AWS, the acronym for annual wage supplement, is also used interchangeably with the 13th month/13th-month bonus in the Singapore context. Assuming you and your peer earn a gross salary of S$5,000 monthly. If your peer's employment contract includes a payment of AWS, he/she will earn 8% more than you every year! A sizeable amount considering that the median salary increment is only halved of that – at 4.1%.
Considering the "importance" of computing AWS as part of one's total annual package, it is of no surprise that job seekers are almost sure to ask, "Is there AWS?" or "Is there a 13th-month bonus?"
History of AWS
However, many would not know how AWS in Singapore came about nor why it even existed in the first place. The 13th-month bonus first occurred when there was a transition from weekly to monthly wages. The people involved are unclear, with some sources citing that this was spearheaded by the then-British government to simplify salary-related administrative complications. Pay conversion was done by multiplying a worker's weekly wage by 4 to obtain the new monthly remuneration. Nevertheless, this led to a shortfall, considering there are only 12 months a year, but workers would be paid 52 times under the original arrangements. To address the shortfall, the 13th month is paid out to align the total wages in a year.
Independent of the origin from the previous paragraph, a verified source suggests that the customary 13th-month payment dates back to the early 1970s. To maintain civil servant remuneration's competitiveness, the Singapore government introduced a 13th-month payment as a quick and immediate resolution in 1972 while details of other salary revisions were worked out over the year.
From a global perspective, some countries like the Philippines and countries situated in some parts of South America have made the 13th-month payout mandatory. Other countries, such as China and Japan, adopt such payouts due to customary practices.
Source：https://en.wikipedia.org/wiki/Thirteenth_salary#/media/File:Thirteenth_Salary_Map.svg
Is AWS Compulsory in Singapore?
No, the AWS is not compulsory in Singapore. However, it is a common practice for many employers in Singapore to pay AWS to their employees, particularly in the private sector. Unionised companies, however, may have a legally binding document (Collective Agreement) that specifies employment conditions, potentially including a clause on AWS payout.
Views on AWS
Employers and employees may have very differentiated views on AWS in Singapore. Based on industry experience, certain companies prefer to offer a lower gross monthly salary that comes with an AWS segment. In comparison, others adopt a higher gross monthly salary while doing away with AWS.
Some employers providing AWS are banking on this payout as an employee retention move. However, this technique has its downside, considering that it "encourages" a period of resignation wave once the AWS payout is made. In contrast, employees are unlikely to time their resignation for a company that does not pay AWS.
Employees are somewhat split on their preference for AWS. Some employees wish to have a higher monthly gross to facilitate mobility in the job markets. Other employees see AWS as a timely payout to fund festive demands/holiday plans toward year-end.
Ultimately, both employers and employees will be concerned about pay structures, and each technique may or may not be appropriate depending on various factors such as:
Existing practices
Nature of industry
Turnover rates
Corporate culture
Best practices for Managing AWS
For companies offering AWS as part of their compensation package, it's essential to ensure proper management of the bonus to avoid any payroll errors or compliance issues. Here are some best practices:
1. Clearly Outline AWS in Employment Contracts
Employers must include AWS policies in employment contracts or company handbooks to avoid confusion. By explicitly stating whether AWS will be provided and under what conditions, the employee and employer can ensure clarity on this important aspect of compensation.
2. Ensure AWS is Paid on Time
Most companies typically pay AWS in December or at the end of the calendar year, but the timing can vary. Some employers may choose to pay it at a different time, depending on their business cycle. Either way, employers need to plan and ensure the timely payment of AWS so that employees can receive the bonus when expected.
3. Consider Pro-Rated AWS for New Employees
If an employee has worked only part of the year, businesses should offer a pro-rata AWS based on the number of months the employee has worked. This can prevent any misunderstandings and helps companies adhere to fair employment practices. The computation of pro-rata AWS is recommended to be included in the employment contract to avoid unnecessary disputes.
4. Handle AWS for Part-Time and Temporary Employees
Many companies offer pro-rata AWS to part-time or temporary workers, but it's essential that the company's policies are clear about how AWS will be calculated for such employees. AWS may be a critical retention factor for companies that rely heavily on part-timers. Additionally, companies should ensure that all employees, regardless of their employment type, understand whether they qualify for AWS.
5. Review AWS in Your Payroll System
AWS should be treated as a part of the total compensation package and should be correctly calculated within your payroll system. Payroll services providers can help ensure that AWS is accurately processed, avoiding any issues related to compliance or incorrect payments.
6. Ensure Compliance with Employment Regulations
Although AWS is not mandatory, employers must ensure compliance with other applicable employment regulations when paying AWS. For example, AWS should not be considered part of Ordinary Wages (OW) when calculating Central Provident Fund (CPF) contributions. AWS forms part of Additional Wages (AW), and the amount of AW subjected to CPF is based on the Total Annual Wages Ceiling less OW. Due to having a quantum cap, there may be complications in the computation for AW (AWS/Bonuses/Back payment not due to error). When unsure, it would be advisable to seek professional advice.
Conclusion
While the Annual Wage Supplement (AWS) is not legally required in Singapore, it remains an essential part of employee compensation for many companies. Offering AWS can improve employee satisfaction, retention, and overall company culture, especially when integrated into a well-structured payroll system.
Remuneration is seen as one of the critical factors affecting talent recruitment. As businesses evolve, partnering with an experienced Human Resource (HR) service provider can help ensure the professional implementation and execution of various HR functions. Outsourcing HR solutions and payroll services helps businesses comply with statutory requirements and provides peace of mind, knowing that the company is adhering to best practices in employee compensation.
The HR consulting team at OakTree had experience in local SMEs, foreign-backed start-ups, and government-linked MNCs. Should you require any form of HR consulting and/or HR solutions, don't hesitate to contact us for an obligation-free discussion. The HR consulting team at OakTree had experience in local SMEs, foreign-backed start ups and government-linked MNCs. Should you require any form of HR consulting and/or HR solutions, do feel free to contact us for an obligation-free discussion.
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DISCLAIMER: The views and opinions expressed in this article are those of the author and do not necessarily represent the views and opinions of any individuals or organizations with which the author may be affiliated, either in a professional or personal capacity, unless explicitly stated.
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