5 things every worker needs to know about the Annual Wage Supplement

The annual wage supplement (AWS) is commonly referred to as the 13th month.

At the end of every year, there will always be a perennial discussion on whether AWS is regarded as a bonus or a salary entitlement.

Most people know that AWS is currently not compulsory by law but has it ever been mandated by law? How did AWS come about anyway?

Here are 5 things that every worker needs to know about the Annual Wage Supplement.

1) Annual Wage Supplement started on 1 July 1972

Back then, there were problems with bonus payments so the National Wage Council (NWC) recommended to replace the traditional bonus system with an annual wage supplement  system.

This would hopefully promote industry peace and harmony with social justice.

Employers could choose to pay a frozen* AWS of an amount not more than three months’ wages and a negotiable bonus of an amount that did not exceed three months’ wages OR a frozen AWS of an amount not more than three months’ wages and an annual wage increase.

That means they could either give maximum six months of bonus or three months of bonus and a yearly wage increment.

Frozen AWS referred to the average of bonuses given in the last three years preceding 1 July 1972, or the last bonus paid, whichever is greater, subjection to a maximum of three months’ wages. 

2) Workers and unions were asking for more AWS

The annual wage supplement was introduced in 1972 but it didn’t stop bonus disputes due to the lack of enforcement mechanisms.

Therefore, the Employment Act was amended in 1975 to prevent workers and unions from asking for payments exceeding the limits set in the 1972 amendment.

They would be fined up to $5,000 and/or jailed up to six months if they were convicted of asking for more AWS payments.

3) Employers were giving 1 month AWS

In 1986, the NWC subcommittee found out that it was common for employers to give one month’s basic wage as annual wage supplement.

However, the subcommittee also noted that the AWS can be revised downwards under exceptional circumstances.

As part of a flexible wage system, the AWS and variable wage component would allow 20% of wages to be varied.

For this flexible wage system to work, the subcommittee recommended three options:

a. Consolidation: All employees will only receive one month’s worth of fixed AWS. If the fixed AWS exceeds one month’s basic wage, the remaining amount will be included into the basic wage of employees.

b. Personal-to-holder: For existing employees, if the fixed AWS exceeds one month’s basic wage, the remaining can be given on a personal-to-holder basis. However, new employees will only received a fixed AWS of one month’s basic wage.

c. Variable above one month: If the fixed AWS is worth three month’s wages, two months can be paid separately as a variable wage component. If the fixed AWS is more than one month but less than three months’ basic wage, companies can treat the excess as variable productivity payment and build it up to two months’ basic wage.

4) Annual Wage Supplement no longer compulsory from 16 Aug 1988

The fixed annual wage supplement was removed from the Employment Act on 16 August 1988.

If the employer did not pay any annual wage supplement before 26 August 1988, any employment contract or collective agreement (by unions) made on or after that date cannot include AWS of more than one month’s wages.

In the event that the company’s performed very poorly for the year, the employers may invite the employees or union to negotiate for lesser AWS or no AWS for that year.

5) Employment Act on AWS has not been revised since 1988

The amendment in 1988 is the most recent one and it continues to be force till today.

As stated on Ministry of Manpower’s website, employers cannot pay AWS of more than one month’s salary if they did not pay any AWS before 26 August 1988.

Annual wage supplement is not compulsory unless it is stated in your employment contract.

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