How Will Budget 2026 Singapore Foreign Worker Levy Increases and Employment Pass Salary Changes Affect SME Payroll and Hiring Plans?

Updated Feb 2026, Budget 2026 Singapore puts renewed attention on manpower costs, especially for SMEs relying on foreign talent. Even where day‑to‑day headcount stays the same, a foreign worker levy increase and Employment Pass salary changes can shift your total cost per hire, your payroll budgeting, and your compliance workload. For many employers, the harder challenge is timing: decisions made in 2026 (salary structures, pass strategy, subcontractor vs employee mix, and productivity roadmaps) can either smooth or magnify the transition toward the two-tier levy structure 2028 that policymakers have signalled. In practice, this is where Singapore Payroll services and work pass planning intersect—modelling levy scenarios, maintaining CPF and statutory accuracy for locals, and ensuring MOM-aligned documentation for EP applicants. Paul Hype Page & Co. (PHP) supports SMEs across payroll, accounting, tax, corporate compliance, and work pass strategy so leadership teams can plan with numbers, not assumptions.

What exactly is changing under Budget 2026 Singapore—and what should employers watch first?

Budget announcements and related manpower policy updates are often released with phased effective dates. If a specific effective date is not yet confirmed for your sector, treat the change as “likely within the announced window” and plan scenarios rather than waiting for the final circular.

For SME manpower cost planning, there are typically three moving parts to monitor together:

• Foreign worker levy increase (and any levy re-alignment by sector, tier, or dependency ratio band)
• Employment Pass salary changes (for eligibility and renewals, not just new applications)
• The roadmap toward a two-tier levy structure 2028 (which can change the cost curve between “higher-skilled” and “lower-skilled” workforce segments)

What to do first in 2026

1. Build a “fully loaded cost per head” view

Include base salary, allowances, employer CPF (for locals/PRs), bonuses, commissions (if regular), levy (where applicable), insurance, and agency fees.

1. Split your workforce into policy-relevant buckets

For example:

• Singaporean/PR employees (CPF-driven compliance)
• Work Permit / S Pass holders (levy and quota dynamics)
• Employment Pass holders (salary threshold and COMPASS-style eligibility considerations)

1. Map renewal timelines

Many businesses only model new hires. Renewals can be the bigger risk if salary rules tighten or documentation standards increase.

PHP’s payroll teams often start by extracting current payroll registers and headcount lists, then building scenario tables that show “before/after” manpower costs under different levy and salary assumptions.

How does a foreign worker levy increase change total manpower cost beyond the levy itself?

A levy change rarely sits in isolation. In practice, it triggers second-order cost effects in payroll and HR operations.

Common cost knock-ons SMEs see

• Wage compression issues

If levy increases raise the total cost of a lower-wage role, some employers try to keep base salaries flat. This can create internal inequities versus local hires or higher-skilled foreign staff.

• Higher overtime dependency

When headcount is capped by quota/levy economics, teams rely on overtime. Overtime increases payroll complexity and can lift total monthly cost more than expected.

• Vendor pricing increases

If your cleaners, warehouse operators, or security vendors face levy increases, their contract pricing may rise. That affects overheads, not just payroll.

• Compliance workload rises

More changes mean more payroll checks: correct levy category, correct headcount records, and consistent job descriptions.

Concrete example (simplified)

An SME has 8 operational staff on work permits and 2 supervisors on S Pass. If levy costs rise by even a modest amount per worker per month, the annualised impact can be meaningful. Employers should model:

• “Stable headcount” scenario: same headcount, higher levy
• “Restructure” scenario: convert some roles to higher-skilled tracks, raise wages, invest in productivity
• “Outsource” scenario: shift some functions to a vendor and compare pricing

Even when the levy change seems small, the annualised delta plus vendor uplifts can materially affect budgets.

In payroll operations, the key is to ensure your cost centre reporting correctly allocates levy-driven cost increases to the departments that drive demand. This helps decision-makers see where automation and process redesign pay off.

Which roles are most exposed to the two-tier levy structure 2028—and why plan in 2026?

A two-tier levy structure 2028 generally signals a policy intent: differentiate levy costs by skill level, wage level, or job type, and push businesses toward workforce automation and productivity.

Even if final parameters are not yet published for your sector, 2026 is the time to prepare because:

• Job redesign takes time

You may need 6–18 months to standardise SOPs, implement systems, and train a smaller but more skilled team.

