Don’t sniff at the 13% your boss needs to pay to your CPF. It’ll come in handy when you buy your first house. CHANG QIAOLIN reports why.

If you earn $110 a month and your boss doesn’t contribute to Central Provident Fund (CPF) what you’re entitled to, you stand to lose a staggering $14,819 by the time you turn 65.

Take the example of Huang Huai Hui, 19, a final-year Chemical and Biomolecular Engineering student who earns $110 as a dental assistant, without any CPF

Master financial planner and President of the Society of Financial Service Professionals, Mr Leong Sze Hian, says that assuming the CPF’s compound interest is 2.5% for the Ordinary Account and that she continues earning $110 a month till she is 65, she could lose over $14,000 at a time she needs it most for medical bills.

And if Huai Hui were to take the sum and invest it in CPF-approved funds, she can possibly earn more. If a fund she chooses yields a compound interest of 6%, she could reap $42,228.

According to About.Com, compound interest is paid on the original principal and on the accumulated past interest over the number of years the amount is deposited for.

Even if she missed out on only one month’s contribution of $14.30 from her employer, it would mean missing out on $224 in 46 years’ time, based on the 6% compound interest.

“For every dollar that goes to the CPF, it makes a difference,” Mr Leong said, adding “The amount of money now might seem small, but it will become significant by the time students turn 65.”

According to the CPF Act, your employers are required to contribute to the CPF for you as long as you earn over $50 a month, both for full-time and part-time employees.

If you earn between $50 and $500, the employer has to contribute 13% of your total wages, while you don’t need to.

If your wages are between $500 and $750, both you and your employer each have to contribute 13% of your wages plus 0.6 of the difference between your monthly wage and $500.

CPF contributions are also payable for all school-leavers or students working on a part-time or temporary basis, the CPF Board said.

Many students in Ngee Ann Polytechnic (NP) work when they don’t have lessons, usually during the weekends or on days they do not have scheduled classes.

One example is Marcos Wee, 20, a final-year Mobile Business Solutions student, who works as a part-time promoter in a departmental store.

“I usually work on weekends because I leave weekdays for project discussions, but if my workload starts piling up I’ll cancel my part-time work for that week to finish up my schoolwork,” said Marcos.

He’s paid on a per hour basis, as most part-timers are, and on a commission basis, along with an overtime pay rate of 1.5 hours and CPF contributions from his employer, The Estee Lauder Companies Inc. He earns about $300 a week, which mostly funds his motorcycle practical lessons. He has earned a total of about $4,500 from his current job and a previous job at The Coffee Bean & Tea Leaf.

But many employers do not contribute to their parttime employees’ CPF accounts. Some employers even refuse to pay students overtime rates for the extra hours they work.

It’s an offence not to contribute CPF for an employee. The CPF Board stressed that it takes a serious view of employers who pay late or do not pay CPF for their employees.

The default rate for employers who failed to pay CPF monthly contributions on time has, however, improved. It dropped from 0.59% in 2005 to 0.56% in 2006, the CPF Board said. contributions from her employer.

Students interviewed are ignorant that CPF contributions are compulsory, and are not keen to insist on them for fear they will earn less.

Though Huai Hui knew CPF contributions are important, she did not insist on it. “It’s just a small sum,” she said. She has never had any contributions to CPF from any of the part-time jobs she has worked at. She has earned about $2,500 to date.

Gan Jia Ying, 18, a final-year Mass Communication student, also reasoned, “CPFCPF will reduce my cash on hand.” contributions are not important to me now, as I work to earn money for daily use, so having contributing to my

She has been working part-time in various jobs since she started her education at NP 2 and a half years ago, and earns an average of $400 a month, without any CPFCPF contributions, she would have $1,560 in her CPF account by now. contributions. She has earned almost $10,000 to date. If her employer had paid her

On the other hand, Liew Wei Zheng, 18, a final-year Mechatronic Engineering student, who works as a parttime waiter in a steamboat restaurant 2 to 3 times a week, said students shouldn’t be shortchanged.

“I think [CPF] is very important for buying houses, and if there is only [a small amount of] money, it would not be enough,” he said. He has worked at Toys “R” Us, the Singapore Examinations and Assessment Board and freelanced as a leadership camp coach.

The CPF Board said that employees who agree with their employers not to contribute CPF are at the losing end. They will have less money for retirement, healthcare and housing instalments. “Employees should see CPF contribution as part of their salary package and savings for their retirement and healthcare needs,” advised a spokesman for the CPF Board.

Mr Leong said that students should take a long-term view and think hard how foregoing CPF contributions may affect their financial future.

Mr Leong added, “Employers get to save up on the 13% if students don’t get CPF and hospital bills in later life. contributions But students may need this money eventually to pay medical

When Do CPF Contributions Apply?

According to the Ministry for Manpower, CPF contributions are payable when you’re in a contract of service with an employer. This is the typical contract where there is an employer/employee relationship, and CPF and overtime pay are payable. This is not the same as a contract for service. A contract for service applies to a supplier/client relationship, such as a freelance assignment that someone may provide for a fee. CPF and overtime pay are not payable here.

When Bosses Don’t Pay

Typically, employers who don’t pay the CPF contributions for their staff are warned about legal action that will be taken against them if they still refuse to pay up.

The employees affected will also be informed.

If the employers still ignore the warning, they will be brought to court where the court will order payment, including interests and a court fine.

Recalcitrant employers will be convicted and a warrant will be issued to seize and sell all the employers’ assets.