Budget 2022: Work pass changes expected to hit SMEs more than MNCs

SINGAPORE'S move to tighten work pass requirements could see international firms shifting certain work functions to elsewhere in the region amid rising cost pressures, while they keep their most skilled talent in the Republic, analysts and industry groups told The Business Times.

In his Budget speech on Friday (Feb 18), Finance Minister Lawrence Wong said that the government is raising the minimum qualifying salaries for Employment Pass (EP) and S Pass holders from Sep 1, with each category seeing an increase of at least S$500.

This will bring the minimum salary for EP holders to S$5,000 and that for S Pass ones to S$3,000. The minimum for workers in the financial services sectors is S$500 higher in both categories.

Hsien-Hsien Lei, chief executive of The American Chamber of Commerce in Singapore (AmCham), told BT the new S Pass requirements can be "a bit difficult" for multinational companies (MNCs) with departments here that focus more on back-office support and functions such as customer servicing.

Asked if such roles may eventually be moved to other regional countries, Dr Lei said that this is a risk Singapore faces, adding: "For the lower-skilled, lower-wage workers, it can be hard to be competitive with other markets."

In addition, consulting services such as strategic advisory or public relations are relatively easy to relocate too, she added.

She gave an example of one of AmCham's member companies, a small and medium enterprise (SME), that was looking to hire a specialist that spoke Thai and bring the person to Singapore, where the regional office is. But it might be easier to keep the employee in Thailand, if it turns out that the qualifying salary for that person's role in Thailand is lower.

"That mobility when it comes to looking at talent could be impacted for those who are at the PME (professional, managers and executive) level because they're not senior enough where they could be servicing more of your businesses," she said.

Having said that, the raised salary requirement is unlikely to affect MNCs that are in the market for highly-skilled workers that are in high demand, particularly in the area of technology.

"Those really don't impact the MNCs very much because they're already paying well above the qualifying salary," said Dr Lei, adding that such companies are usually looking to bring critical talent in to fill certain gaps.

The impact will instead be more keenly felt by SMEs, particularly since a letter of consent is no longer sufficient for foreigners on Dependent Passes to work here.

"The reason they could hire these individuals was because there was not the same criteria and now having to convert them into an EP, it makes it a lot more challenging for SMEs," she said.

Yu Liuqing, Asia country analyst at the Economic Intelligence Unit, said the measures could also further accentuate the manpower shortage seen in many sectors, adding: "This risks barring some companies (from) placing junior professionals in Singapore."

Tech industry association SGTech's honorary treasurer Ivan Chang is concerned there may be some form of wage inflation, noting that wages have "ballooned" for roles that require tech skills.

"We fear that shrinking the available pool of talent from overseas will see wage cost inflation spiral for such jobs, especially since there is low availability of local talent with such skillsets," said Chang, adding that this could lead to a higher cost environment.

Though labour policy is only one aspect of Singapore's overall value proposition, the change could still hurt the Republic's overall attractiveness, said business groups.

When considering where to locate their regional hub, MNCs typically review a number of issues such as availability of skilled labour, labour costs, infrastructure, connectivity, and the financial system, said Chris Humphrey, executive director of the EU-Asean Business Council.

"In that respect there are many positives still for Singapore, but if firms find it increasingly difficult or expensive to bring in foreign talent, especially when local skilled talent is scarce or too transient, that will have an impact on Singapore's attractiveness," Humphrey said.

Victor Mills, chief executive of the Singapore International Chamber of Commerce, offered a similar view, adding that investment decisions are based on a range of factors not limited to cost. This includes quality of life, access to finance and other markets, personal security and enforcement of contracts.

"Singapore scores highly on all these factors. We remain an attractive location but need to improve our welcome to talent and increase our efforts to integrate local and foreign talent," he said, acknowledging that the increases in levies and salaries are expected to "keep pace with Singaporean salaries".

The business chambers said they are also looking forward to the Ministry of Manpower's upcoming Committee of Supply debate for possible updates to the EP process. Last October, a PME taskforce comprising representatives from the unions called for measures to enhance workplace fairness, with one suggestion being a point-based system that also considers non-salary factors for the approval of EPs.

Such transparency would make Singapore more attractive as an international business hub, said Dr Lei.

"Especially with a pandemic, there's so much disruption that what the government is trying to do to increase transparency, to be clear on what the different factors that go into work pass approvals are, is going to make it easier for businesses to do their business planning and anticipate their manpower needs," she said.

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READ MORE:

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