SINGAPORE - Businesses appear to take in their stride the increase in qualifying salary for Employment Pass (EP) applications, having already read the signs put out from earlier this year, but associations have voiced their concerns for the impact on smaller businesses.
Market watchers say the move will ultimately raise business costs; and small and medium enterprises (SMEs), with their smaller pay bandwidths, might be unable to meet the higher salaries, resulting in some of this employment shifting to multinationals.
There is also the broader question of how the increase will impact the business competitiveness of companies in Singapore vis-a-vis other countries.
The Ministry of Manpower (MOM) announced on Tuesday that it is raising the qualifying salary for EP applications from S$3,300 to S$3,600 with effect from Jan 1 next year.
Businesses will be given a certain lead time to adapt to the changes.
Existing EP holders whose passes expire before Jan 1, 2017 for instance, will be able to renew them for a duration of up to three years based on existing EP criteria.
Those whose passes expire between Jan 1 and June 30, 2017 (both dates inclusive) will be able to renew for a duration of one year.
Singapore Chinese Chamber of Commerce and Industry president Thomas Chua said: "This adjustment will increase the compliance cost, especially for those industries which face the challenges of recruiting skilled local workers."
ITCAN chief executive officer Amit Sujan said that as business costs go up, clients are starting to find more value in other countries.
About 60-70 per cent of ITCAN's employees are employment pass holders. But Mr Sujan is hopeful of leveraging their regional offices to retain their clients.
"If the cost of foreign manpower is very high and on the other hand we don't have a good supply of locals, it is a deadlocked situation for us. We are willing to grow locals, but clients are not willing to wait," he said.
"The only choice is to either pay a premium or look at other countries which have improved their quality (of workers) and can respond to short delivery commitments."
Market watchers also questioned whether the increase in the qualifying salary for EP applications from S$3,300 to S$3,600 will translate into a corresponding increase in EPs available in the market.
Kurt Wee, president of the Association of Small and Medium Enterprises, acknowledged that the increase will weigh on business costs.
But, what businesses are truly concerned about is the lack of transparency in the approval process, he said.
"When they apply for an EP, they may get the response that the pay does not commensurate with the role. Statements like that are very unclear. If this is the level that the government is going to set, businesses will price it in. It will add to business costs, but what businesses really need is a more definitive benchmark for approvals and transparency of approvals. That will help in planning and budgeting."
MOM's announcement follows changes to the criteria for EP approval introduced in April this year to include factors such as the proportion of foreigners in a company and whether it tried to recruit Singaporeans for the job.
The construction sector meanwhile continues to hurt from the labour crunch, as, pointed out by the Singapore Contractors Association's president Kenneth Loo, they are also reliant on foreign talent for their management positions.
It also does not help that the sector is not doing well at this juncture.
But firms in the construction-related fields BT spoke with were largely resigned to the situation and said they were not surprised by the announcement.
Said Samwoh CEO Eric Soh: "Businesses like us just have to tighten our belts and look for more training. Look at the industry ... it is about improving productivity and the performance of workers, so there is no choice."
Huationg's group general manager Jimmy Chua too saw this move coming, but lamented this artificial pushing up of prices.
He said: "If these people are qualified but willing to take a lower salary because our work processes are better and our company structure is stronger, why must we artificially push it up? We are already faced with a labour crunch. If the employee is qualified, is salary the most important thing?"
From the F&B sector, Soup Spoon's executive director Benedict Leow acknowledged that some restaurants which hire "higher-end restaurant managers" will be impacted.
At Soup Spoon, less than 5 per cent of their staff are EP holders and they are able to hire locals by being flexible with scheduling and opening more outlets nearer to residential areas, he said.
NTUC and the Singapore National Employers Federation (SNEF) were largely supportive of the announcement.
Said Koh Juan Kiat, executive director of SNEF: "The medium gross starting salary of graduates was S$3,200 in 2014 and S$3,300 in 2015. Hence, the increase to $3,600 as the minimum qualifying salary for new EP applicants is roughly calibrated against the salary increase of fresh graduates to ensure that Singaporeans can compete fairly for jobs."
The increase in salary threshold for EP holders should result in employers being more stringent on the qualifications, skills and experiences of foreigners that they hire, helping to raise the overall quality of the workforce, he added.
NTUC assistant secretary-general Patrick Tay cautioned MOM to be watchful of companies/employers who through "creative means" artificially blow up the wages of these foreign PMEs to meet this new criteria.
"Bottomline is that local PMEs should be better off and not worse off," he said.
This article was first published on July 27, 2016.
Get The Business Times for more stories.