Singapore's Flexible Wage System

Provided by EnterpriseOne

All businesses are encouraged to reward employees and adjust wages according to how the
business performs. This helps to motivate employees and at the same time gives businesses the flexibility to make quick adjustments to wages during a sudden downturn and avoid retrenchment.

           Wage Structure
            Basic Wages
            Monthly Variable Component
            Annual Wage Component
            Wage Restructuring

Wage Structure

• The recommended wage structure by the Singapore Government is 70:10:20.

• The ratio represents basic wage, monthly variable and annual variable components
respectively.

Basic Wages

• There is no minimum wage requirement in Singapore. You are free to negotiate salaries
and salary increases with your employee.

• Please bear in mind that there are laws that govern the payment and calculation of
wages e.g. the Employment Act and its regulations.

See: Legal responsibilities of employers

Monthly Variable Component (MVC)

• The Monthly Variable Component (MVC) is a percentage of your employee's monthly wages.
The Government recommends that the MVC be 10%.

• MVC allows businesses to adjust wages immediately when faced with short-term economic
shocks.

• You can reduce MVC without reducing CPF contributions which your employees depend on for
medical needs, retirement and to service mortgage payments.

•    If your employees belong to a union, you need to discuss and decide with the union on a
      set of business indicators that may justify a cut on the MVC in times of need. For
      instance:

         o    Retail business may want to peg the MVC to sales and profits.

o Transportation businesses may want to peg MVC to passenger load factor and yield.

See: Guidelines on Monthly Variable Component (PDF)

Annual Wage Component

• The Annual Wage Component is made up of the Annual Wage Supplement (AWS) and any
other annual bonuses.

o AWS is also known as 13th month payment. It is a one-off payment that is
supplementary to the total amount of annual wages earned.

o An annual bonus is an optional, one-time payment given at the end of the year.
It is usually paid to motivate employees who have performed well.

• The Government recommends that the Annual Variable Component be 20% of annual wages
or 1-3 month's salary.

• The Annual Wage Component is not compulsory. You may choose to include AWS and other
bonuses in employment contracts negotiated with your employees.

Wage Restructuring

• Businesses are encouraged to restructure their wage systems to be in line with the
recommended wage structure.

• To get started, download these guides developed by the Ministry of Manpower:

o CEO Handbook on Wage Restructuring (PDF)
o Employee Guide on Wage Restructuring (PDF)