As part of the Budget 2014 speech delivered on February 21, 2014, Deputy Prime Minister and Finance Minister Tharman Shanmugaratnam announced new measures that would significantly affect employers.
The key measures to highlight are the following:
- increase in the employer Central Provident Fund ("CPF") contributions for all Singapore Citizens ("SC") and Singapore Permanent Residents ("PR") to help workers save for their future healthcare expenses;
- the enhancement of the Special Employment Credit ("SEC") and the provision of the Temporary Employment Credit ("TEC") to help employers adjust to the rising business costs caused by the increase in employer CPF contributions;
- an increase in the foreign worker levies for Basic Skilled ("R2") Man-Year-Entitlement Work Permit Holders ("WPH") in the construction sector; and
- an extension of the period of employment for Higher Skilled ("R1") WPHs from Non-Traditional Sources and the People's Republic of China in the construction, marine and process sectors.
The classes of persons likely to be significantly affected by these new measures include, but are not limited to:
- organizations which hire SCs and PRs;
- organizations in the construction sector which hire a sizeable number of R2 WPHs; and
- organizations in the construction, marine, and process sectors which hire a sizeable number of R1 WPHs.
Summary of the new measures affecting employers in the Singapore Budget 2014
The 22 employees made false statements to the Controller of Work Passes between November 2010 and September 2013 in connection with the applications for EPs and SPs. In order to meet the minimum salary requirements to obtain the relevant work passes, the employees had fraudulently declared their salaries at a level higher than what was actually paid to them as they knew that their employers would pay them less than the amounts declared. The employees thus made false declarations to the MOM when they signed declaration forms which indicated their salaries to be ranging from SGD 2,400 to SGD 4,500.
The accused employees received their declared salaries from the employers via GIRO payment, and subsequent withdrew cash and returned the monies ranging from SGD 600 to SGD 3,350 to the employers. The effect of these actions was to reduce the take home pay of the employees in question to a sum which is lower than the amounts declared. Out of the 22 accused persons, 10 pleaded guilty to the charges, while 11 sought an adjournment, and one claimed trial.
The MOM has stated its intention to separately take action against the employers and the employment agents involved in the fraud. In addition, the MOM is currently investigating other similar false declaration cases involving 230 foreigners hired by 75 employers. These 22 employees are only the first tranche of employees the MOM is taking action against.
Consequences of making false declarations
Following their guilty pleas, the 10 employees were each fined between SGD 5,000 and SGD 7,000 or in default of the fine, five weeks' and seven weeks' imprisonment respectively. The employees will also be permanently banned from working in Singapore.
The MOM has stated that the prosecutions are part of the MOM's continual enforcement efforts, and that there are stringent checks by the MOM to detect and enforce against such false and fraudulent applications. The MOM has recently stepped up on enforcement in this area following the raising of maximum penalties for false declaration under the Employment of Foreign Manpower Act (Cap. 91A) ("EFMA") in November 2012. Under Section 22A of the EFMA, employers who deduct from any salary payable to a foreign employee, or demand or receive from a foreign employee a sum as consideration for the employment or continued employment of the foreign employee will be guilty of an offence and shall be liable on conviction to a fine not exceeding SGD 30,000 or to imprisonment for a term not exceeding two years or to both.
Summary of the new measures affecting employers in the Singapore Budget 2014
Increase in the employer CPF contribution for all SCs and PRs
Employer contribution rates to the CPF Medisave Account ("MA"), which is a part of the employee's CPF savings, will be increased by one percent for all employees. This increase will take effect from 1 January 2015. The aim of this increase is to help workers save for their future healthcare expenses.
In addition to the increase in employer contribution rates to the MA of all employees, the CPF contribution rates for workers aged above 50 years to 65 will also be increased.
For workers aged above 50 to 55, the employer CPF contribution will increase by one percent and the employee CPF contribution will increase by 0.5 percent. For workers aged above 55 to 65, only the employer CPF contribution will increase by 0.5 percent. Please see table below for the new rates for CPF contributions with the increases in brackets.
Click here to view table.
These increases are not cumulative (i.e. an employee at the age of 55 will not be entitled to a cumulative 1.5 percent increase in employer CPF contribution). The increase in employer contribution rates will be allocated to the CPF Special Account, while the increase in employee contribution rates will be allocated to the CPF Ordinary Account.
The enhancement of the SEC and the provision of the TEC
To help employers adjust to the increase in the employer CPF contribution rates, the SEC will be enhanced for one year to provide employers who hire Singaporean workers aged above 50 who earn up to SGD 4,000 a month with an additional offset of up to 0.5 percent of wages. This means that employers who hire older Singaporean workers between January 1, 2015 and December 31, 2015 will receive an SEC of up to 8.5 percent of the worker's monthly wage, which is up from the original SEC of eight percent paid out in 2012 - 2014.
Employers will also be provided with the TEC to help alleviate the increase in business costs due to the increase in MA contribution rates for all employees. Employers will receive a one year offset of 0.5 percent of wages for SC and PR workers up to the CPF salary ceiling of SGD 5,000 per month. TEC payments will be made based on employees' incomes paid in 2015. The TEC is in addition to the SEC and both credit schemes are not mutually exclusive.
Increase in the foreign worker levies for R2 Man-Year-Entitlement WPHs
The levy for R2 Man-Year-Entitlement WPHs in the construction sector will be increased from SGD 600 to SGD 700 in July 2016. Levies for R1 WPHs will remain unchanged to further encourage construction firms to opt for higher skilled WPHs.
Extension of the period of employment for R1 WPHs
The maximum period of employment for R1 WPHs from Non-Traditional Sources and the People's Republic of China will be extended by four years, from 18 years to 22 years. This extension will apply to the construction, marine, and process sectors.
The impact of these new measures, read with the recent prosecution of the employees for Work Pass application fraud hints at two trends. The first is the government's continued emphasis on business productivity and cost effectiveness. This can be inferred from the cushioning measures put in place by the government to offset the negative effects of the increase in employer CPF contributions, as well as the loosening up of higher skilled foreign worker regulation in the construction, marine, and process sectors. The second trend is the increased regulation of basic skilled workers and the tightening up of the MOM's enforcement efforts to catch offenders who are attempting to game the system.
These two trends will impact an organization's employment strategy and workforce management, especially where large organizations run the risk of systemic breaches similar to the recent MOM prosecution highlighted above. Accordingly, organizations should be cognizant of such possibilities and make the necessary amendments to their employment policies and workforce management where necessary.
Additionally, it is essential for organizations to review their policies, processes, and reporting guidelines to ensure that they will be in full compliance with the amended regulations as well as the upcoming changes in the EA that will mostly come into effect on 1 April 2014.