Overview
The Annual Wage Supplement (AWS), commonly known as the “13th-month bonus,” is a year-end payment given to employees on top of their normal annual wages . Typically amounting to one month’s gross salary, the AWS is meant to reward employees and provide additional financial support during the end-of-year festive season. It is called the “13th month” because it is roughly equivalent to an extra month of pay in the year.
Importantly, AWS is not mandated by law in Singapore . Unlike monthly wages or overtime pay which are required by the Employment Act, the AWS is a customary practice adopted by many employers, usually as part of company policy, employment contracts, or collective agreements with unions. It was strongly encouraged as part of Singapore’s wage structure framework (particularly in the public sector and unionized sector) but remains at the discretion of the employer unless contractually promised.
Prevalence and Practice
While not compulsory, AWS is widely practised in Singapore. Many companies, especially in certain industries and the public sector, include an AWS in their employees’ remuneration package. Surveys and studies have indicated that a significant majority of employers (around 65-70%) provide some form of year-end bonus, which often includes AWS . This is because the concept of a 13th-month payment is well-ingrained as a employment norm in the region, seen as part of fair and competitive compensation.
Common practices related to AWS include:
• Standard Amount: In most cases, AWS is exactly one month of the employee’s basic salary. For example, if an employee’s monthly pay is $3,000, their AWS (if granted) would be $3,000. This amount is pro-rated for those who did not work a full year – for instance, a new hire who joined mid-year might get half the AWS.
• Timing: AWS is usually paid out in December, just before Christmas or year-end. Some companies pay it just before the Lunar New Year (especially if their financial year or performance bonus is paid in December, they might shift AWS to January). But generally, December is common, giving employees extra spending money for holidays or new year festivities.
• Contractual vs. Discretionary: In unionized environments or for civil servants, the AWS is often guaranteed unless the company is in severe financial trouble. In many union Collective Agreements, AWS is a negotiated item (almost always one month). In contrast, some non-union companies might label it as discretionary – meaning if the company had losses or very poor performance, they could choose not to pay AWS. However, this is rare and usually companies honor AWS unless truly constrained, because employees have a strong expectation of it.
• AWS vs Performance Bonus: AWS is distinct from a performance bonus or variable bonus. AWS is usually a fixed additional month’s salary, whereas performance bonuses (annual variable bonuses) depend on company profitability and individual performance. Many firms have both – e.g. pay AWS (13th month) plus a performance bonus (say 1 to 3 months of salary) depending on results. Some multinational companies that do not traditionally offer AWS may incorporate that value into base salary or only do performance-based year-end bonuses. This is why not all employees receive AWS; some employers prefer a purely performance-driven bonus system.
Encouragement and Economic Adjustments
The concept of AWS has its roots in Singapore’s income policy frameworks. During the 1970s and 1980s, tripartite discussions encouraged the inclusion of an AWS to help make wages more flexible (part of it could be held back as a bonus rather than in monthly pay). It also helps companies by giving them a buffer – in lean years, there have been instances where the labor movement agreed to forgo or reduce AWS to help companies manage costs (instead of retrenching staff). For instance, during severe recessions or crises, unions and employers might negotiate a lower AWS for that year.
Moreover, the government’s National Wages Council (NWC) each year gives guidelines on wage increases and variable payouts. They often reference the need for an Annual Variable Component (AVC) in wages. AWS is considered part of the AVC (though it’s a fixed component annually, it’s classified under “variable” since it’s not built into monthly salaries). According to a Straits Times article, about 70% of companies include an annual variable component like AWS or other bonuses in their pay structure . This indicates it’s standard, but also that 30% might not have a separate AWS (maybe rolling it into base or using performance bonuses exclusively).
Legal Status and Entitlement
Since AWS is not a legal entitlement, an employee is only entitled to it if it is stipulated in the employment contract or company policy, or if the employer has consistently paid it out such that it became an understood term of employment. The Ministry of Manpower advises that if an employment contract mentions AWS, then it becomes obligatory as per the contract. If a contract is silent on AWS, the company can choose whether or not to pay it.
However, if a company customarily pays AWS every year, not paying it in a particular year (especially without clear financial reasons communicated) could severely affect employee morale and might lead to disputes or resignations, though legally the company might be in the clear if it wasn’t a contractual promise. In unionized companies, AWS is typically guaranteed unless a waiver is negotiated in exceptional circumstances.
Impact for Employees and HR
For employees, AWS is a welcomed additional income – it often goes towards year-end expenses, paying down debt, or savings. Many employees plan around it (for example, doing holiday shopping or taking vacations with the AWS money). For HR and payroll, managing AWS means budgeting for that extra month of salary. Typically, annual gross salary is calculated as 12 months’ basic pay plus 1 AWS (plus any other bonus). When comparing job offers or compensation, local candidates will often consider whether AWS is provided. An offer that says “$X per month with AWS” is effectively worth more than one that is “$X per month without AWS” by about 8.33% (since AWS = 1/12 of annual pay). Hence, HR often states clearly if their package includes AWS.
During economic downturns, having AWS as a separate component can provide flexibility. For example, rather than cutting monthly salaries (which is more painful and lasting), a company in trouble might cancel or halve the AWS for that year to cut costs. This was seen in some companies during the Covid-19 downturn in 2020, where management and staff agreed to forego AWS or replace it with a token sum given the exceptional circumstances.In summary, the Annual Wage Supplement is a traditional feature of Singapore’s wage system, aimed at sharing economic gains with employees in a stable manner. While not mandatory by law, it is prevalent and expected in many sectors . It acts as a form of deferred reward, aligning employee interests with the company’s annual performance (since, in bad years, other variable bonuses might shrink even if AWS is paid). HR practitioners should consider AWS when designing salary structures and communicating total rewards to employees.
