BUSINESSES are sanguine about the cost impact of the newly-announced higher Employment Pass (EP) qualifying salaries – whether it is because they hire few EP holders, or are already paying more than the new rates.

Association of Small & Medium Enterprises (Asme) president Ang Yuit said: “(The) EP has priced itself beyond the reach of most SMEs. The impact is not very big for SMEs because the majority of SMEs do not employ EP holders.”

The minimum monthly qualifying salary for an EP will rise to S$5,600 from next year, from S$5,000 now, said Minister for Manpower Tan See Leng in Parliament, during his ministry’s Committee of Supply debate on Monday (Mar 4).

For the financial services sector, which has higher wage norms, the minimum qualifying salary will be hiked to S$6,200, from S$5,500.

Qualifying salaries increase with age. The new top rates are S$10,700 for those in their mid-40s, and S$11,800 for those in their mid-40s in the financial services sector.

Market benchmark

The EP qualifying salary is benchmarked to the top one-third of local professional, manager, executive and technician wages.

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“It does not lead market wages, but is simply adjusted in line with prevailing wage norms,” said the Ministry of Manpower (MOM). “We do this to ensure that EP holders are of high quality, and to maintain a level playing field for locals.”

The changes are “in line with how the benchmarks have moved”, Dr Tan said.

As EP holders at remote-sensing technology company Omnisense Systems are already paid “market rate” rates, founder and chief executive officer (CEO) Leonard Lim expects to be unaffected by the change.

“It’s just a reflection of the general income increase in Singapore in the past three years,” he said.

Asme’s Ang noted that SMEs with EP holders likely hire on a “very specialised and targeted basis”, so the change will have a limited impact on payroll. Such companies – startups, for example – may also receive funding, he added.

The higher qualifying salaries apply to new applications from Jan 1, 2025, and to renewals from Jan 1, 2026. Said Dr Tan: “Firms with existing EP holders have a longer runway, potentially up to 2028, to manage the impact of these changes, and prepare and adjust accordingly their hiring plans.”

The Singapore National Employers Federation (SNEF) agreed that the lead time will give businesses the chance to adjust, amid rising business costs and a tight labour market.

But SNEF added that tweaks to work-pass criteria – to prevent overreliance on foreign workers – should be complemented by initiatives that promote skills transfer to Singaporeans, particularly in emerging growth areas such as artificial intelligence and the green economy.

The latest moves follow the hikes in Budget 2022, when the minimum qualifying salary for new EP holders was raised by S$500 from Sep 1 that year for new candidates, and Sep 1, 2023 for renewals.

Tightening for marine and offshore engineering

In his speech, Dr Tan also reiterated that foreign worker levies would be raised, and that the dependency ratio ceiling (DRC) would be cut for the marine and offshore engineering (M&OE) sector, as was announced last Friday.

Kuah Boon Wee, group chief executive officer of energy-services company MTQ Corporation, said: “It feels a little bit like a double whammy.”

But he and other M&OE players have expected these changes and begun preparations to minimise their impact. Levy hikes were announced in 2013, but were later deferred in view of a sectoral downturn and Covid-19.

Providing more details on the latest moves, Dr Tan said that the levy for “Basic Skilled” R2 marine shipyard Work Permit holders will be increased to S$500, from S$400 before. For “Higher Skilled” R1 Work Permit holders, it will be increased to S$350, from S$300.

These higher levies apply to all work permit holders, including existing holders.

“This does increase our labour costs, but the effect can be mitigated through productivity gained,” said Dyna-Mac Holdings CEO Lim Ah Cheng.

Said Kuah: “It just reaffirms that for our industry, we have to keep transforming.”

As for the DRC, it will be cut to a ratio of one local employee to three Work Permit or S Pass holders.

About 700 firms, or half of those in the sector, have a dependency ratio utilisation higher than the new DRC. They will thus need to hire more locals or shed Work Permit and S Pass holders.

“However, it may not be meaningful to look at the current extent of impact on firms as the workforce numbers will evolve by the time the change is effected,” MOM said.

The changes take effect from Jan 1, 2026. Businesses exceeding the new DRC at that point will be allowed to retain existing work pass holders until the passes expire, to minimise disruption, MOM said. But renewals and new applications will be subject to the new DRC.

“The overall direction is clear – we need to improve the quality of our Work Permit holders and manage their overall numbers,” Dr Tan said, adding that the changes in the marine shipyard sector are “a first step”.

SNEF said the moves will heighten the sector’s manpower crunch and rising costs, but urged employers to “press on” with transformation, noting the newly-announced Marine and Offshore Engineering Support Package of S$100 million over the next five years.

Faced with the new DRC, MTQ will try to retain higher-performing foreign workers, and let go of the lower-performing ones when their contracts end. It hopes to hire more locals – but it is difficult to find Singaporeans willing to be frontline machinists, Kuah said.

Amid the manpower crunch, MTQ has upgraded its equipment for greater efficiency.

Similarly, Dyna-Mac has introduced technology and trained workers to be multi-skilled, tapping grants when needed, to reduce its reliance on foreign workers.

“Essentially, the cut in the DRC will boost productivity levels and promote efforts to upskill local workers,” said Lim. Dyna-Mac’s planned facilities expansion and equipment upgrades will further improve manpower utilisation.

But rising costs may cause companies to see limits to their growth in Singapore, said Kuah. They may choose to expand in countries “where the rules on usage of manpower are not as stringent”.

Much of the M&OE sector’s production is for export, he noted. “Maybe it’s an opportunity to see where you could do it, that makes more long-term sense.”