Following the Compass for a stronger workforce

WITH a new points-based framework for assessing Employment Pass applications slated for next year, Singapore is shaking up its post-pandemic labour landscape.

It is not just the markets have been a tumblin’ lately; the number of foreign workers – those not holding Singapore citizenship or permanent residency – has also been on the decline. According to Ministry of Manpower (MOM) figures, more than 210,000 of them left during the pandemic. Making up about 31 per cent of the total workforce in 2019, the percentage of foreign workers in Singapore now stands at around 26 per cent.

Many could not return to Singapore, due to Covid-19 containment measures and an emphasis on protecting the “Singaporean core” in the face of a depressed job market. The government also hiked up the work pass qualifying criteria in 2020, raising the minimum qualifying salary for Employment Passes (EPs) from S$3,600 to S$4,500.

Foreigners need to hold a work pass in order to live and work in Singapore: the EP for professionals, managers, executives and technicians (PMETs) – or the S Pass for mid-skilled technical employees and Work Permits for semi-skilled migrant workers, the latter two not being the focus of this article. The number of EP holders have been dwindling since 2019, falling by around 17 per cent.

Despite the bold steps taken to reopen Singapore’s borders, the work pass criteria are set to tighten even further. From this September, PMETs must be paid at least S$5,000 per month in order to obtain an EP; in other words, they must earn more than the average Singaporean (S$4,680 as at 2021).

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Then, from next September, EP applications will also be measured against the MOM’s fresh “Compass” (short for Complementarity Assessment) Framework, a new points-based system that in addition to considering the traditional trifecta of individual skills, salary and qualifications, now also expressly considers firm strategic economic priorities, diversity, and support for local employment. The last two in particular were never previously express factors for consideration.

The upcoming revisions essentially make it harder for employers to hire foreigners here. But is that necessarily a bad thing?

Tracing the trendlines

While EP minimum qualifying salaries trailed local average gross monthly income between 2010 to 2019 by up to S$1,000 according to government statistics, 2020 marked a pivotal turning point. The gap closed significantly, with the new minimum qualifying salary for EPs for most sectors effectively the same as the local average gross monthly income, and with the new minimum qualifying salary for EPs in the financial services sector in fact exceeding average local salaries by some S$500. The disparity will grow wider in September this year, with most EP holders having to earn at least S$300 more than the local average gross monthly income in 2021, while EP holders in the financial services sector will have to earn at least S$800 more.

What this means is that companies are no longer saving costs by choosing to hire EP holders over locals, addressing a perennial bugbear among Singaporeans that their salaries are being depressed due to cheaper foreign labour.

The S$5,000 threshold for EPs in all sectors apart from financial services is also important: the new minimum salary requirement will not affect very specialised or experienced executives drawing higher five-figure salaries, whose skillsets may not be so readily available locally. Instead, it will reduce the inflow of those willing to undercut Singaporean salaries, typically in back-office roles. These are exactly the kind of jobs that fresh graduates and educated middle-class Singaporeans can easily fill.

The tightening of the minimum qualifying salaries is proving to be the centrepiece of a longer term employment strategy. On top of an increased “floor” EP qualifying salary, the September 2022 changes will also expressly benchmark EP qualifying salaries to those drawn by the top 33 per cent of the local PMET workforce. Importantly, more experienced PMETs, such as those in their 40s, will need to be offered at least double the minimum qualifying salaries – so at least S$10,000 for most, and S$11,000 for those in the financial services sector.

The September 2023 Compass points-based system is a progressive and robust tool, providing important transparency to what has long been criticised as an opaque process, and hopefully adding much-needed predictability for firms planning to hire. It assesses not only the individual but the hiring company as well, benchmarked against the wider industry. Existing factors like the individuals’ salary and qualifications will continue to be considered, but niche skills can garner bonus points under the framework.

The game changer though is really the new assessment criteria for the firm. From September next year, firms will also be assessed based on their employee diversity and their support for locals, with bonus points being earned if the business is one of strategic economic priority for Singapore.

Why these changes are necessary

Will the trend brand Singapore as protectionist, giving multinationals pause or even making them take their businesses to more relaxed jurisdictions?

It is useful at this point to look at the bigger picture and consider how Singapore compares to the rest of the region. Singapore remains just a little red dot in South-east Asia, but it has become a decided economic powerhouse over the years. In addition to traditional areas like energy and financial services, technology has been a driver, and companies with large presences here include Chinese tech giants like Bytedance and Tencent alongside American big tech like Amazon, Google and Meta. Even rapidly growing fast-fashion giant Shein will soon be setting up shop in the Lion City.

But with much larger neighbours like Vietnam, Thailand and Indonesia hot on its heels, Singapore needs to stay relevant in the years to come. Among other things, Singapore has smartly chosen to focus its efforts on providing advanced and robust infrastructure, piling on strength to its rule of law, and maintaining a workforce that can compete on the world stage.

Notably, not only is it attracting businesses, it is also starting to develop its own homegrown, high-flying companies. In 2021, it produced most of the start-up unicorns in the region – 15 out of 35 in Asean, according to a Credit Suisse report, including household names like Carousell, Ninja Van and Lazada.

Further tightening its foreign manpower policies falls neatly in line with this objective. Foreign firms are expected to look to the locals as their first port of call, creating jobs for them and training them up in the process. Expats who must soon be paid better than the average local and who must also possess have better skills will, in the process of working with the locals, transfer important skills and experience to them.

The underlying message is this: that the world is still welcome to do business here, but more than just increasing their own profit margins, foreign businesses and talent also need to help strengthen and upskill the local workforce.

An upgrade to navigate the future

It so happens that 2022 could be the best time for Singapore to implement such strategic changes. With zero-Covid policies adopted by its close competitor Hong Kong in addition to Sino-US tensions, large financial institutions like Credit Suisse, Citigroup and Wells Fargo have plans to invest more in Singapore and relocate bankers here. Closer neighbours still continue to see military coups, protests, and political unrest.

There have been teething issues though, and the increased difficulty involved in bringing expats into Singapore may have caused some multinationals to second guess their decisions to move their head offices from Hong Kong to Singapore. For now though, on the whole, the benefits of conducting business in Singapore still outweigh the detriments, with risks still present in other countries in the region.

If all this does work out, Singapore will have an even more formidable local workforce in years to come. Let’s hope Compass can point us towards that.

Ian Lim is head of employment and labour at TSMP Law Corp, and Nicholas Ngo is associate director at TSMP Law Corp