Know what adds to and subtracts from employee pay
Every payslip tells a story. Beyond the base salary, there are allowances that increase what an employee receives and deductions that reduce it. Understanding these components helps you pay your team fairly, stay compliant with regulations, and keep your payroll accurate.
Whether you are setting up payroll for the first time or reviewing your current structure, knowing the difference between allowances and deductions is essential for every employer.
What are Allowances?
Allowances are additional payments on top of an employee's base salary. They compensate for specific expenses, reward certain conditions, or provide extra benefits. Allowances increase the total pay an employee receives.
Common types of allowances include:
- Transport Allowance helps cover commuting costs to and from work.
- Meal Allowance provides for food expenses during working hours.
- Housing Allowance assists with accommodation costs, often provided for relocated employees.
- Phone or Internet Allowance reimburses personal device usage for work purposes.
- Shift Allowance compensates employees who work night shifts or irregular hours.
- Hardship Allowance provides extra pay for difficult or hazardous working conditions.
What are Deductions?
Deductions are amounts subtracted from an employee's pay before they receive their final salary. Some deductions are mandatory by law, while others are voluntary or company-specific.
Common types of deductions include:
- CPF Contributions are mandatory savings for Singaporean and Permanent Resident employees, deducted from their salary.
- Income Tax may be deducted for certain employees or foreign workers under specific schemes.
- Loan Repayments for salary advances or company loans can be deducted in instalments.
- Insurance Premiums for company-sponsored health or life insurance plans.
- Union Fees for employees who are members of trade unions.
- Absent Days may result in deductions for unpaid leave or unapproved absences.
Statutory vs Voluntary
It helps to understand the difference between statutory and voluntary deductions:
- Statutory Deductions are required by law. In Singapore, employee CPF contributions are the main statutory deduction. These are non-negotiable and must be calculated correctly.
- Voluntary Deductions are agreed upon between the employer and employee. These might include loan repayments, insurance premiums, or charitable donations.
Tax Deductible Items
Some deductions qualify as tax deductible, meaning they reduce the employee's taxable income. When setting up deductions in Officaid, you can mark whether an item is tax deductible. This information flows into tax submissions, ensuring accurate reporting to IRAS.
How Allowances and Deductions Affect Payslips
Here is how a typical payslip breaks down:
- Base Salary is the starting point.
- Allowances are added to the base salary.
- Gross Pay equals base salary plus all allowances.
- Deductions are subtracted from gross pay.
- Net Pay is what the employee actually receives.
For example, an employee with a $3,000 base salary, $200 transport allowance, and $600 CPF deduction would have a gross pay of $3,200 and a net pay of $2,600.
How Officaid Handles Allowances and Deductions
In Officaid, you can set up recurring allowances and deductions for each employee in their Directory profile. Once configured, these automatically appear every time you generate a payslip. You can also add one-time allowances or deductions directly when creating a payslip.
This saves time and reduces errors. You set it up once, and Officaid applies it consistently every pay period.
Frequently Asked Questions
Yes. Allowances and deductions are configured at the individual employee level. Each person can have their own unique set based on their role, location, or arrangement.
You can update or remove allowances and deductions at any time from the employee's profile. Changes apply to future payslips without affecting historical records.
It depends on the type of allowance. Some allowances are considered part of ordinary wages and are subject to CPF, while others are not. Officaid's rule engine handles this based on Singapore's CPF guidelines.
When adding a deduction in Officaid, there is a toggle to mark it as tax deductible. If you are unsure, consult IRAS guidelines or speak with an accountant to confirm.
What's Next?
Now that you understand allowances and deductions, learn how to set them up in Officaid:
- Setting Up Allowances and Deductions walks you through adding recurring items to an employee's profile.
- Adding a Payslip shows how allowances and deductions appear when generating pay.
- What is CPF explains Singapore's mandatory contribution requirements.