Payroll Processing > Additional Topics > Monthly Variable Component (MVC)

A Monthly Variable Component or MVC is a measure that some employers use to reduce expenditure during economic downturns. 

MVCs work by reclassifying a portion of employees’ salaries from standard employment income to an MVC. In the event of a downturn in business, a partial or total reduction of the MVC portion of employees’ salaries / wages can reduce business costs.

This concept is best explained by way of an example:

Employee A and Employee B both work for Employer Z. Employee A has a monthly salary of $1000, with no MVC portion. Employee B also has a monthly salary of $1000, but it is split between a normal salary of $900 and an MVC of $100.

Employer Z experiences an economic downturn. The employer is still obliged to pay Employee A $1000, but they could reduce Employee B’s monthly take-home to $950, or even $900.

By having an MVC in place for Employee B, Employer Z has the ability to reduce the cost of wages by up to 10%, as well as reduce the value of his or her CPF contribution for Employee B.

Adding MVCs to Employees’ Employment Income

If your employee has already entered into a contract that doesn’t incorporate an MVC into their employment income, you cannot simply substitute it in without their agreement.

Alternative options are to give future wage increases in the form of an MVC or to agree on a variation with your employee. 

When incorporating MVCs into employment contracts, it is important to define the parameters that will trigger MVC cuts and restorations. Triggers could cover things such as:

  • The need to cut costs due to extremely poor performance of the business.
  • The need to cut costs in order to preserve jobs.
  • A drop in key performance indicators below a certain threshold.

Accommodating MVCs on SimplePay

There’s two ways of processing MVC’s on SimplePay.

Option 1: Create a custom income item for MVC

Under this option, you’ll enter the Basic Salary as the fixed amount that the employee earns per month. You can then add the MVC income as a custom item.

To do this:

  • Go to Settings > Custom Items > Add > Income
  • Input the Name as “Monthly Variable Component” or any other relevant name
  • Select “Enter Amount Per Employee” as the Input Type
  • Click Save

Then, add the custom item to the employee’s payslip. To do this:

  • Go to Employees and select the relevant employee
  • Click on Add next to Regular Inputs
  • Enter the Amount of the MVC
  • Click Save

As an example, if an employee earns $1,000 of which $100 is the MVC, you would enter $900 as the Basic Salary and $100 as the MVC custom income item.

If you need to exercise a reduction in your employee’s salary / wage during downturns, you can simply edit the amount of the MVC custom item. To do this:

  • Go to Employees and select the relevant employee
  • Click on the MVC custom item under Regular Inputs
  • Change the MVC in the Amount field
  • Click Save

Using the same previous example, if the employer wishes to reduce the employee’s MVC to $20, they would change the Amount field from $100 to $20.

Option 2: Include the MVC in Basic Salary

Under this option, you will enter the Basic Salary as the full salary given to the employee, including the MVC portion.

As an example, if an employee earns $1,000 of which $100 is the MVC, you would enter $1,000 as the Basic Salary.

If you need to exercise a reduction in your employee’s salary / wage during downturns, you can do this by creating a custom income item.

To do this:

  • Go to Settings > Custom Items > Add > Income
  • Input the Name as “Monthly Variable Component Reduction” or any other relevant name
  • Select a suitable input type:
    1. “Enter Amount Per Employee” for fixed deductions; or 
    2. “Different on Every Payslip” for variable deductions.
  •  Click Save.

Then, add this to the employee’s payslip:

  • Go to Employees and select the relevant employee
  • Click on Add next to Regular Inputs
  • Select the MVC custom item under Regular Inputs
  • If your input type if “Enter Amount Per Employee”*, you will have the option to enter the amount that you wish to reduce the employee’s Basic Salary by. Enter this amount as a negative number, in order to reduce the employee’s income.
  • Click Save

*If your custom item is set up with an input type of “Different on Every Payslip”, you will need to click on the custom item under Payslip Inputs to enter the reduction amount for that payslip.

Using the same previous example, if the employer wishes to reduce the MVC from $100 to $20, they will enter the amount for the custom item as -$80.

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