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Understanding Gross Monthly Salary in Singapore

Understanding Gross Monthly Salary in Singapore

Understand how gross monthly salary works in Singapore, including calculation methods, components, deductions, and the difference between gross and net income. Essential guide for employees and employers.
Written By
Siyu Chen
HR Editor at Gutsy

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In Singapore, understanding the difference between gross monthly salary and net monthly salary is crucial for both employees and employers. This article clarifies the meaning of gross monthly salary, how it's calculated, and the factors influencing the gap between gross and net income.

What is Gross Monthly Salary?

Gross monthly salary, also known as gross pay or gross income, represents the total amount of money an employee earns before any deductions. This includes:

  • Basic salary
  • Allowances (housing, transport, etc.)
  • Bonuses
  • Overtime pay
  • Commissions
  • Other forms of compensation

It's the total compensation figure before taxes, CPF contributions, or other deductions are applied.

How is Gross Monthly Salary Calculated?

Calculating gross monthly salary involves several steps:

1. Basic Wages and Salaries

This is the fixed amount earned for work. For monthly employees, it's their monthly salary; for hourly employees, it's the hourly rate multiplied by the monthly hours worked.

2. Adding Allowances and Other Incomes

Various allowances and other forms of compensation are added to the basic wage. This includes housing, transport allowances, commissions, incentives, and reimbursements.

3. Including Bonuses and Overtime Pay

Bonuses are added to the annual salary and then divided by 12 for a monthly average. Overtime pay is calculated by multiplying the hourly basic rate by 1.5 and then by the number of overtime hours.

4. Calculation Formula

The formula for gross monthly income is:

Gross Monthly Income = (Annual Salary + Annual Bonuses + Annual Allowances + Annual Overtime Pay) / 12

5. Annual vs. Monthly Calculation

Regular components (basic salary, allowances) are straightforward. Non-regular components (bonuses, overtime) are usually annualized and then divided by 12 for a monthly average.

6. Documentation and Variability

Gross monthly income can vary due to public holidays and working days. Documentation like payslips or tax returns might be needed for certain applications (e.g., HDB housing).

Deductions from Gross Monthly Salary

Several deductions reduce gross salary to arrive at net salary:

  • CPF Contributions: Both employer and employee contribute to the Central Provident Fund. Rates vary by age. For employees aged 55 and below, the employer contributes 17% and the employee contributes 20% of their monthly salary (up to a ceiling).
  • Income Tax: Tax rates depend on taxable income.
  • Other Authorized Deductions: These include deductions for absences, damage to company property, cost of meals/accommodation (if agreed upon), loan repayments, and contributions to approved schemes.
  • Skills Development Fund (SDF): The levy payable for each employee is at 0.25% of monthly total wages. The minimum payable is $2 for an employee earning less than $800 a month and the maximum is $11.25 for an employee earning more than $4,500 a month.
  • Other Deductions: Contributions to Self-Help Groups or other deductions as specified in the employment contract.

Note: Total deductions are usually capped at 50% of the total salary (excluding specific exceptions).

Bonuses, Overtime, and Allowances

Bonuses and overtime pay are part of the annual gross salary but are not typically included in the monthly gross salary calculation. While, allowances and benefits are integral components of the gross monthly salary.

Impact of CPF and Income Tax

CPF contributions directly reduce net salary by the employee's contribution amount. Income tax, calculated based on chargeable income (gross income minus allowable deductions), further reduces the net salary. The progressive tax system means higher earners pay higher rates.

Salary Review Frequency

Salary reviews are generally annual or biannual but can be more frequent based on performance, market conditions, and company policies. Moreover, industry, experience level, and the company's performance also influence the frequency.

Conclusion

Understanding gross monthly salary in Singapore requires awareness of its components, the calculation process, and the various deductions that lead to the net salary. This knowledge is essential for effective financial planning and informed decision-making.

Salary Component Included in Gross Salary? Deducted from Gross to Arrive at Net?
Basic Salary Yes No (directly, but contributes to CPF and tax calculations)
Allowances Yes No (directly, but contributes to CPF and tax calculations)
Bonuses Yes (annually) No (directly, but contributes to CPF and tax calculations)
Overtime Pay Yes (annually) No (directly, but contributes to CPF and tax calculations)
CPF Contributions (Employee) No Yes
Income Tax No Yes
Disclaimer: This article was made with the help of AI and should not be used as a reference for legal matters. Please always double-check with official sources to ensure accuracy.

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