21 February 2020

Coronavirus outbreak: a budget of support and recovery in Singapore


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The government’s assistance to employers and employees in weathering economic headwinds in the wake of the COVID-19 outbreak.

Singapore’s Budget 2020 was unveiled on 18 February 2020 by Deputy Prime Minister and Finance Minister Heng Swee Kiat. Budget 2020 was an unprecedented budget, given that a large part of it constitutes a support and recovery package in the wake of the coronavirus disease 2019 (COVID-19) outbreak that threatens to plunge Singapore’s economy into a recession.

Budget 2020 is significant for employers as it introduces a slew of measures to encourage employers to continue to employ local Singaporeans and Permanent Residents through defraying wage costs. This is coupled with measures to encourage for local employees to continually re-skill and upskill in order to remain competitive in the face of economic uncertainty and rapid digital transformation. This strategic move to equip the local workforce with new and in-demand skills fits into the long-term strategy to reduce dependence on skilled foreign manpower through the staggered reduction in S-Pass Dependency Ratio Ceilings across the construction, marine shipyard, and process sectors in Budget 2020.

Defraying wage costs

Budget 2020 announced a spend of S$4 billion by way of a Stabilisation and Support package to assist enterprises to defray wage costs and retain local employees in the face of uncertain economic headwinds caused by the COVID-19 outbreak. The Minister announced two specific packages to ensure that the majority of enterprises in Singapore will be adequately supported through the anticipated economic downturn:

1. Jobs Support Scheme

Under the temporary Jobs Support Scheme, a S$1.3 billion has been set aside to subsidise up to 8% of the cost of wages of employing Singaporeans and Permanent Residents on their CPF payroll from the months of October to December 2019, up to a cap of S$3,600 per month per employee. Employers will receive this cash grant as a matter of course, based on their CPF contribution data, by 31 July 2020. This scheme is estimated to benefit up to 1.9 million employees, and grants will be computed based on CPF contribution data.

This measure to assist companies with their cash-flow and to defray the cost of local employee salaries across the board is a welcome source of support. The prompt cash pay outs are aimed at reducing retrenchment or downscaling exercises, which might otherwise be necessitated by the anticipated financial downturn. Companies with urgent cash-flow issues will have to plan for other short-term interventions to tide them over until these subsidies are disbursed. Companies which hire significant numbers of professionals, managers and executives, who draw higher incomes, will nonetheless have to continue to bear the lion’s share of their wages due to the cap imposed.

2. Wage Credit Scheme

The Minister announced a S$1.1 billion allocation for the enhancement of the Wage Credit Scheme, first introduced in Budget 2013 and extended in 2015 and 2018. Under this scheme, the government will co-fund wage increases in 2019 and 2020 for employees who earn a gross monthly wage of up to S$5,000 (increased from S$4,000 previously), coupled with a 5% uplift in the government co-funding levels, taking it up to 20% for 2019 and 15% for 2020.

This enhancement of the co-funding of wage increases underscores the government’s commitment to support enterprises that have invested resources in maximising productivity and incentivises employers to in turn pass down these productivity gains to their employees. The widened pool of beneficiaries accounts for an estimated 700,000 employees across 90,000 enterprises. In addition to the automatic pay out that employers typically receive in March following the qualifying year, employers can expect to receive an additional supplementary pay out in the second half of this year.

The announced boost in co-funding of wage increments is a welcome move to encourage companies to transfer productivity gains to their employees. However, as wage increases are recurring payments, it remains to be seen if businesses will continue to see sustained growth and productivity to justify the business case for increments in the long run, given the current uncertain economic and geopolitical climate.

The thrust of schemes like the enhanced Wage Credit Scheme (with its inherent qualifying criteria) is to shore up viable firms that have been adversely impacted by the black swan COVID-19 crisis and to help them retain their workforce through defraying wage costs. The intention is likely to help these companies stay afloat as going concerns, so as to minimise retrenchment exercises that these companies might otherwise have to undertake.

Increasing employability of the local workforce

Adapt and Grow Scheme

Budget 2020 recognised five industry sectors that were most severely impacted by the COVID-19 outbreak, namely tourism, aviation, retail, food services and point-to-point transport services. The Minister announced that the government will assist enterprises to retain and re-skill their workers in these challenging times by enhancing support under the Adapt and Grow scheme. The funding support period for redeployment programmes will be increased from three to six months, coupled with the introduction of several new programmes to assist with redeployment initiatives.

Additional SkillsFuture Credits

The Minister also emphasised a strong focus on encouraging enterprises and workers to take the opportunity of the financial “lull period” to upskill and stay employable primarily through the SkillsFuture program which has been in place since 2015.

The Government has committed to providing the following SkillsFuture credits in 2020:
(i) A one-time top up of $500 in SkillsFuture credit to every Singaporean aged 25 and above; and
(ii) An additional $500 SkillsFuture Credit to mid-career employees in their 40s and 50s to improve employability.

In a bid to incentivise individuals to upskill sooner rather than later, these two sets of SkillsFuture credits come with a newly introduced expiry of five years.

Employers who hire a local job seeker aged 40 and above through a re-skilling programme will also receive 20% salary support for the first six months of employment, capped at S$6,000. The Minister emphasised the importance of employers keeping an open mind towards recruiting mid-career workers, referring to TAFEP’s Fair Consideration Framework which prohibits discrimination in recruitment based on age.

