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A 10 minutes guide to understanding CAYE(Contribute As You Earn)

Are you a freelance stressed over Medisave payments? Don’t be. Read our 10 minutes guide to CAYE to find out what you can do.

Last Updated on by Tree of Wealth

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CAYE, or contribute as you earn, is a Singapore government scheme that lets you save money for your healthcare needs. With inflation on the rise, it’s always good to plan for a rainy day, so you don’t have to worry about paying for medical care if the need arises.

CAYE mainly targets Central Provident Fund(CPF) self-contribution into Medisave for self-employed persons hired by government agencies. But, more importantly, the goal of CAYE is to minimise the unfortunate case of such persons unable to carry on working because they cannot pay their Medisave payments in full.

If you’re confused about how it differs from previous schemes, read on to find out more about CAYE!

What is CAYE?

The premise is simple for CAYE, introduced in 2020. To understand how it works, let’s summarise how CPF contributes to Medisave. First, CPF contributions are mandatory as a CPF member. CPF members refer to Singapore citizens or Permanent Resident employees earning more than $50 per month. As a CPF member, your employer must contribute CPF for you.

But what about CPF members versus self-employed persons? In short, a self-employed person who works for their own company is also a CPF member.

A self-employed person’s CPF contribution to their Medisave is compulsory if they have an annual net trade income (NTI) of more than $6000. For example, the minimum CPF contribution for self-employed persons (with a yearly NTI of $6,000 to $12,000) to Medisave ranges from 4% to 5.25% of their business trade income. The amounts vary depending on business income as well as age. Licensing authorities will only process a SEP’s business license renewal or relevant applications provided no outstanding Medisave is payable. That means if a self-employed person does not make the payment in full, they run the risk of not being able to continue working.

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While this mandatory Medisave contribution directly affects the self-employed person’s business license renewal, the Government has noted that it does not deter self-employed persons from missing their total Medisave contributions.

That’s because the Medisave contribution is due 30 days from the date of issuance of the Notice of Computation from IRAS or the Notice of Contribution from the CPF Board. This leaves a short period for some SEPs to make the entire payment. As a result, some SEPs might be unable to pay due to their fluctuating income or miss the deadline due to their busy schedules.

A SEP could avoid this problem by applying for GIRO payments and making voluntary contributions. However, for some SEPs, this may not be practical as their earnings could be seasonal, and they may have months where cash flow is tight.

Why is CAYE new?

If you are a self-employed person, you can now choose to make smaller, regular contributions to your Medisave. In addition, while it is now only piloted for self-employed persons who provide services to government agencies, private sector firms can also sign up for CAYE to transmit Medisave contributions as part of the service fee to their contracted vendors.

Contributing to MediSave savings is essential as it helps to ease healthcare expenses for yourself and your family. You can also purchase approved insurance plans with premiums payable by Medisave for higher coverage. Plus, you can enjoy tax relief if you contribute to your Medisave plan. The Government is also offering a one-off matched contribution for those who enrol into CAYE and face transitional issues.

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Who should tap on CAYE?

CAYE is currently for self-employed persons hired by government agencies. A self-employed person (SEP) is someone engaged in a trade or business on their own and according to the CPF board ‘performs work for others under a contract for service’.

If you buy and sell goods or provide services, you’re a SEP. SEPs include hawkers, drivers, music teachers, or media freelancers. For this group of people, their business income mainly depends on clients’ needs so cash flow will vary from month to month.

Under CAYE, the Government as the service buyer will first credit a portion of the SEP’s payment into their Medisave Account (MA) before paying out the remainder in cash.

To illustrate this further, let’s take the case of Jean. She’s a 35-year-old Netball teacher and conducts weekly training sessions at a MOE secondary school. For her services, Jean is paid $150, and she incurs an expense of $50, effectively earning her $100. Before the CAYE system, Jean would have received the full $150 payment.

However, under CAYE, the school will help Jean to make the Medisave contribution of $10 from the total payment and pay the remaining $140 to Jean. Her 10% CAYE contribution rate determines the amount that goes into her Medisave.

Jean can also choose to adjust her CPF CAYE contribution rate by entering her estimated revenue and expenses on the CPF website. Else, CPF calculates the CAYE contribution rate based on the declared NTI from 2 years ago.

A similar scheme is Drive and Save, a voluntary scheme for taxi driver Medisave contribution. Taxi drivers are considered SEPs even though a company may hire them, and so subjected to the CPF self-contribution rates based on their age and annual business income.

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Is CAYE compulsory?

Currently, CAYE is a pilot scheme targeted at SEPs who provide services to the Government to make smaller and more regular Medisave contributions. Therefore, private sector firms don’t need to participate in CAYE. That said, private companies are not charged an additional cost for implementing CAYE to pay services to their self-employed vendors.

You are automatically enrolled on the scheme as a freelancer contracted to provide services to a government body. However, you can opt out of your CAYE contribution rate to 0% if you’ve made your MediSave contributions in full or are on the GIRO instalment plan.

How to apply for CAYE?

From 1st Jan 2020, all government agencies must come on board the CAYE program. Private companies can also come on board and are encouraged to provide freelance service vendors with regular Medisave contributions. Here are the steps:

  1. The company must apply for digital service via the Corppass Website.
  2. The corporate service buyer (CSB ) must obtain a CAYE CPF submission number(CAYECSN) before they can start making CAYE contributions for their self-employed contractor.
  3. The company then sets up payment modes, choosing between automated contributions or paying them separately.

Companies can refer to the detailed overview here.

CPF matters can be confusing and tedious if you are a busy self-employed person running your own business, but it’s crucial since it forms a considerable part of your savings. Plus, never leave financial matters to the last minute. Especially with medical costs increasing in Singapore, it’s always good to have a backup plan to ease you through unexpected challenges.
Let us help you protect your tree of wealth. Whether you are a company interested in CAYE or a freelancer who needs more help planning your finances, our dedicated financial advisors are ready to work with you. We bring our wealth of experience and know-how of local policies to guide you through the most complex financial matters.

Simply fill in the form below and contact us for a non-obligatory consultation now!

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