A complete guide to understanding salary vs wage

Singapore's job market today offers diverse job opportunities to both residents and non-residents. These opportunities range from full-time to part-time positions and may include salaried and waged roles.

Whether negotiating a job offer, considering a career change, or wanting to do some financial planning, knowing the differences between salary and wages can significantly impact your choices. With this knowledge, you can make strategic career choices promoting long-term professional growth and satisfaction.

In this guide, we will help you distinguish between salary and wage. This will help you manage your finances better.

Here is what we will cover in this guide:

• What is a salary?
• What are wages?
• What is the difference between a salary and a wage in Singapore?
• What is legally required in Singapore concerning receiving a salary and a wage?
• What is minimum wage?
• Wrapping up
• FAQs

What is a salary? 

A salary constitutes a set sum of money disbursed by an employer, typically monthly or bi-weekly. It gives employees predictability and stability, by ensuring a consistent income flow at regular intervals. Income consistency makes financial planning and budgeting easier.

Salaried employees often work in the professional services sector. These roles may include administrative, managerial, or other professional positions. They typically follow set hours, such as 9 a.m. to 6 p.m., with a 1-hour lunch break.

Employees are eligible for various employee benefits such as health insurance, paid time off, sick leave, and retirement contributions. They may also receive additional compensation through annual performance bonuses and incentives. All these components are clearly outlined in their employment contract. Occasionally, salaried employees may be required to work overtime, with compensation determined by their specific contract terms.

What are wages? 

A wage is compensation determined by the number of hours worked, with employers typically paying on an hourly, daily, or per-task basis. This model is commonly utilised across various industries, including hospitality, manufacturing, and retail.

These jobs typically offer flexibility, allowing workers to increase earnings by working longer hours or taking extra shifts. However, the pay in these jobs can fluctuate based on hours worked, resulting in income fluctuations, with less income for fewer hours. Overtime pay is granted if employees exceed their contracted hours in a week or month.

Waged employees might experience reduced job security. But they may enjoy different perks and benefits than their salaried counterparts. For example, they may have access to flexible work schedules, allowing them to adjust their hours to accommodate personal obligations. Additionally, hourly workers often have the opportunity to earn overtime pay for hours worked beyond the standard workweek.

What is the difference between a salary and wages in Singapore? 

In Singapore, the terms "salary" and "wages" are often used interchangeably, but there are subtle differences between the two:

Salary

In Singapore, "salary" typically refers to all the money an employee earns as compensation for their work under their employment contract. This includes regular pay and any additional allowances.

However, it does not include certain things like the value of accommodation provided by the employer, contributions to pension or provident funds made by the employer, travel allowances, reimbursements for work-related expenses, gratuities, or retrenchment benefits. These excluded items are not counted as part of the employee's salary.

Employees who receive a salary often hold positions that involve professional, administrative, managerial, or executive roles.

Salary payments are commonly associated with white-collar jobs where employees are compensated for their expertise, responsibilities, and contributions to the organisation.

The Employment Act mandates that employees should receive their salary and any additional pay for overtime work within specific timeframes:

Wages

Wages, on the other hand, typically refer to payments made to employees based on the number of hours worked or the completion of specific tasks. Wages are often calculated on an hourly, daily, or piece-rate basis.

Employees who receive wages may include those engaged in manual labour, skilled trades, or hourly positions.

Wages are commonly associated with blue-collar jobs or positions that involve part-time, casual, or temporary work arrangements.

What is legally required in Singapore concerning receiving a salary and a wage? 

In Singapore, the Employment Act of 1968 governs both salary and wage payments. It consists of the basic terms and conditions of employment for employees covered under the Act. Employers must comply with labour laws to ensure that workers receive fair treatment and compensation for their work.

Here is a quick breakdown of the employment laws in Singapore:

Payment of salary and wages

• The Employment Act mandates that employers pay employees salaries at least once a month and within 7 days after the end of the salary period.
• All payments must go directly to the employee or to a bank account they specify. However, the Act allows employees to receive payment in cheques as well.

Overtime pay

• Overtime rates are typically 1.5 times the worker's hourly basic rate of pay.
• In Singapore, only employees covered under part IV of the Employment Act are entitled to overtime pay. Part IV of the Employment Act excludes managers and executives.
• It covers non-workmen earning a monthly basic salary of $2,600 or less and workmen earning a monthly basic salary of $4,500 or less.
• Employees who work overtime must receive payment within 14 days after the last day of the salary period.

Deductions and allowances

• The Act regulates wage deductions. It monitors all deductions, including CPF contributions and work absences. Employers may deduct services and amenities, like accommodation.

