Budget 2026: SMEs unlikely to face sharp cost increases from EP, S Pass salary hikes, but offshoring interest may grow

• Most SMEs unlikely to see major cost increases from higher EP and S Pass salary thresholds.
• However, some sectors may face more cost pressures, with some warning of price increases.
• The changes could spur more SMEs to offshore roles to manage manpower costs.

[SINGAPORE] Singapore’s small and medium-sized enterprises (SMEs) are unlikely to face steep cost increases from higher Employment Pass (EP) and S Pass qualifying salaries, though the changes could still prompt more firms to consider offshoring, industry observers said.

They were responding to announcements in Budget 2026 on Thursday (Feb 12), when Prime Minister and Finance Minister Lawrence Wong unveiled higher minimum qualifying salaries for EP and S Pass holders, along with adjustments to Work Permit levies.

From January 2027, new EP applicants outside the financial services sector will face a higher qualifying salary of S$6,000, up from S$5,600. For those in financial services, the minimum will rise from S$6,200 to S$6,600.

Qualifying salaries for EP renewals will also be raised, though these changes will apply a year later in 2028 to give businesses time to adjust, PM Wong said in Parliament.

For older EP holders outside financial services, qualifying salaries will increase progressively from age 23, reaching S$11,500 at age 45 and above, from S$10,700 currently. Those in financial services will see qualifying wages rise to as much as S$12,700 at age 45 and above, from up to S$11,800.

For S Pass holders, minimum qualifying salaries for new applicants outside financial services will be raised from S$3,300 to S$3,600 from January 2027. In financial services, the threshold will increase to S$4,000, from S$3,800.

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Qualifying salaries for older S Pass applicants will also be raised in tandem, with renewal applications similarly applying a year later in 2028.

For older S Pass holders outside financial services, qualifying salaries will rise progressively from age 23 to S$5,100 at age 45 and above, from S$4,800 currently. Those in financial services will see qualifying wages of up to S$5,650 at age 45 and above, unchanged from the current regime.

Cost pressures

In a statement issued after PM Wong’s Budget speech, the Singapore Manufacturing Federation (SMF) said it was “concerned that the increase in costs may affect our long-term competitiveness”.

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Almost three in five manufacturers cited manpower and talent development as their top challenge, while two-thirds are already grappling with wage inflation, SMF said, citing its latest internal survey.

Separately, the Restaurant Association of Singapore (RAS) said in a LinkedIn post that employers in the food and beverage sector “must brace themselves for a further step up in the cost of doing business”.

“We expect that many players will have to increase prices to absorb some of these costs in order to stay in business,” RAS said.

In the accounting sector, many firms – particularly smaller practices – “rely heavily” on foreign professionals due to a shortage of local candidates willing to enter or remain in the field, said Lee Eng Kian, a council member at the Institute of Singapore Chartered Accountants.

The higher qualifying salaries for EP holders could thus make it harder for these firms to sustain foreign hiring at current levels, “potentially leading to staffing challenges or increased wage pressures”, Lee said, advising that firms should also “actively evaluate” support measures introduced in the latest Budget.

For most SMEs, however, the increase in EP qualifying salaries is unlikely to have a significant impact, as smaller firms typically do not employ EP holders given their higher salary requirements, said Ernie Koh, president of the Singapore Retailers Association.

Where the cost pressures are more likely to be felt is among firms employing S Pass holders, which are more commonly hired by SMEs, Koh noted.

This is especially the case for roles that locals are less inclined to apply for, such as retail management and logistics positions, he added.

Even then, existing S Pass quotas – typically between 10 and 15 per cent of a firm’s total workforce – mean that many SMEs employ relatively few S Pass holders, limiting the overall cost impact, said Juliet Tan, founder of HR consultancy Emplifi.

The higher qualifying salaries could also lead employers to have “higher expectations” for prospective foreign hires, while renewal applicants – despite the changes only taking effect in two years – may face closer scrutiny, Tan added.

Impetus for offshoring

Industry observers said a key way for SMEs to adapt to higher foreign manpower costs is to offshore parts of their operations that can be performed overseas.

Ang Yuit, president of the Association of Small and Medium Enterprises, said businesses need to be pragmatic.

“The association’s advice to businesses is that you’ve got to make your business work, and if that means you have to increase your offshoring activities, you’ve got to do it,” he told The Business Times.

“If you think that offshoring is a good option and that it strengthens your business competitiveness, then adopt it, be brave and courageous, (so as to) adapt to the new changes,” he added.

As an illustration, Emplifi’s Tan noted that a graphic designer hired on an S Pass in Singapore could instead be engaged for about S$2,000 a month in Malaysia under an offshoring arrangement, compared with the current minimum qualifying salary of S$3,300, even before the latest increases take effect.

“To me, (the cost increases) are a long time coming, so I’ve already told my clients for years to offshore,” she said. “The same work can be done remotely.”

For more of BT’s Budget 2026 coverage, go to bt.sg/budget26