Will raising EP salary thresholds lead to better outcomes for local PMETs?
THE salary threshold for the Employment Pass (EP), which will go up to S$5,600 from Jan 1, 2025, has been rising at a much faster clip in the last four years than in the decade pre-pandemic.
Back then, increments were a relatively modest S$300 that took effect about once every three years or so. In 2020, however, moves to tighten foreign manpower rules turned a shade more aggressive at the height of the Covid-19 pandemic. The minimum qualifying monthly salary was first raised to S$3,900 in May, from S$3,600, followed by another round to S$4,500 in September. A new higher threshold was also created for the finance sector in December the same year. By September 2022, the general qualifying salary had gone up to S$5,000.
Perhaps it is unsurprising that salary thresholds have gone up more steeply in recent years, given the rise in nominal wages and elevated inflation. Even so, it’s refreshing to hear that businesses are sanguine about the cost impact of the higher threshold this time around. Industry watchers told The Business Times that it is likely companies are already paying their EP holders “market rate” and at levels that exceed even the new threshold, whereas most small and medium enterprises (SME) have likely already been priced out of the EP market anyway.
These responses suggest the government may have been successful at weaning companies off their reliance on “lower-tier” foreign professionals. After all, such has been the argument of the Ministry of Manpower on why it has favoured a salary floor over a quota on EPs. Former manpower minister Josephine Teo in 2020 explained that the former would push EP holders at the lower end down to the S Pass level, where they are subject to a quota.
Yet, after two successive rounds of tightening in 2020 and pandemic-related departures, EP numbers in fact went up by end-2022 despite a further round of tightening that year. As at December 2023, there were 205,400 EP holders – more than pre-Covid levels.
To be sure, the objective of foreign manpower tightening is not necessarily to reduce their intake, but to improve the quality of those approved to come here. Since September last year, EP applicants have also had to pass the points-based Complementary Assessment Framework (Compass) before they can be considered eligible.
Still, for companies that currently hire EP holders at a salary hovering close to the threshold, the higher limit presents a dilemma of whether they should simply raise these foreign employees’ pay or let them go. Multinationals with the resources and means may opt, particularly for valued key staff, to boost their pay and retain them, but doing so could result in issues such as wage inflation, not least if there are no concomitant gains in productivity. And if employers raise the salary of EP holders without at the same time reviewing the pay of local employees, they may potentially violate the tripartite guidelines for fair employment practices.
The question is whether raising the EP salary threshold would end up being an exercise that increases business costs. What would be helpful, perhaps, is clearer data that the higher thresholds have also led to better hiring outcomes as well for local professionals, managers, executives and technicians.
