Channel NewsAsia - Higher minimum salaries for EP holders: Experts say SMEs may be hit harder; firms try to find workarounds

SINGAPORE, Mar. 13 2024 / Channel NewsAsia / – SINGAPORE: Smaller companies in Singapore may find it tougher to hire foreigners on Employment Passes (EPs) when the minimum qualifying salary for such workers rises again in 2025, and business costs correspondingly go up, experts said.

Recruiter Michael Page's Singapore and Indonesia managing director Nilay Khandelwal said such small- and medium-size enterprises (SMEs) often operate with tighter budget constraints and may not have the financial flexibility to meet the higher salary threshold.

“This could make it challenging for them to compete for talent, particularly in sectors where there is a high demand for specialised skills that are typically sourced from a global talent pool,” he told CNA.

The increased labour costs could affect the profitability of SMEs, which tend to have limited resources, said Mr Sean Tan, partner and career business leader at consultancy Mercer Singapore.

He believes the Singapore government aims to prioritise local employment and limit reliance on foreign talent to sectors where it's difficult to hire locals.

Industries such as agritech, financial services and information-communication technology rely more heavily on foreign expertise because of a lack of local talent or the need for specialised skills, said Mr Tan.

"Raising the qualifying salary may make it difficult for these industries to attract and retain foreign professionals, impacting their ability to operate effectively."

The Ministry of Manpower announced last Monday (Mar 4) that EP qualifying salaries for new applicants will increase to S$5,600 per month next year, up from the current S$5,000.

Those working in the financial services sector will have to earn at least S$6,200 a month, compared with S$5,500 at the moment.

Employment lawyer Ian Lim said the move was not unexpected, since EP salaries are meant to be pegged to the top one-third of professionals, managers, executives and technicians in Singapore.

“Salaries have risen somewhat as we've come out of the pandemic. But they haven’t risen drastically, so therefore this increase also isn’t drastic, which is consistent,” said Mr Lim, a partner at TSMP Law Corporation.

He also noted the minimum qualifying salary was last increased in 2022.

MOM statistics show that the number of EP holders in Singapore has grown despite the higher threshold.

In December 2021, there were 161,700 foreigners on EPs in Singapore. The figure reached 187,300 in December 2022 and 197,300 in June 2023.

Adapting through tech and other talent

The ability to innovate and adapt to market changes hinges on access to global talent, especially in a knowledge-based economy, said Mr Foo Mao Ching, co-founder of real estate investment start-up RealVantage.

SMEs that face difficulty attracting foreign talent due to higher salary requirements may not be able to compete and grow, compared with larger companies, he added.

RealVantage has 17 employees in Singapore, including one on an S Pass for mid-level workers. It had one employee on an EP last year. As it is considered a financial services firm, it will have to pay new EP holders at least S$6,200 a month from next year.

Mr Foo pointed out that RealVantage has adapted to government policies by investing in technology to reduce the need for a large workforce. This includes the use of in-house artificial intelligence tools and customised automation tools to improve productivity.

“For roles that are not location-dependent, RealVantage also hires talent on a remote basis,” he said. “This helps tap into a global talent pool without the constraints of work permit requirements.”

The company has seven to eight employees who work remotely from outside Singapore. It also uses freelancers and contractors for project-based work.

The Association of Small and Medium Enterprises (ASME) said SMEs that employ foreigners on EPs usually do so for specific projects with fixed durations.

“The increase (in minimum salary) would mean that they have to consider the usage of such EP holders quite carefully,” said the association's president Ang Yuit.

But more broadly, most SMEs would not be affected because only certain sectors rely on EP holders, he added. “By and large, SMEs are hiring and building up local Singaporeans where they can, for roles that are covered by that EP holder salary range."

Some industries also hire fewer foreigners. Most local law firms, for one, tend to rely on Singaporeans rather than foreign employees, said TSMP’s Mr Lim. “Hiring decisions (at TSMP) wouldn’t be affected ... because EP holders are a very small minority in our firm anyway."

Looking local

Asked to comment on the increase in EP qualifying salaries, OCBC bank said nationality and other markers like age, race, gender and religion were not factors in its hiring process.

“We look for candidates with the right skills and experience and who would be the best fit,” said Mr Ernest Phang, managing director of group human resources.

The bank’s compensation policy considers market competitiveness, economic conditions and performance by the company and individual, he added.

Singapore-founded OMS Oilfield Services, which has operations in six countries, currently employs two EP holders who would not meet the new salary requirement.

It acknowledged the government’s intentions in setting EP qualifying salaries, but noted that its local talent pool to source from is small because Singaporeans often avoid blue-collar jobs.

“Oftentimes, these jobs require a specific skillset required for certain positions, and it might be difficult to find a suitable local candidate," said chief executive officer How Meng Hock.

He said OMS may have to hire foreigners on S Passes instead. Still, there is a limit to the number of S Pass and work permit holders each company can hire, due to government regulations.

Nonetheless, OMS has been working to identify and nurture local talent, in part to address potential increases in business costs due to rising EP salaries.

“We have proactively invested in internship programmes, spanning from university to ITE (Institute of Technical Education) and polytechnic students,” said Mr How. 

“OMS is fully committed to supporting and prioritising local talent across all our operations."

About RealVantage

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Disclaimer: The information and/or documents contained in this article does not constitute financial advice and is meant for educational purposes. Please consult your financial advisor, accountant, and/or attorney before proceeding with any financial/real estate investments.