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Guide to Calculate Foreign Worker Quota in Singapore – Business Owner Must Know
The service sector foreign workforce in Singapore will face a cut in quota over the next two years. In the move to manage the manpower growth in service sector and encourage employers to deploy human resources efficiently, the Singaporean government will tighten the service sector’s foreign workforce quota by reducing the Dependency Ratio Ceiling (DRC) and S Pass sub-DRC in two steps starting 2020 (note: DRC refers to the maximum permitted ratio of foreign workers to the total workforce that a company is permitted to employ).
In the recent announcement of budget statement, Finance Minister highlighted that the DRC for the services sector will see a 2% cut, from 40% to 38% on Jan 1, 2020, and will be further reduced to 35% on Jan 1, 2021. The share of S Pass holders that companies in the services sector can employ foreigners will also see a 2% cut, from 15% to 13% on Jan 1, 2020, and then reduce to 10% on Jan 1, 2021. Meanwhile, the DRC and the S Pass quota system remain unchanged for all other sectors.
What Does the New Quota Reduction Mean for Businesses?
Before the recently announced foreign worker quota cut, the dependency ratio ceiling once stood at 45% in 2013. In other words, a company/business with 20 full-time locals (be it Singapore citizens or Singapore permanent residents) could hire up to 16 foreigners. The reduction in ratio means that for the same 20 locals, the number of foreigners has to be cut.
The newly announced threshold in foreign manpower surprises many employers in the service sector as many of them rely on foreign workers to run their businesses. The stricter rules of foreign worker policy will cause a hike in labour costs to service sector that consists of wholesale and retail trade, information and communications, and accommodation and food services. The Finance Minister mentioned that the tightened policy encourage firms to revise and improve their work processes, to make over existing jobs and upskill their staff. For companies whose existing workers have exceeded the new thresholds, the DRC will apply as and when these companies apply for permit renewals.
Calculation of Foreign Worker Quota
a. Calculation of Local Employees to Calculate Work Permit and S Pass quota
One of the determining criteria is the Local Qualifying Salary (LQS). The local employee in your company must earn the LQS of at least $1,200 before he or she can be counted towards your quota entitlement.
A Singaporean Citizen or Permanent Resident employee hired under a contract of service (including the company’s director) is counted as:
- 1 local employee if their LQS is at least $1,200 per month.
- 0.5 local employee if their LQS is at least $600 to below $1,200 per month.
Please note that from 1 July 2019 onwards, a Singaporean Citizen or Permanent Resident employee hired under a contract of service (including the company’s director) is counted as:
- 1 local employee if their LQS is at least $1,300 per month.
- 0.5 local employee if their LQS is at least $650 to below $1,300 per month.
b. Calculation of Foreign Worker Quota
The foreign worker quota for a company is determined based on the CPF account of the company. The employer’s CPF contribution will indicate the local workforce hired in the business activity. Every local staff (be it Singapore Citizen or Permanent Resident) working as full-time staff for a calendar month (or two part-time local workers) constitute one headcount ( note: one local Full-Time Employee FTE) for local workforce. In order to ensure fair computing and accounting for minor deviations, a three-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%)
Please note that the maximum number of foreign workers is inclusive of both S pass holders and work permit holders.
c. Quota Calculator
Employers can use the quota calculator to plan the numbers of Work Permit and S Pass holders the company can employ based on their sector and workforce.