• Pass strategy changes require runway

If you expect to shift from Work Permit-heavy hiring toward more skilled roles, you may need to plan for S Pass or EP pipelines, including salary benchmarking.

• Budget cycles lock in early

Many SMEs finalise headcount and salary bands months ahead. If you wait until the year of change, you may be forced into reactive hiring freezes.

Role types typically exposed

• High-volume, lower-wage operational roles where levy is a significant percentage of cost
• Roles where productivity tools can replace manual work (inventory, scheduling, basic customer ops)
• Functions with high turnover (recruitment costs can exceed levy changes over time)

Practical planning steps for 2026

• Create a “tier risk map”

List roles by (i) foreign headcount concentration, (ii) wage level, (iii) automation potential.

• Identify 2–3 productivity investments with payback logic

Examples: time-and-attendance integration, payroll automation, scheduling tools, inventory scanning.

• Link job redesign to pass eligibility

If a role is redesigned into a higher-skilled function, document the change in job scope and KPIs. This can support future S Pass/EP narrative consistency.

PHP often helps SMEs connect payroll cost modelling with documented HR processes so that your compliance story matches your operational reality.

How do Employment Pass salary changes affect eligibility, renewals, and payroll structure?

Employment Pass salary changes matter in two ways:

• Eligibility risk: a candidate who qualified previously may not qualify under updated salary benchmarks or scoring frameworks.
• Cost risk: meeting the new benchmark may require increasing fixed monthly salary, not just variable pay.

Important nuance: fixed vs variable pay In practice, MOM eligibility assessment typically focuses on fixed monthly salary and the overall employment terms. If an employer tries to “top up” with irregular bonuses instead of adjusting fixed salary, it may not support eligibility as intended.

What to review in 2026

1. New EP applications

• Are your offered salaries aligned with updated market benchmarks for the role and seniority?
• Are job titles and job scopes consistent with the salary level?

1. EP renewals

• Don’t assume renewals are automatic.
• Review upcoming renewal dates, and pre-check whether salary adjustments are needed.

1. Internal parity and governance

• If you raise EP salaries, check knock-on impact on local managers or S Pass supervisors.
• Update approval workflows so salary changes are documented and consistent.

Common mistakes

• Using inconsistent job titles across offer letters, org charts, and EP applications
• Benchmarking salaries using outdated market data
• Waiting until 4–6 weeks before the intended start date to start EP preparation

A practical approach is to build a “pass readiness file” per EP hire: role description, reporting line, salary composition, and documentary support. EP specialists at PHP typically help employers align the narrative and the paperwork while payroll teams ensure the salary structure is administratively workable month-to-month.

How should SMEs do manpower cost planning when levy, salaries, and quotas change at different times?

SME manpower cost planning works best when you separate (i) policy timing, (ii) business timing, and (iii) cash timing.

A useful 3-layer model

• Policy timing

Track expected effective dates. Where dates are not final, create a “range” (earliest plausible vs latest plausible).

• Business timing

Map recruitment plans, contract renewals, and seasonal peaks.

• Cash timing

Forecast when payroll and levy payments are actually due, and how this affects monthly cash buffers.

Step-by-step planning (practical)

1. Build a headcount table

Columns: role, local/foreign status, pass type, contract end date, renewal window, current all-in cost.

1. Add scenario parameters

• Levy: +X per month per relevant worker
• EP: salary +Y% for new hires / renewals in certain roles
• Productivity: reduce headcount growth or overtime by Z%

1. Run three scenarios

• Base case: minimal change
• Compliance case: full adjustment to meet new thresholds
• Transformation case: restructure + automation

1. Decide triggers

For example:

• If levy rises above a set threshold, shift to vendor or automate
• If EP salary benchmark rises, prioritise local hires for certain roles or redesign responsibilities

Singapore Payroll services become especially valuable here because payroll data is the most reliable source of “what you actually pay” versus “what you think you pay.” PHP’s teams typically reconcile payroll registers to accounting cost centres so leadership can use the same numbers across budgeting, audit readiness, and HR planning.

What payroll and HR compliance tasks typically break first when levy and EP rules tighten?

When policy changes land, SMEs often discover process gaps that were manageable before but risky after.

Common breakpoints

• Misclassification of workers

Confusion between employee vs contractor, or wrong pass category assumptions, can create downstream compliance exposure.

