New scheme to help some freelancers with their MediSave contributions amid changes to CPF law

SINGAPORE: Freelancers providing their services to the government and public agencies are getting a portion of their fees into their MediSave accounts as part of a new pilot project after Parliament on Monday (November 4th) changes to the Central Provident Fund (CPF) bill ) has adopted).

The CAYE (Contribute-As-You-Earn) program, first discussed by a tripartite working group and later adopted by the government in March 2018, is designed to help self-employed people (SEPs) “keep up with their MediSave contributions (and to strengthen “) their protection against health shocks,” said Labor Minister Josephine Teo as she presented the bill for a second reading.

Around 6,000 government-hired SEPs will fall under the pilot program as of January 1, 2020.

“As a service buyer, the government can help SEPs to transfer their contributions directly to their MediSave account and then pay them the remainder of the service fee,” said Ms. Teo.

Currently, the self-employed make annual MediSave contributions if they have an annual trading profit of more than S $ 6,000, according to the CPF website.

Depending on the age of the employee and the annual net income in the previous year, the contribution rate is between 4 and 10.5 percent.

The trading result is the gross trading result minus all permissible business expenses, capital relief and trading losses.

This approach of annually contributing to past years revenue can be improved, said Ms. Teo.

“Unlike regular employees, SEPs do not have a simple process for making small regular contributions once they earn income.

“When it comes time to make a flat-rate out-of-pocket contribution the following year, SEPs with cash flow constraints struggle. That happens most of the time. “

About 130,000 or 60 percent of the self-employed “do not make all of their Medisave contributions in a given year in a flat rate,” added the minister.

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As part of the pilot project, these freelancers can make “smaller and regular contributions” to their MediSave accounts every time they are paid for their work.

The CAYE program can also help self-employed people to increase their MediSave funds.

“With previous posts he will arouse more interest in his MediSave posts,” said Ms. Teo.

MORE TO DO?

Ms. Teo said that as part of the Ministry’s consultation on the draft law, there had been in-depth discussions with the National Trade Union Congress and the heads of the SEP associations.

She noted that they generally welcomed the system and recognized its benefits, but there were concerns that some SEPs were already falling behind in making payments.

In particular, MP Ang Hin Kee and several union leaders suggested that the government provide for some consistency in contributions under CAYE.

Ms. Teo said it was a “good proposal” and the government would “try to support the SEPs participating in the CAYE pilot”.

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During the debate, Mr. Ang asked if the government would consider co-paying MediSave dues for SEPs doing business with the public sector as they may face the “added burden” of outstanding MediSave dues from the previous year in connection with deductions under the new plan to settle.

Non-constituency MP Daniel Goh said the government could use CAYE to encourage self-employed people to make regular voluntary contributions to their CPF with the right incentive.

For example, he said SEPs could choose to contribute 10 percent of their income up to the monthly contribution cap of S $ 6,000 through CAYE.

“The government could encourage this by offering self-employed people who participate in this program all year round a flat-rate and thus progressive CPF increase of, for example, S $ 300 per year,” he added. “Progressive service buyers could be encouraged to achieve the government’s CPF charge.”

In her closing address, Ms. Teo said the incentive proposal was “really not new” and that the government was looking into it.

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Regarding helping SEPs tackle CAYE, the Minister reiterated what she said in her opening speech: “The government is seriously considering its proposals and will provide more details when they are ready.”

On the other hand, SEPs who have made their MediSave contributions in full or who are kept up to date with an installment payment plan can cancel this pilot project.

“Some SEPs are more familiar with the current model of MediSave contributions and may prefer not to be with CAYE yet,” she said.

The government will also help the 600 SEPs who have not kept up with their MediSave contributions to prevent their residue from snowballs.

“For example, we can look at their installment plan and see if there is room to expand it,” she said.

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In the meantime, nominated MP Walter Theseira suggested using CAYE “more creatively” to help SEPs who are faced with “peaks and troughs” of their income, like an external school sports trainer who does continuous training sessions in advance of competitions, but only low encounters has demand during the exam season.

“CAYE could be used to help SEPs manage their incomes by paying a greater proportion of contributions from high-income periods and lower contributions or no contributions at all for low-income periods,” he said.

“A well-designed CAYE could enable SEPs to contribute to CPF with significantly less pain.”

Ms. Teo responded in her closing speech, saying that the government would consider his proposal.

Regarding calls to expand the system, the minister said no decision had yet been made whether to expand CAYE to include payments to freelancers from private sector companies or intermediaries such as insurance and real estate agents.

This is despite the fact that some of the intermediaries have already expressed their interest.

“There are currently no plans to expand into the private sector,” she said. “We can decide later based on the pilot’s results, but those who wish to volunteer are welcome to contact us to explore the area.”

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OTHER CHANGES TO CPF ACT

The CPF Act was also amended to meet the changing needs of employers and to clarify and streamline the administration of the CPF Act.

For the former, the CPF Board of Directors will be allowed to provide reimbursements in circumstances that arise from evolving employment practices.

MOM cited the example of how employers can structure wage components that are tied to contractual conditions, such as: B. a registration bonus with a minimum period of service.

If the employee does not meet the terms of the contract, he must return the contingent component of his wages and the CPF contributions to the employer.

Currently, the CPF Act does not allow the CPF Board of Directors to issue refunds for this refundable component.

The change gives employees and employers the flexibility to request a refund of the CPF portion within one year of the conditional wage being returned.

April 1, 2021