How do you ensure you have enough Singaporean employees to hire the foreign staff you need?
Once you incorporate a Singapore company, hiring employees is one of the most important milestones that require well-calculated decisions. While many employees nowadays are aware of their rights and related stipulations in the Singapore Employment Act, employers should be equally aware of all regulations while hiring employees.
The employment of foreign workers in Singapore is closely regulated by the Ministry of Manpower (MOM). Since one of the biggest problems businesses face is manpower shortage, it has become necessary to hire foreign workers. However, it is increasingly difficult to do so because of stricter quotas in Singapore.
What is Foreign Worker Quota?
Foreign Worker Quotas and levies are applied to all Work Permit (WP) and S Pass holders to encourage employers to hire local employees and explore manpower-lean solutions. If you employ Work Permit holders you may be limited by a quota for your industry. You will also have to pay a monthly levy for each worker.
Also known as a Dependency Ratio Ceiling (DRC), quota refers to the maximum ratio of foreign workers to the total workforce that a company in a given sector can employ. The number of WP and S Pass holders a company can hire is limited by a quota and subject to levy.
The Foreign Worker Levy (FWL) is a form of checks and balances, compelling employers to give priority to the skills, qualifications and experience of their potential employees at the time of recruitment. Therefore, this means that the more WP and S Pass holders you have, the higher your levy rate.
The levy you pay generally depends on two factors:
- The worker’s qualifications.
- The number of Work Permit or S Pass holders hired.
The levy rates vary across sectors and are tiered. The sectors include:
- Marine Shipyard
Declaration of Business Activity
As an employer, you are obliged to declare the business activity carried out by your company to MOM. You can easily do this by submitting an online application or presenting a hard copy of the same to their offices. Processing of business declaration online is faster, as the processing time usually takes about two working days while hardcopy declarations take up to seven working days.
It is important to note that once you decide to declare your business activity, your company must already have an existing CPF account credited with at least one month’s contribution for your local employees. After a thorough review of your application and the declared activities carried out by your company, MOM will assign you the most relevant industry.
Furthermore, for each business activity, you must have a separate CPF account to expedite the computation of foreign worker quota for your company in relation to the number of local workers employed in that activity. This also looks into the dependency ratio set for the industry to which the activity belongs.
Calculation of Foreign Worker Quota
The Ministry of Manpower (MOM) determines the foreign worker quota for an employer with reference to the CPF account of the company. Employers can use the quota calculator to plan the number of Work Permit and S Pass holders that the company can employ based on their sector and workforce. The contribution made by the employer indicates the local workforce employed in the business activity.
One headcount for local workforce is determined by counting each local staff who works full-time for each calendar month. When it comes to part-time local workers, two headcounts constitute one local Full-Time Employee (FTE). This criteria of counting the local workforce is irrespective of whether they are Singapore Citizens or Permanent Residents.
With the aim of ensuring nondiscriminatory calculations and to account for minor deviations, a 3-month contribution will be taken into account after excluding the current and preceding month.
The maximum number of foreign workers (based on the DRC quota) will be derived after determining the total local manpower using the formula:
Maximum number of foreign workers = (DRC % x local manpower) / (100% – DRC %)
Note: Maximum no. of foreign workers includes both S pass holders and work permit holders.
Proposed Rates for Foreign Worker Quota Calculation
During Budget 2019, the Singapore Ministry of Manpower (MOM) announced planned changes to the foreign worker quota rules, which may make it harder for companies to employ foreign workers. A number of measures, including reducing the foreign worker quota for the services sector, will be introduced to ensure Singaporeans continue to have good jobs and opportunities.
Increase in Local Qualifying Salary
Effective 1 July 2019, the monthly Local Qualifying Salary (LQS) will increase by SGD$100, for companies in all sectors. Therefore, a Singapore citizen or a Permanent Resident employee employed under a contract of service, including the company’s director, is counted as:
- 1 local employee if they earn a monthly LQS of at least SGD 1300.
- 0.5 local employees if they earn half the monthly LQS ranging from SGD$650 to SGD$1300.
The Local Qualifying Salary (LQS) determines the number of local employees who can be used to calculate a company’s Work Permit and S Pass quota entitlement. The LQS was previously known as the Full-Time Equivalent salary.
Decrease in Dependency Ratio Ceiling
Effective 1 January 2020, the Singapore Government will lower the Dependency Ratio Ceiling (DRC) and S Pass Sub-DRC for companies in the services sector, which is the percentage of Work Permit and S Pass holders that a company can hire.
- The services DRC for WP holders will decrease from 40% to 38% as at 1 January 2020 and to 35% as at 1 January 2021.
- The services sub-DRC for S Pass holders will decrease from 15% to 13% from 1 January 2020 and to 10% as at 1 January 2021.
Due to the above changes, the impact is that from 1 July 2019, companies in all sectors seeking to hire foreign workers with the S Pass and Work Permits may have to raise the salaries of affected local employees to allow more foreign national workers.
How Can We Help?
As an employer, should you require any further clarification with regard to the above updates, please do not hesitate to contact one of our advisors at Tianlong Services. Our reliable guidance and high success rate can help you know more about this service or many others deemed necessary.