Final payment

When an employee's contract ends, they should receive any remaining salary owed to them upon completion of the contract.

Dismissal payment

If an employee is dismissed, they should receive their total salary and any owed sums on the day of dismissal. If that is not possible, payment should be made within 3 days after dismissal, excluding rest days, public holidays, or other holidays.

Termination payment

When an employee terminates their contract, they should receive the total salary owed:

• If proper notice is given, they get paid on the last day of work.
• If notice is not given or is cut short, they receive payment within seven days after termination. However, any owed sums can be deducted for not giving proper notice.

Leave entitlements

• The Act covers leave entitlements for people receiving a salary. These entitlements can include paid annual leave, sick leave, marriage leave, and maternity leave.
• The law mandates that employers adhere to these conditions and entitlements under the Act. Currently, leave entitlement is eleven days per year.

What is minimum wage? 

The minimum wage is the lowest amount of money an employer is legally required to pay their employees for each hour of work. It is set by the government to ensure that workers do not receive unreasonably low pay and to prevent exploitation by employers. Countries such as the US, UK, Germany, and Australia have laws mandating a minimum wage that employers must pay their workers.

Singapore currently does not have a minimum wage for many sectors. Employers determine wages based on market demand and supply.

In the country, instead of having a set minimum wage by law, there is something called the Progressive Wage Model (PWM). This model is meant to help workers who earn lower wages. The government created PWM to improve wages, kind of like a different way of doing minimum wage.

Besides making sure workers learn more skills and work more efficiently, the PWM also has something called the Workfare Income Supplement (WIS). This is like a reward for working and trying hard at your job.

Since wage earners are entitled to provident fund contributions, this reward gives extra money and adds to their retirement savings through CPF. These bonuses help workers who earn less money to pay for their daily needs and save up for when they retire.

Wrapping up 

Understanding salary vs. wage can help you make better career decisions. It can also improve your financial planning. Salaries provide stability and benefits. Hourly-rate positions offer flexibility and extra earnings.

Understanding differences and relevant laws helps you navigate your career path. It ensures fair treatment by your employer.

Keep up with changes in labour laws and compensation structures to maximise earning potential. This knowledge can help you choose between a salaried job with a fixed income and working hours. It can also help you decide on an hourly-based job with wages and potential overtime pay.

FAQs 

Here are some common questions that you can refer to help you understand the key aspects of salary and wage payments.

These FAQs cover their key differences, how they potentially affect your job stability, and the laws and regulations surrounding them.

1. What are the primary differences between a salary and a wage?
   In Singapore, salary and wage differ due to their payment systems. An employee receives a salary, a fixed amount paid regularly, usually monthly. Hours worked do not affect it.
   Conversely, wages are remuneration paid solely for the hours worked, with employers compensating employees hourly.
   Professional positions commonly adhere to salaried payment structures, whereas roles entailing manual labour typically operate on an hourly wage basis.
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2. How do salary and wage affect employee benefits and job stability?
   Salary and wages can influence employee benefits and job security in varying ways. Salaried employees usually get paid leave, retirement plans, and medical insurance. They also receive maternity leave.
   The stable payment structure gives them consistent income. It happens at each pay cycle. On the other hand, hourly workers also experience job stability due to their fixed income per pay cycle.
   Hourly workers may receive benefits like overtime pay based on their hours worked. Their job security may be less since their hours and income are not fixed. They can earn more based on monthly work hours.
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3. What legal considerations should employers and employees be aware of regarding salary and wage payments?
   In Singapore, employers and employees must follow the guidelines of the 1968 Employment Act. The Act regulates salary and wage disbursements.
   Employers must fulfil their obligations by paying the salaries and agreed-upon wages on time. They must accurately calculate and compensate for any overtime work performed by employees and workers.
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4. How can understanding salary and wage structures influence career progression and decision-making?
   Comprehending the structures of salary and wage can significantly impact your career advancement. Knowing market rates for your skills helps you negotiate better pay during job searches.
   This knowledge empowers you to advocate for enhanced benefits tailored to your lifestyle. These benefits supplement your monetary compensation.
   Understanding industry structures helps you make informed career decisions. This knowledge supports transitioning to new roles.
5. What role does the minimum wage play in determining salary and wage levels?
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   In industries with a minimum wage, it sets the lowest pay level, ensuring workers receive a fair amount of pay as determined by the government.
   There is no minimum wage law in Singapore. However, it still plays an important role in safeguarding workers in specific sectors and shaping discussions on wage policies and income inequality.