THE Central Provident Fund Board is investigating several motor traders for failing to pay CPF contributions on commissions their salesmen earn on car loans.

Most dealerships sell cars packaged with a loan from a bank or finance house, with the salesmen earning a 1 per cent to 3 per cent cut of the loan amount.

While some dealerships lump this into the monthly pay cheque, others leave it off the books and allow the salesmen to pocket the money separately, a common practice which has now attracted the attention of the CPF Board.

CPF Board spokesman Hazel Tan explained that complaints from some employees who were not paid CPF on their commissions triggered investigations into two motor distributors.

They have been asked "for information on past CPF contributions related to car loan finance commissions paid to salesmen".

More audits are likely. Said Ms Tan: "We will also be investigating whether such commissions are payable by other motor distributors."

The CPF Board's audit is believed to be the first related to commissions on car loans. But it may have implications for other trades with similar practices, such as real estate and the financial services.

Observers reckon the move may also have income tax implications for employees who have not declared their commissions as earnings.

Commissions are considered 'additional wages', and are liable for CPF contributions, even if ordinary wages exceed the $4,500-a-month ceiling. The annual cap on additional wages is $22,500.

CPF contributions for employees under 50 years old currently stand at 20 per cent from the employee and 14.5 per cent from the employer.

At the 1 per cent rate, a $50,000 loan will mean a $500 commission. Five or six deals a month are common at major distributors, earning salesmen around $3,000 in finance commissions. A motor trader, who declined to be named, said: "This is potentially a big can of worms."

Banks and finance houses have given at least $35 billion worth of car loans since 1999, so even at just 1 per cent, commissions would have amounted to $350 million.

The Straits Times understands that the probe could go back several years, and if the non-payment is widespread, the industry may have to cough up over $100 million in dues, including penalties.

Asked why the CPF is not going after the financial institutions, since most of them pay the commissions, Ms Tan said it is "because they are not the employers of the salesmen, whereas the motor distributors are".

While most salesmen get paid their cut directly by financial institutions, Toyota distributor Borneo Motors is one company which lumps commissions in the monthly pay cheque. CPF is paid on commissions as well.

Mr Lai Sek Kew, managing director of multi-brand Sime Darby Motor Holdings, said: "We are working with the CPF on this issue. We will comply with all CPF guidelines, it will not be an issue with us."

Other implications

THE probe on motor traders who have not paid CPF contributions on their salesmen's commissions may have implications for:

- Other businesses with similar practices, such as real estate and the financial services.
- Employees who have not declared their commissions as earnings when filing their tax returns.