The $1,400 local qualifying salary is one highlight from Prime Minister Lee’s National Day Rally 2021 speech that caught public attention. Many netizens jumped on board to laud this change as a new minimum wage for Singapore workers. From a relatively obscure technical term that was used by Ministry of Manpower (MOM) and HR departments, the Local Qualifying Salary is now in mainstream attention after PM Lee’s mention.
Read Also: National Day Rally 2021: 5 Key Announcements That Will Affect Singapore Workers Financially
What Is The Local Qualifying Salary (LQS)?
The Local Qualifying Salary (LQS) is not a new wage number but has been in place for years. It is a wage threshold that was set by MOM to determine whether a local employee can be counted towards the company’s entitlement for foreign worker quota.
This was previously known as the Full-Time Equivalent (FTE) salary. The salary threshold for which workers are considered FTE was raised from $1,000 to $1,100 in 2017 and from $1,100 to $1,200 in 2018. In 2019, the LQS was raised from $1,200 to $1,300 as part of the 2019 Committee of Supply (COS) announcements. More recently, the LQS was adjusted again in June 2020 as part of COS 2020.
Local Qualifying Salary Is Used To Determine A Company’s Foreign Worker Quota
By setting a LQS, the intention is that companies would hire local workers meaningfully instead of just hiring locals on a token salary to gain access to more foreign workers. After all, a LQS of $1,400 is a wage expense that should be taken seriously by companies.
A Singapore Citizen or Permanent Resident employee employed under a contract of service, including the company’s director, is counted as:
- 1 local employee if they earn the LQS of at least $1,400 per month.
- 0.5 local employee if they earn half the LQS of at least $700 to below $1,400 per month.
- Business owners of sole proprietorships or partnerships and employees who receive CPF contributions from three or more employers are not counted as local employees when calculating the quota
With effect from 1 September 2022, all companies who hire foreign workers will be required to pay all their local employees at least the local qualifying salary (LQS, currently set at $1,400).
Read Also: Foreign Worker Quota In Singapore: What Is It And How To Calculate It For Your Business
Local Qualifying Salary Is Not Currently Relevant To Companies Who Hire Only Employment Pass Holders Or Only Local Workers
The LQS currently only applies when the company hires foreign workers who are restricted by the foreign worker quota, namely Work Permit (WP) and S Pass holders.
Under Singapore’s current foreign manpower policies, there is no quota on Employment Pass (EP) holders. A company may hire as many foreigners under EP as they want, subject to wage, qualifications and Fair Consideration Framework (FCF) requirements.
Do note that under FCF, companies must ensure that the job search is conducted fairly and only hire foreigners if the job cannot be filled by a local. It does not mean that companies can hire foreigners willy-nilly under EPs.
As there are no quota restrictions on EPs, it is possible for companies that hire only EPs to continue to hire local workers and pay them below the LQS. However, given the expansion of the LQS’s role to improve wages, it is likely that the September 2022 implementation of LQS will include companies that only employ foreign workers at the EP level into the group of companies required to pay LQS to all their local employees.
Companies that only hire local workers are also not restricted by the foreign worker quota. Thus, these companies can continue to hire and pay workers less than the LQS. An estimated 6% of lower wage workers fall into this category with most of them employed in minimart and heartland shops.
Read Also: Understanding TAFEP’s Guidelines On Fair Employment Practices & Fair Consideration Framework (FCF)
Local Qualifying Salary Is Not Pegged To A Wage Benchmark
When the LQS was set by MOM in 2017 to be $1,000, it was not set with a specific wage benchmark. In fact, then-Minister of State for Manpower, Mr Sam Tan said that the 10th percentile income was already $1,200 in 2013 and $1,300 in 2015. This meant that the LQS was actually lower than what the lowest 10% of workers were earning then.
According to Singapore Yearbook Of Manpower Statistics 2021: Income, Wages And Earnings Table(s), the 20th percentile income in 2020 was $2,033. Unfortunately, the 10th percentile income data was not published in the report. It is likely that the current LQS of $1,400 is lower than the current 10th percentile income.
For reference on who are considered lower wage workers, we can look at other government schemes. The current household income cut-off for ComCare Long Term Assistance is $1,900 while the gross monthly income cut-off for Workfare Income Supplement Scheme is $2,300.
Read Also: Guide To Workfare Income Supplement Scheme And How Much Those Who Are Eligible Will Receive
Local Qualifying Salary May Not Achieve Its Intended Effect In Certain Scenarios
Not only is the LQS not determined by a meaningful wage benchmark, it actually only affects companies who hire a mix of local workers and foreign workers. The new changes may affect whether the company wants to maximise their current foreign worker quota or reduce the number of their local workers.
Instead of increasing the wages of locals to the LQS, it may actually reduce local employment in some instances.
For example, an eatery has 7 local employees who are paid above the LQS of $1,400. This means that they have a quota of 3 foreign workers (based on the current services sector’s quota of 35%). Currently, they only hire 1 WP holder as a dishwasher and overall cleaner. They also are hiring 2 local workers who are paid less than the LQS who do light cleaning and table service.
Under the new requirement, if they want to hire a new foreign worker (i.e. their existing foreign worker leaves or his work permit expires), they would have to increase the pay of the 2 local workers to at least the LQS of $1,400, in order to hire their WP holder or they can restructure their work to do without the 2 local workers who earn less than LQS.
In certain scenarios, it is possible that companies who are not maximising their foreign worker quota may choose to do so in the future instead of filling the job with local workers who are willing to accept less than LQS. Admittedly, these scenarios may be few and far between.
Part of the accepted Tripartite recommendations is to allow for the conversion of the LQS to fair hourly rates for those working part-time or overtime. In the above fictional eatery scenario, the company may also choose to convert their 2 local workers earning less than LQS to a part-time arrangement that pay an LQS-equivalent wage.
Local Qualifying Salary Is Not A Minimum Wage But Is A Step Towards Improved Wages
While the LQS has an effect on wages, it does not actually raise the wages across all sectors and industries as a whole as a minimum wage would.
According to the Tripartite Workgroup on Lower Wage Workers’ report, the rising of the LQS is expected to affect 35% of lower wage workers. 47% of lower wage workers are expected to benefit from the existing and expanded Progressive Wage Model (PWM). Together, this two-pronged approach is expected to benefit about 80% of lower wage workers. The remaining almost 20% is expected to benefit from the introduction of the Progressive Wage Mark accreditation as well as surrounding market forces as most of the market moves towards improved wages.
Instead, we can see LQS as a step towards better wages. In a way, it makes explicit what has been an implicit wage threshold hidden under the guise of Singapore’s foreign manpower policies.
Listen to our podcast, where we have in-depth discussions on finance topics that matter to you.