Budget 2024: Rise in local qualifying salary a ‘natural adjustment’ but smaller companies likely to be hard-hit, say observers

• The Local Qualifying Salary will rise from S$1,400 to S$1,600 for full-time local employees
• For part-time local employees, the LQS will go up from S$9 per hour to S$10.50 per hour
• The government will increase its co-funding share under the Progressive Wage Credit Scheme to a maximum of 50 per cent

WHILE the government’s move to raise the local qualifying salary (LQS) for companies here is a “natural adjustment”, smaller businesses struggling to hire workers will be hard-hit by the increase, say industry observers.

Finance Minister Lawrence Wong announced in his Budget speech on Friday (Feb 16) that from this July, local employees who work at companies that hire foreign workers must be paid a minimum full-time wage of S$1,600, up 14 per cent from S$1,400, or a part-time hourly rate of S$10.50, up from S$9.

The government will also increase its co-funding level under the Progressive Wage Credit Scheme (PWCS) for this year from a maximum of 30 per cent to a maximum of 50 per cent.

Under the scheme, the government will co-fund the wage increases of local lower-wage workers. The wage ceiling under the PWCS will also go up from S$2,500 to S$3,000 in 2025.

Song Seng Wun, an economic adviser at financial services firm CGS International, said that the rise in LQS was a “natural adjustment” in tandem with the increase in salaries in Singapore.

He added that smaller companies will be harder hit as they find it more challenging to find local workers, but that the increase in government co-funding under the PWCS will help to “lessen the pain” for this group of businesses.

Kurt Wee, chairman of the small and medium-sized enterprises (SME) committee at the Singapore Business Federation, said that the rise in LQS will also have a heavier impact on companies that hire more blue-collar employees.

He said that the 14 per cent raise was “quite substantial”, and expects such companies to raise their product or service prices to comply with the increase in LQS.

Lee Swee Siong, vice-president of strategies and development at the Association of Small and Medium Enterprises, felt that while some companies, such as those in the services sector, could reduce their reliance on foreign workers by “off-shoring” some of their work, others would find it challenging to do so.

However, Dr Kevin Seah, senior economics lecturer at the National University of Singapore, felt that the increase in LQS would be beneficial for companies in the long run.

Given that the LQS affects the number of foreign workers a company can employ, the move might prompt companies to invest in automation and reduce their reliance on foreign workers, he said.

Agreeing, Sam Liew, the president of the Singapore Computer Society, said that while the rise in LQS would “absolutely increase business cost”, it could also increase productivity.

He added the move could push employees to take on higher-value tasks, and create opportunities for employers to redefine job roles for both local and foreign talent.

For more of BT’s Budget 2024 coverage, go to bt.sg/budget24.