• Inconsistent documentation

Offer letters, job descriptions, and payroll records may not match. This becomes a problem during EP processing or inspections.

• Payroll configuration errors

Allowance mapping, unpaid leave handling, and salary proration can lead to incorrect statutory reporting or cost reporting.

• Weak change control

HR updates the salary, finance updates the budget, but payroll is not updated properly (or updated late). This creates errors and staff frustration.

Controls SMEs can implement in 2026

• A single “source of truth” employee master list
• Monthly reconciliation between HR headcount and payroll headcount
• Document templates aligned to pass types (EP vs S Pass vs local)
• Approval workflow for salary structure changes

PHP’s Singapore HR and compliance support often focuses on building these workflows so that payroll, accounting, and pass applications tell the same story.

How can workforce automation and productivity planning reduce levy exposure without disrupting operations?

Workforce automation and productivity investments are most effective when they target recurring, measurable bottlenecks rather than “big bang” transformation.

Where SMEs often get quick wins

• Time, attendance, and rostering

Reducing time leakage and improving scheduling can lower overtime and improve compliance.

• Digital expense and claims workflows

Cuts admin time and makes payroll processing smoother.

• Basic finance automation

Integrating invoicing, inventory, and payroll reporting reduces manual reconciliation.

• Standardised SOPs for operational roles

Makes it easier to train local hires and reduce turnover.

How to link productivity to manpower planning

1. Pick 1–2 KPIs per role family

Example: orders processed per head, tickets closed per head, on-time delivery.

1. Quantify “capacity release”

If automation saves 15% time, decide whether you will:

• Reduce overtime
• Delay the next hire
• Redeploy staff to revenue tasks

1. Document redesigned roles

If a role becomes more skilled (system operator vs manual operator), update job descriptions. This supports future pass and salary benchmarking logic.

A practical payroll tie-in: once productivity measures reduce overtime volatility, payroll forecasting becomes more stable, which helps cash planning and management reporting.

Should you revisit your mix of Employment Pass, S Pass, and local hires in 2026?

Many SMEs treat pass type decisions as administrative. In reality, it is a strategic cost-and-compliance choice.

General considerations (high-level)

• Employment Pass (EP)

Typically used for professional/managerial roles with higher salary expectations and stronger documentation needs.

• S Pass

Often used for mid-skilled roles; may involve quota and levy considerations.

• Work Permit

Generally tied to specific sectors and job types, with stronger levy/quota impact.

What to do in 2026

• Audit your current pass portfolio

List every foreign hire by pass type, role, salary, renewal date, and business criticality.

• Identify roles that should be “upskilled” vs “localised”

Some roles are better localised to reduce policy exposure. Others should be redesigned upward to justify higher-skilled pass categories.

• Align compensation bands across categories

Avoid situations where an EP salary bump forces uncomfortable compression with local managers.

PHP’s work pass specialists often coordinate with payroll and accounting so the strategy is implementable: salary structures, cost centres, and employment contracts are aligned rather than handled in separate silos.

What are realistic 2026 preparation steps for SMEs ahead of the 2028 levy shift?

Preparation is mainly operational. The goal is to avoid last-minute hiring freezes, rushed pass applications, and surprise payroll overruns.

A workable 2026 checklist

1. 90-day actions

• Produce a workforce register with pass types and renewal windows
• Run a levy sensitivity model (low/medium/high)
• Review EP hires planned for the next 6–12 months and benchmark salaries

1. 180-day actions

• Redesign at least one foreign-headcount-heavy workflow
• Implement payroll reporting that separates fixed pay, variable pay, and levy costs
• Tighten documentation: job descriptions, reporting lines, and contract templates

1. 12-month actions

• Decide your 2027–2028 workforce shape (headcount, skill mix)
• Budget productivity investments with owner and KPI
• Stress test cash flow for peak months (bonuses, renewals, seasonal overtime)

Common mistakes to avoid

• Treating levy changes as “HR’s problem” rather than a business cost model
• Relying on verbal offers before EP viability is checked
• Failing to align accounting and payroll cost centres, making it hard to see true cost per team

Where PHP often helps is translating policy movement into a project plan: payroll reconfiguration, accounting mapping, and pass strategy execution, while ensuring corporate compliance (e.g., resolutions and sign-off controls) keeps pace.

How do accounting, tax, and audit readiness connect to payroll and foreign manpower policy changes?