This initiative recognises that the demographic most vulnerable to rapidly evolving employment changes are those who are in their mid-career stage. By focusing on encouraging them to expand or change their skillset, the Government hopes to build their confidence to undertake career changes that might become inevitable in the near future. However, for enterprises, the perennial question remains whether to hire a fresh graduate, who could potentially command a lower starting salary, or to hire a mid-career employee transitioning into a new role or industry. Notwithstanding, this is a key juncture for employers to consider rethinking their hiring patterns in order to recognise the inherent value of transferrable skills and the considerable strengths brought to the table by more mature employees. This would help them to build a more diverse and inclusive work culture, which would help them to attract and retain talent across different age groups.

Tightening of foreign workforce

Building on the foreign workforce tightening measures introduced for the services sector in Budget 2019, Budget 2020 announced that the dependency ratio ceiling (“DRC”) relating to skilled S-Pass employees in the (i) construction; (ii) marine shipyard; and (iii) process sectors will be reduced from 20% to 15% by 2023.

These cuts will be introduced in a staggered manner to allow companies to adapt, first dropping from 20% to 18% in January 2021, with a further drop to 15% in January 2023. This measure was introduced to curb the growth of S-Pass holders in the three industry sectors, which has been growing by 3.8% in the past two years. The overall DRC across all classes of work passes remains the same at 87.5% for construction and process sectors and 77.8% for the marine shipyard sector, thereby allowing companies in these sectors to employ more low-skilled foreign workers or work permit holders.

For now, the manufacturing sector has been spared from these foreign workforce tightening measures in view of the shrinkage of this sector due to prevailing economic uncertainty. The strong indication nonetheless remains that the sector should start tapering off on its reliance on skilled foreign employees, if the economic situation allows. Foreign worker levy rates across all industry sectors will remain the same.

Enterprises with specific manpower needs have the option of applying for additional manpower flexibility in exceptional cases, such as through the Lean Enterprise Development Scheme (“LED”). The LED, which was introduced to help progressive enterprises “transform and grow in the new manpower-lean landscape”, can provide transitional manpower support to facilitate day-to-day operations as they complete the transformation required under the reduced DRC. This assistance is temporary while the enterprise recruits and trains locals to take on the jobs held by the foreign workers or pools foreign expertise at the industry level with the intent to transfer know-how to locals.

The Government’s driving motivation behind this foreign workforce policy is to encourage enterprises to hire more Singaporean skilled workers and technicians in the three industry sectors. This is to dissuade them from simply hiring low cost foreign employees, while overlooking capable and willing Singaporeans. Issuing a staged reduction allows them the necessary operational runway to reduce their dependency on foreigners for their skilled workforce and look inward within Singapore instead. The Government has also recognised potential challenges arising from the existing pipeline of local talent and the specific operational needs of enterprises, with an offer for SkillsFuture Singapore and Workforce Singapore to assist with better matching of requirements.

Employers in these three industry sectors are encouraged to undertake a strategic review of the current and projected manpower needs in order to ensure that they are operationally prepared to comply with the reduction in the DRC for S-Pass holders. Their upcoming recruitment efforts for vacancies and new positions should start taking this into account, with a concerted focus on looking to hire skilled Singaporeans instead of S-Pass holders. The LED merely offers a bridging measure until the enterprise is in a position to hire locals and should not be viewed as a means to circumvent the reduced DRC.

Push for a more inclusive society

In a bid to foster a more inclusive workforce, the Minister emphasised the need to pay attention to those who require additional support, including older workers and those with disabilities. To this end, the Minister announced a new Enabling Employment Credit (“EEC”) scheme which will provide wage offsets to companies that employ older workers and those with disabilities. This replaces the existing Special Employment Credit (“SEC”) and Additional Special Employment Credit (“ASEC”) schemes, which had previously offered similar wage offsets for hiring Singaporeans with disabilities, and Singaporean workers aged 55 and above earning up to S$4,000 per month. In total, the Minister estimates that a total of S$31 million will be contributed to the EEC scheme between 2021 and 2025.

The enhanced Government support for the hiring of older workers and people with disabilities is an important step forward in removing the bias and should set the tone for companies to adopt a similar manpower strategy. Employers should ensure that their recruitment and retention policies cater to hiring diverse employees, including older workers and those with disabilities. An ideal complement to this espoused push towards a more inclusive and diverse workforce would be the introduction of anti-discrimination legislation, which would really underscore this commitment.

As more employers start employing older workers, the intention is that they would realise the value older and disabled workers can add to an organisation. It is a move towards normalising older workers in the workplace, which should diminish age and disability-related discrimination or bias over time. This will facilitate an organic shift away from the current misconception that older and disabled workers put companies at a competitive disadvantage. This mindset change towards hiring older workers is essential in light of our aging population and the fact that more seniors wish to remain actively engaged in work for longer. Older workers and workers with disabilities are a valuable economic resource that employers should start tapping on, alongside timely implementation of appropriate policies and workplace adjustments to hire and retain such talent.

Overall, the measures introduced in Budget 2020 to assist employers are helpful in assisting businesses tide through this challenging period and its expected aftermath, according to the Singapore Government’s initial assessment. Even more promising are Deputy Prime Minister Heng’s post-Budget comments on 19 February 2020 noting that the Government is “prepared to do more if the situation warrants it.” While it is understandable that some enterprises would have hoped for more help in this Budget, it comes down to how best they can leverage the measures introduced by the government to face economic headwinds.

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