Work Permit levy hikes in 2028 could drive SMEs to automate, upskill workers: industry players

[SINGAPORE] The upcoming increases in Work Permit levies could prompt Singapore’s small and medium-sized enterprises (SMEs) to invest more in automation and artificial intelligence (AI), industry players told The Business Times.

The changes may also encourage SMEs to send foreign workers for training so they can qualify for higher-skilled tiers that attract lower levies, they added.

In Budget 2026, the government announced that foreign worker levy rates for certain Work Permit holders would be raised, and the levy framework simplified in some sectors, with the changes set to take effect in 2028.

In the marine shipyard sector, the monthly levy for basic-skilled Work Permit holders will go up by S$100 to S$600, and that for higher-skilled workers will stay at S$350.

In the process sector, the levy for basic-skilled workers from Malaysia, North Asian sources such as South Korea and Taiwan, and China will rise by S$150 to S$600. For workers from non-traditional sources such as Bangladesh, India and the Philippines, the levy will similarly increase by S$150 to S$800.

Levies for higher-skilled workers in the sector will remain unchanged at S$200 and S$300, respectively.

Changes to levies will also be made to two other sectors – services and manufacturing – through adjustments to how companies are charged based on the number of foreign workers they employ.

Currently, levy rates are determined by firms’ dependency ratio utilisation – the share of Work Permit holders in their workforce – with companies paying different levies across three tiers, depending on their reliance on foreign workers.

Under the revised framework, the first two tiers will be merged. In the services sector, the merged tier levy will be S$400 for higher-skilled workers and S$600 for basic-skilled workers. In manufacturing, the respective levies will be S$300 and S$470.

Streamlining the Work Permit levy framework will make it easier for businesses to understand and plan how they hire, train and retain Work Permit holders, said Manpower Minister Tan See Leng in Parliament earlier in March, during his ministry’s Committee of Supply debate.

Meanwhile, retaining existing levy rates for the highest tier – firms with the largest share of Work Permit holders in their workforce – is meant to spur these companies to work with the government to redesign, improve and transform their work processes to achieve higher productivity, Dr Tan added.

Business response

For SMEs, the levy increases are likely to have a greater impact than other manpower-related changes announced in Budget 2026, including adjustments to Employment Pass (EP) and S Pass salary requirements.

Juliet Tan, founder of HR consultancy Emplifi, said: “You can’t compare them with EP increases because those roles are not even within the realm of thinking for most SMEs.”

She noted that SMEs tend to hire more Work Permit holders than EP or S Pass holders, who command higher salaries.

Based on simulations she conducted for her clients in the services sector – who collectively employ about 500 Work Permit holders – the levy changes could lead to a 5 to 8 per cent increase in total levies paid when they take effect in 2028.

This translates to roughly a 3 per cent increase in overall manpower costs, she estimated.

However, the exact impact will vary depending on each firm’s reliance on Work Permit holders, in that companies with more such workers would face larger increases.

Tan said SMEs still have time to adjust before the changes kick in.

Possible measures include investing in automation to reduce foreign manpower needs, sending lower-skilled foreign workers for training so they qualify for the higher-skilled tier, and offshoring certain roles to neighbouring countries with lower labour costs, such as Malaysia.

One company considering all three strategies is RMS Marine & Offshore Service, which employs a “sizeable number of” Work Permit holders.

Ahead of the levy increase in 2028, the marine-service provider plans to automate parts of its warehouse operations to reduce manpower needs. It is also looking to send workers for training so they qualify for the higher-skilled levy tier, said managing director Seow Zhiyuan.

“When we talk about automation, it comes with higher capital expenditure,” he said. “But theoretically, over the longer term, operating costs should be lower, and we also expect improvements in quality control.”

The firm is also studying the possibility of moving some logistics operations to warehouses in the Johor-Singapore Special Economic Zone, which would allow it to “scale the business without linearly increasing Work Permit holders in Singapore”, he added.

Yet, automation is not feasible for all businesses.

Bernard Chan, executive director of freight forwarder Penanshin Air Express, which is part of the Penanshin Group, said automating warehouse functions such as putting goods on racks “doesn’t make sense” for the company, as cargo typically moves through its facilities very quickly.

Across the group, about 40 per cent of Penanshin’s 200 employees are foreign workers, most of whom are Work Permit holders.

Instead, Chan said the firm is exploring ways to tap AI grants announced in the latest Budget to improve productivity in office-based roles, and reduce reliance on foreign manpower.

However, hiring Singaporeans for jobs now done by Work Permit holders – such as the driving of lorries or containers – remains difficult, he said.

“I mean, Singaporeans would rather drive Grab, right?” he added. “They probably make more money doing that and have more free time, too.”

Meanwhile, some SMEs are seeking clarity on the rationale for the increase, said Ang Yuit, president of the Association of Small and Medium Enterprises.

“Overall, it’s a good thing that the levy increases are being signalled early, but businesses are asking whether there is a need for this portion of the manpower cost increase when it does not translate into higher local wages,” he said.

“For Work Permit holders, maybe 90 per cent of what you see out there are jobs that locals are not going to fill, so the levy increase is just raising the cost of doing business, with no real translation into other aspects – that’s the feeling on the ground,” he added.