Payroll changes don’t stay inside HR. They flow into financial statements, tax computations, and audit trails.

Areas to watch

• Expense classification and accruals

Bonuses, levies, and recruitment fees may need consistent accrual policies.

• Intercompany charging (multi-country groups)

If Singapore is charging costs to a Malaysia or Indonesia entity (or vice versa), documentation should support transfer pricing logic.

• Director and shareholder payroll

Foreign founders sometimes pay themselves through different channels. Ensure the structure aligns with pass conditions and reporting.

• Audit trail quality

As payroll cost becomes more scrutinised, auditors may request clearer support for headcount changes, salary adjustments, and provisions.

PHP’s integrated teams support accounting, tax, payroll, and audit readiness so payroll decisions don’t create downstream reporting problems—especially for SMEs preparing for funding, due diligence, or regional expansion.

When should you consider incorporation or group structuring changes as part of manpower planning?

Not every manpower cost issue requires restructuring. But some SMEs reach a point where the way they are structured makes hiring and cost allocation harder than it needs to be.

Situations where a review can help

• You have operations in multiple countries, but contracts are issued by the wrong entity

This creates payroll, tax, and immigration confusion.

• You want to centralise certain functions

A shared services approach can clarify headcount planning and reporting.

• You are adding new business lines

Different business lines may have different manpower profiles and policy exposure.

Practical guidance

• Keep employment contracts and payroll within the employing entity
• Ensure intercompany service agreements are documented if cross-charging payroll costs
• Align signatory powers and corporate secretarial records to avoid governance gaps

PHP supports company incorporation & structuring across Singapore and the region, and can help SMEs set up clean operating models that reduce compliance friction as manpower policies evolve.

How can Singapore Payroll services help you stay compliant while adapting to Budget 2026 Singapore changes?

Singapore Payroll services are most valuable during policy shifts because they turn complex rule changes into repeatable processes.

What strong payroll support should cover in 2026

• Scenario modelling

Quantify the impact of a foreign worker levy increase and salary band adjustments.

• Payroll configuration and governance

Ensure allowances, deductions, leave, and proration are handled consistently.

• Management reporting

Separate manpower cost into fixed pay, variable pay, employer contributions, and levy-related costs.

• Documentation support

Maintain pay slips, registers, and approvals that stand up to audits and compliance reviews.

How PHP typically works with SMEs

• Review current payroll process and payroll outputs
• Reconcile payroll to accounting ledgers for reliable budgeting
• Implement controls and reporting so HR, finance, and management see the same data

This approach reduces errors when headcount shifts, salaries are adjusted for EP eligibility, or levy categories change.

How can Employment Pass specialists support hiring plans when salary benchmarks move?

When Employment Pass salary changes occur, the risk is not only cost. It is hiring delay, rejection, or repeated requests for clarifications.

A practical EP readiness approach

• Start early

For critical hires, begin feasibility checks well before the intended start date.

• Align role, salary, and organisational context

MOM typically expects coherence: seniority, reporting line, and pay level should make sense together.

• Keep documentation consistent

Job ads (if used), offer letters, resumes, and job descriptions should not contradict each other.

• Plan alternatives

If an EP is not viable at the intended salary, consider whether the role can be redesigned, localised, or shifted to a different pass strategy where appropriate.

PHP’s EP specialists work alongside payroll and corporate teams so that offers, employment terms, and internal approvals are aligned—helping SMEs execute hiring plans without last-minute rework.

Conclusion

Budget 2026 Singapore signals that manpower cost management will increasingly depend on policy-aware planning, not just annual budgeting. A foreign worker levy increase can raise costs directly and indirectly through overtime, vendor pricing, and compliance overhead. Employment Pass salary changes can affect both hiring feasibility and renewal continuity, while the two-tier levy structure 2028 points to a longer transition toward higher productivity and more skilled workforce design.

For SMEs, the practical move in 2026 is to build a scenario model using real payroll data, map renewal timelines, and link workforce automation and productivity projects to measurable staffing outcomes. If you’re planning your 2026–2028 workforce mix and want clarity on payroll compliance, cost exposure, or work pass strategy, speaking with an experienced regional advisor early can make a meaningful difference—Paul Hype Page & Co. (PHP) supports employers across payroll, accounting, corporate compliance, and Employment Pass planning so decisions are implemented cleanly, not just discussed.