In this case, you will be paid wages. This is because you do not work for a fixed number of hours per day or a fixed number of days per week. Therefore, the amount of money that you will receive depends on the specific number of hours and days you work as well as the type of tasks you perform.
Does Singapore have a minimum wage?
It is worth noting that Singapore does not currently have a minimum wage. A minimum wage, defined as the lowest pay for an hour’s work that can legally be paid to a worker, is primarily designed to safeguard employees from receiving unreasonably low pay. In contrast to Singapore, countries such as Germany and Australia have a legally mandated minimum wage system.
In Singapore, instead of a legally mandated minimum wage, there exists a Progressive Wage Model (PWM) aimed at supporting lower-wage workers. The government has introduced the PWM as an initiative to enhance wages, serving as an alternative to minimum wage laws. Apart from upgrading the skills and productivity of lower-wage workers, the PWM has a Workfare Income Supplement (WIS) that rewards work and individual effort by supplementing salaries. These rewards come in the form of cash and CPF top-ups, helping lower-wage workers meet their expenditure needs and save for retirement.
For example, employees working in the food services sector are on route to receive yearly salary boosts spanning three years starting in 2023 under the PWM. From 1 March 2023, approximately 12,000 full-time food services personnel will observe an increase in their earnings, ensuring that they earn at least the entry-level PWM wage threshold of $1,750. This foundational wage will witness an increment from $1,750 in 2023 to $2,080 in 2025, marking a 19% rise over the three-year duration. This serves as a demonstration of how the PWM elevates the income of these workers.
What is a Salary?
Under the Employment Act, salary refers to all remuneration including allowances payable to an employee in respect of work done under their contract of service. It is a fixed form of payment that an employee receives at a stipulated time (e.g. end of the month, fortnightly, or on a fixed date each month).
However, an employee’s salary does not include:
- The value of accommodation, utilities or other amenities
- Pension or provident fund contribution paid by the employer
- Travel allowance
- Payments for expenses incurred during work
- Gratuity payable on discharge or retirement
- Retrenchment benefits
Salary terms in an employment contract
To avoid employment disputes over payment of salaries, it is pertinent for employment contracts to stipulate the frequency of salary payments as a term in the employment contract.
Employers are obligated to pay their employees at least once a month and within 7 days after the end of the salary period. However, this does not stop an employer from paying its employees at shorter intervals. Put differently, this means that your employer is permitted to make a payment at the end of the third week, even if your employment contract stipulates a four-week payment interval.
In addition to specifying how often salaries are paid, an employment contract should encompass other crucial payment-related terms, when relevant. These terms include:
- The duration of the salary period
- The base salary
- Fixed allowances
- Fixed deductions
- Overtime payment period
- The rate of pay for overtime work
As salaries can change due to factors like promotions or shifts in working hours, it is also important that the employment contract updates and states these new salary terms accordingly to avoid salary-related disputes.
What happens if an employer fails to pay salary?
If your employer fails to provide your salary payment on time, the following steps can be taken:
- Approach your employer to inquire about any reasons for the delay.
- If your salary is still not received, you have the option to file a payment-related claim with the Tripartite Alliance for Dispute Management (TADM) or seek assistance from your labour union.
It is important to submit your claim promptly to prevent the accumulation of the owed amount. This is because there are constraints regarding the maximum claim amount and the timeframe within which you can file your claim. A maximum of S$20,000 or S$30,000 can be claimed if you go through TADM or mediation assisted by unions recognised under the Industrial Relations Act. The claim must also be made within 1 year from when the dispute arises if you are still employed by the company, and 6 months from your last day of work if you are no longer employed by your company.
For a more detailed overview of salary payments, please refer to our other article on Employee Salary: Calculations, Deductions, Unpaid Salary & More.
What is the Difference Between Gross Pay and Net Pay?
Gross pay refers to the initial amount of money an employee earns without accounting for any deductions that may be made. The most common forms of deduction in Singapore would be CPF contributions and ethnicity-based development funds through self-help groups (SHG) funds. This refers to a portion of your gross pay that will be deducted to support initiatives aimed at improving the well-being of low-income households and less privileged individuals within your specific ethnic group. Depending on your ethnicity, your contributions to SHG funds will be channelled to one of the following organisations:
- Chinese Development Assistance Council (CDAC) Fund
- Eurasian Community Fund (ECF)
- Mosque Building and Mendaki Fund (MBMF)
- Singapore Indian Development Association (SINDA) Fund.
On the other hand, net pay refers to the actual amount of money that an employee receives once the relevant deductions from the gross pay have been made. To put it differently, net pay can be described as your take-home pay, which is essentially the pay you effectively ‘take home’.
For example, suppose you are a fresh graduate who earns a gross pay of $4,000. Based on the current CPF deduction rates, 20% of your gross pay would be contributed to your CPF account. This means that $800 will be deducted from your gross pay. Assuming no other deductions are made, your net pay, or ‘take-home’ pay, will be $3,200.
In conclusion, remuneration plays a pivotal role as the comprehensive compensation framework in the employment landscape. It encompasses various elements, including wages and salaries, each tailored to suit different job structures and employee needs.
Precise understanding of these terminologies is of paramount importance when making informed decisions during job negotiations as well as effective management of compensation-related matters. For employees, it is vital to be aware of your rights and benefits concerning your remuneration. Therefore, grasping these terms will enable you to discuss a suitable payment structure during contract negotiations. On the employer’s side, it is imperative to ensure compliance with the regulations and laws established by the Ministry of Manpower (MOM). As a responsible employer, it is your duty to remunerate your employees fairly.
Should you require further legal advice or assistance in interpreting the payment terms of your employment contract, and/or would like to hire a lawyer to assist with a payment dispute between you and your employer or employee, you may get in touch with one of our employment dispute lawyers.
Our employment lawyers possess the expertise to review your employment contract, ensuring that its terms, including those related to compensation, are fair and legally sound. They can also offer guidance on employment laws and regulations, ensuring that both employers and employees adhere to the requisite legal standards.
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