Singapore reduces foreign worker quota in services sector

29 May 2019

Singapore announced in its 2019 budget that it will lower the percentage of foreign workers allowed in the services sector. Authorities are looking to reduce Singapore’s dependence on foreign labour. In his budget speech, Finance Minister Heng Swee Keat explained that, “relying on more and more foreign workers is not the long-term solution.” Mr. Heng did acknowledge that Singapore needs “a sustainable inflow of foreign workers to complement our workforce.”  

It’s important to note that these changes will only affect S Pass and Work Permit holders in the services sector. The foreign worker ratio for sectors such as construction and manufacturing will remain unchanged until further notice.

Additionally, there will be no changes for workers who hold Employment Passes, regardless of sector. Employment Pass workers are higher-level professionals who earn a fixed monthly salary of at least $3,600, whereas S Pass workers are classified as mid-level skilled staff who earn at least $2,300 per month.

Key changes explained

The government plans to tighten the foreign workforce quota by reducing the Dependency Ratio Ceiling (DRC) and the S Pass Sub-DRC. The DRC refers to the maximum ratio of foreign workers to the total workforce that a company is permitted to employ. The details of the changes are as follows:

  1. Dependency Ratio Ceiling: Beginning January 1, 2020, the DRC for the services sector will be reduced to 38 percent (from its current 40 percent) and further reduced to 35 percent on January 1, 2021.
  2. S Pass Sub-DRC: Beginning January 1, 2020, the S Pass Sub-DRC quota will be reduced from to 13 percent (from its current 15 percent) and to 10 percent on January 1, 2021.

One of the primary reasons for this change is the rapid growth of S Pass and Work Permit holders within the services sector. Rising at a rate of roughly 3 percent per year, S Pass growth in 2018 was the highest it’s been in five years — a trend that the government believes is unsustainable.

Significance of the changes for employers

Once these policy changes go into effect, employers will not be able to renew S Passes or Work Permits for foreign workers if they have exceeded the newly revised limits. However, in the event the number of S Pass or Work Permit holders does exceed the newly allotted limit, companies will be able to retain the foreign employees until their permits expire.

Because affected firms may need to begin hiring more local manpower, they may need to invest in the retraining of employees while simultaneously working to revamp processes and redesign jobs.

To help firms adjust to the new policies, the Government has decided extend and enhance several support programs, including the Enterprise Development Grant (EDG) and the Productivity Solutions Grant (PSG), among others. Both the EDG and PSG will be extended through March 31, 2023, and will continue to provide enterprises with up to 70 percent government funding.

Will this change affect your business?

Because these changes only affect the services sector, it’s important to know whether or not your company falls under this umbrella. A company is considered part of the services sector if it has registered any of the following as its principle business activity:

  • Finance, insurance, real estate and business services
  • Transport, storage, and communications services
  • Commerce (retail and wholesale trade)
  • Community, social and personal services (excluding domestic workers)
  • Hotels, restaurants, coffee shops, food courts and other approved food establishments (excluding food stalls or hawker stalls)

It is likely that the government will continue to tighten the foreign worker ratio in other sectors in the coming years. The last reduction took place in 2013, and was due in large part to a public outcry over immigration as the cause for overcrowding and high living costs.

Employers should also note that Singapore authorities are not simply focused on lower-level positions in the service industry. One Singapore lawmaker suggested after the budget speech that “the S Pass system be structured such that companies that have more local workers at mid- to high-wage levels and are able to demonstrate a high value contribution to the economy be given more S Passes.”

As the primary reason for the workforce-quota adjustment is to promote “good jobs and opportunities” for Singaporeans, the government may in the future also adjust quotas for higher-level workers who hold Employment Passes.