Don't Risk It: The Unseen Consequences of Non-Compliant CPF and Employee Tax Reporting

This article was originally published in BDO Spotlight - April 2025

In today’s business landscape, compliance is not just a regulatory requirement but essential for long-term sustainability. Employers who fail to meet obligations related to the Central Provident Fund (CPF) and employee tax reporting risk more than just fines. They expose themselves to potential reputational damage, legal trouble and significant financial consequences. In this issue, we dive into the hidden risks of non-compliance and provide insights on how to stay on the right side of the law.

Why Compliance Matters 

The Central Provident Fund (CPF) is a key pillar of Singapore’s social security system that helps Singapore Citizens and Permanent Residents set aside funds to build a strong foundation for retirement. Meanwhile, employee tax reporting ensures that the correct taxable incomes are reported for income tax purposes. Both are crucial for the management of an employee’s financial well-being, and as an employer, it is your responsibility to ensure accurate and timely contributions and reporting.

Complying with CPF contributions and tax reporting are essential for maintaining both legal compliance and smooth business operations. Failing to comply with CPF and tax regulations can lead to severe penalties and legal consequences that can affect your bottom line and reputation. These consequences often go unnoticed until it is too late. 

In 2016, the CPF Board recovered a staggering $635.1 million in CPF arrears, benefiting over 380,000 employees. This recovery came from employers who failed to make full or timely CPF contributions due to underpayment, non-payment or late payments. Additionally, there were also 22 convictions for non-payment or underpayment of CPF and 350 convictions for late payment. All convicted employers were fined and ordered to settle their CPF arrears by the State Courts.

The following examples illustrate the serious consequences of CPF non-compliance:

1. According to the Ministry of Manpower (MOM) in response to a parliamentary question on 3 July 2023, MOM reported that an average of about 2,800 employers per month over the last 3 years failed to make the correct CPF contributions on time. (Source: MOM website, released 3 July 2023)

2. In June 2023, MediaCorp repaid around 2,300 employees (including ex-employees) who were affected by an incorrect leave encashment formula used between April 2009 and February 2022, resulting in errors in CPF payments (Source: CNA News, 20 Jun 2023)

3. In 2016, an employer in the financial sector paid over $400,000 in CPF arrears for the period between 2004 and 2016 due to the incorrect classification of incentive payments for CPF purposes. (Source: CPF Board website – News Releases 5 June 2017)

Similarly, the Inland Revenue Authority of Singapore (IRAS) has been taking strong action against employers and taxpayers who evade taxes or submit incorrect tax filings. In 2024, 11,000 employers on the Auto Inclusion Scheme (AIS) failed to submit their employees’ employment income on time, leading to inaccurate and/or delayed tax assessments for 140,000 employees. IRAS prosecuted 654 repeat offenders and collected over $790,000 in penalties.

The message is clear: Employers must ensure timely and accurate CPF and tax filings to avoid significant penalties and potential legal consequences.

The Hidden Consequences of Non-Compliance

1.    Financial Penalties

Failure to make the required CPF contributions or to submit tax reports in a timely and accurate manner can result in hefty fines.

If employers fail to comply, the CPF Board may take enforcement actions, including imposing penalties such as a late payment interest of 1.5% per month, a composition fine of up to $1,000 per offence, as well as court fines and imprisonment.

For employers under AIS, failure to submit employees' employment income information to IRAS electronically by 1 March each year can result in a fine of up to $5,000.

2.    Reputational Damage

Trust and credibility can take years to build but can be quickly damaged by a single oversight, such as missed CPF payments or inaccurate tax reporting. Employees, clients and potential partners may lose confidence in your company’s practices, severely harming your business reputation.

3.    Employee Trust and Morale

Incorrect handling of CPF and tax can erode trust and lower employee morale. They may feel that their long-term financial security is at risk, which can result in increased turnover rates or dissatisfaction within the workforce.

4.    Exposure to Legal Liabilities

Non-compliance can sometimes lead to legal action. The CPF Board and IRAS have the authority to pursue legal proceedings, which can result in criminal charges and other serious penalties.

5.    Operational Disruptions

Ongoing legal and financial issues resulting from non-compliance can distract your company from core operations, causing inefficiencies and additional administrative work. Significant time and resources may be spent reviewing historical records, recomputing payments or reprocessing payroll. Non-compliance may also affect your company’s ability to obtain certain licenses or permits, potentially disrupting business activities.

How to Ensure Compliance

Understand the Rules

Stay updated on CPF contribution rates and tax reporting requirements, as these regulations evolve over time. Keeping up to date is crucial to avoid costly and unnecessary mistakes. 
Employers should ensure timely contributions to employee’s CPF accounts by the last day of the calendar month. Enforcement action will be taken against employers who fail to pay by the 14th of the following month (or the next working day if the 14th falls on a Saturday, Sunday or Public Holiday).

To calculate CPF contributions, employers need to consider several factors including the employee's monthly wages, age group and the applicable CPF contribution rates. Contributions are based on CPF wages, which are classified into Ordinary Wages (OW) and Additional Wages (AW). These contributions are subject to the OW ceiling, AW ceiling and Annual Limit. Employers must ensure accurate calculations and understand the CPF treatment for each pay item. For example, some reimbursements may be CPF-payable depending on the nature of the payment.

