Singapore continues to stand out as an ideal gateway for companies expanding into Asia due to its stable regulatory environment, clarity in governance, and strategic location. However, new entrants frequently confront major hurdles such as:
- Rising operating costs — particularly those tied to manpower,
- Navigating employment passes and foreign worker regulations,
- Entity formation and practicalities of banking set up, and
- Structuring operations to optimise available tax incentives
Each of these factors influences how companies establish themselves in Singapore, but challenges around workforce and HR matters are often the most immediate and visible. From managing manpower costs to navigating evolving employment pass requirements, workforce strategy sits at the centre of many expansion decisions.
Labour or manpower costs often represent one of the largest operating cost expenses in any business. In many industries globally, payroll and associated benefits may consume 15% to 30% of gross revenue. In some U.S. benchmarks, labour costs are cited as absorbing up to 70% of total business expense. At the same time, employment passes are becoming harder to secure, with stricter salary thresholds, new evaluation frameworks, and closer scrutiny of employers.
Against this background, regulation administration of measures like the Foreign Worker Levy (FWL) and varying requirements for the Employment Pass (EP) are essential to workforce strategy and a decisive influence on recruitment decisions for foreign businesses moving to Singapore.
Understanding the Foreign Worker Levies in Singapore
The Foreign Worker Levy (FWL) in Singapore serves as a policy instrument aimed at governing the employment of non-resident laborers, thereby maintaining a balanced workforce that emphasises local talent while also meeting the requirements of sectors dependent on foreign workers. This levy is applicable to holders of Work Permits and S Passes, whereas holders of Employment Passes are excluded from its provisions.
Tiered Levy Structure and Dependency Ratio Ceiling (DRC)
The FWL functions through a tier structure of levies linked to the Dependency Ratio Ceiling (DRC). The DRC is the maximum level of foreign workers a firm is limited to employing relative to Singaporeans as stipulated by the government. Staying below the level of DRC means firms pay standard levy rates, but working above the level of DRC means payment of significantly higher charges. This offers a financial disincentive which balances workforce composition and ensures controlled foreign labor use.
Sector-Specific DRC Thresholds
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Construction
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83.3%
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Process
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83.3%
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Marine Shipyard
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77.8%
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Manufacturing
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60%
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Services
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35%
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Staying compliant with these thresholds is imperative for workforce planning, as exceeding them quickly increases costs.
Variation by Sector and Skill Level
Beyond the DRC, levy rates differ across sectors and skill levels. These costs, which typically range from a few hundred dollars per worker each month, directly influence hiring decisions and workforce mix. For instance, basic-skilled workers in sectors such as construction or services may attract levies of over SGD 600 per month, while higher-skilled workers are levied at lower rates.
Challenges in Managing FWL Compliance
Businesses expanding into Singapore often face challenges in managing Singapore’s Foreign Worker Levy due to the complexity of the process. The structure of the regulations includes tiered levy charges; dependency ratio ceilings (DRCs); and industry-based quotas, which quickly becomes burdensome for companies without dedicated compliance departments.
The financial risk for this is significant - by going over DRC thresholds or engaging a disproportionate share of basic-skilled workers, the company may bring about a drastic increase in monthly costs, thus reducing their margin of profit. Beyond these financial factors, companies also need a strategic take on workforce planning. Balancing foreign employment optimally against local recruitment often proves problematic, particularly for sectors with a local talent gap.
As an added challenge, the levy rates as well as the quotas get revised and updated periodically by government bodies, requiring companies to stay adaptable and active in monitoring change so as not to incur penalties or go over budget.
Navigating Employment Passes in Singapore
Beyond levy compliance, foreign entities also face growing hurdles in securing Employment Passes (EPs) for their skilled professionals. Singapore continues to welcome global talent, but the standards have risen considerably in recent years.
The Employment Pass (EP) is the primary work visa for foreign professionals, managers, and executives who want to work in Singapore. It allows companies to bring in skilled talent to support operations, but it is tightly regulated to balance foreign participation with local workforce development.
Applicants must meet criteria such as a minimum qualifying salary and acceptable qualifications, while employers must show fair hiring practices. Unlike the Foreign Worker Levy, which applies to Work Permit and S Pass holders, the EP focuses more on individual eligibility and company track record.
Challenges in Securing Employment Passes
- Rising Salary Thresholds: The minimum qualifying salary has increased steadily, now set at SGD 5,000 (SGD 5,500 in financial services), with higher thresholds expected for older and more experienced applicants.
- COMPASS Framework: Introduced in 2023, the Complementarity Assessment Framework assesses applications across multiple dimensions such as salary, qualifications, workforce diversity, and local employment support. Meeting the salary alone is no longer sufficient.
- Stricter Scrutiny of Employers: Employers are reviewed for their reliance on foreign professionals and compliance with the Fair Consideration Framework. Firms that do not demonstrate support for local hiring may face a higher likelihood of rejection.
These changes mean foreign companies can no longer treat the EP as a routine administrative step. Instead, careful planning and compliance with frameworks such as Singapore’s Fair Consideration Framework are essential. Employers that fail to obtain the proper passes risk penalties, reputational damage, and even restrictions on future hiring.
Turning Challenges into Opportunities
While manpower costs and employment pass regulations may seem complex, they do not have to be barriers to growth. Many foreign companies begin their Singapore journey gradually, starting with project-based engagements or pilot teams before deciding on a permanent setup.
To support this, our team offers practical options to support businesses at every stage of their journey
- Market entry and expansion support including offering guidance on the composition structure of the workforce, levy exposure management, and ensuring compliance with pass requirements.
- Workforce flexibility arrangements such as Employer of Record (EOR) that enable organisations to access talent without requiring immediate absorption, as well as contract staffing that manages short-term or project-based needs.
- Scaling and setting up where we assist in incorporation, banking arrangement, taxation planning, and continuing governance - so expansion is based on a solid foundation that is also compliant.
- Maturity & staying compliant with ongoing review of corporate governance, regulatory obligations and workforce compliance to ensure business processes are aligned with policies and best practices.
This integrated approach means that foreign companies can focus on growth while having confidence that their workforce, regulatory, and structural needs are aligned from the start.
Our Asia Expert Support
Expanding into Singapore involves managing a combination of workforce laws, corporate governance, and market conditions. By tackling labor expenses, employment visa regulations, and overall organisational and tax factors, companies can progress with certainty and assurance.
At RSM, our goal goes beyond delivering services. We serve as business advisors to growing businesses —giving perspective, insight, and solutions that correspond to the stage each business is in its growth journey. Leveraging regional expertise and a cohesive advisory structure, our specialists assist foreign invested enterprises in transforming challenges into opportunities and establishing a strong base for long-term success in Singapore and beyond.
Learn more about our Asia Experts Global Expansion Services.
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