Employers are also required to ensure timely and accurate IR8A/IR21 reporting. Employers with a total of 5 or more employees for the entire year ending 31st December or who have received the “Notice to File Employment Income of Employees Electronically” are required to electronically submit the completed and correct employees’ employment income details in an electronic format specified by IRAS by 1 March of the following year. Employers are also required to follow the IR21 filing procedure in the case of tax clearance for foreign employees leaving the company to ensure accurate reporting of their employment incomes, benefits-in-kind and vested/unvested shares. 

Regular Health Checks and Reviews

Conduct regular internal health checks to ensure your company’s payroll and tax reporting are in full compliance. This proactive approach will help identify errors early and avoid potential issues down the line.

Employers should promptly rectify any errors in CPF contributions, either by making up for short payments or applying for refunds for over-contributions.

If employers identify errors in tax reporting before receiving queries from IRAS, they may voluntarily correct them. Through the IRAS Voluntary Disclosure Programme (VDP), penalties may be reduced if the disclosure meets the qualifying conditions.

Regular compliance checks on CPF and tax reporting are a proactive strategy that can help your company avoid more serious consequences later on. 

Case Studies

Over the years, we have assisted our clients with CPF and employee tax reporting health checks and rectifications. Below are some recent case studies to provide you with additional insights into employers’ challenges and compliance issues.

• Challenge 1: Inaccurate CPF contributions for two years by a legal practice firm impacted more than 25% of its total employees. Payroll errors were discovered during the transition of payroll service from the client’s former payroll vendor to us, leading us to subsequently conduct a payroll health check for the client.

The errors were due to lack of understanding of CPF regulations, resulting in improper classification of CPF wages, incorrect application of the CPF AW capping, and errors in the annual CPF capping over two years. These issues led to both shortfalls and over-contributions, requiring additional payments and CPF refund applications. 

How we assist:

We assisted with reviewing our client’s historical payroll data, identifying potential issues and conducting a thorough investigation by recalculating payroll records for the affected months and years. During this process, we applied the correct CPF rates and capping to determine the accurate contributions.

For cases of shortfall, we assisted with preparation and submission of payments, while for over-contributions, we assisted in completing and submitting the CPF refund applications to the CPF Board. Additionally, for the affected employees, we assisted in filing amendments to the employees’ employment income details with IRAS under the Auto Inclusion Scheme (AIS). 

• Challenge 2: A fintech company was required by IRAS to undergo an assurance review as part of IRAS’s regular audit process. The client reached out to us to assist them with the assurance review. In the process of the review, it was discovered that some benefits-in-kind and stock options had not been disclosed by the client in the initial employee tax reports submission to IRAS. We assisted the client in filing amendments to correct these omissions. The company subsequently participated in the IRAS Voluntary Disclosure Programme (VDP) to ensure the accurate reporting of employees’ employment income.

How we assist:

We assisted the client in reviewing the assurance questionnaire issued by IRAS, seeking clarifications to facilitate understanding and requirements to support data gathering for submission to IRAS. This enabled identification of non-disclosure in the reporting of benefits-in-kind and stock options. We then followed up to assist the client with completion and submission of the VDP documents in response to IRAS requirements. 

• Challenge 3: CPF audit was conducted on a ten-year record for a healthcare group due to incorrect CPF wage treatment for additional cash payments and salary back-payments.

The rectification process required significant time and effort to recompute and reprocess CPF contributions for more than 800 affected employees over the ten-year period.

The unseen consequences of the issues include rectification payments for CPF shortfalls and corrections to the amounts in employees’ tax reporting over the ten-year period, in addition to other financial impacts resulting from late payment interest, penalties, and non-recoverable employee CPF contributions. 

How we assist:

Given the large volume of data spanning over a ten-year period, we conducted a thorough review of the historical data by recomputing, verifying and reprocessing the information to determine the correct CPF amounts.

During this process, we ensured that the applicable CPF rates and capping for each relevant year were accurately applied, taking into account changes in CPF regulatory requirements over time. Additionally, we assisted the client to estimate the late payment interest to provide a clearer understanding of the financial impact. We also computed and identified the necessary amounts to be rectified in the employees' tax forms.

Below are some common mistakes that result in unseen consequences of non-compliant CPF and employee tax reporting:

• Non-payment or underpayment of CPF contributions

• Overpayment of CPF contributions

• Incorrect wage declarations

• Inaccurate reporting of employee benefits (e.g. non-cash benefits, stock options)

• Non-disclosure of employment income paid by overseas offices

• Errors in stock option reporting

References

1. Written Answer to PQ on Late Payment Non-payment and Under-payment of CPF: https://www.mom.gov.sg/newsroom/parliament-questions-and-replies/2023/0703-written-answer-to-pq-on-late-payment-non-payment-and-under-payment-of-cpf

2. Mediacorp repays about 2,300 past and present employees affected by inaccurate leave encashment formula: https://www.channelnewsasia.com/singapore/mediacorp-repays-2300-past-present-employees-inaccurate-leave-encashment-formula-3574061

3. Record $635.1 million in CPF arrears recovered by CPF Board in 2016: https://www.cpf.gov.sg/member/infohub/news/news-releases/635-1-million-in-cpf-arrears-recovered-by-the-cpf-board-in-2016