Introduction

The Ministry of Manpower has confirmed it: from 1 July 2026, the Local Qualifying Salary (LQS) will rise from $1,600 to $1,800 per month for full-time local employees. For part-timers, the minimum hourly rate climbs from $9.00 to $10.50 per hour. Announced during Budget 2026, this increase directly affects how your local employees are counted toward your company's foreign worker quota — and employers who miss the adjustment could find themselves unable to renew Work Permits or hire new S Pass holders.

With less than three months until the deadline, this guide walks you through exactly what the LQS is, how the new thresholds change your quota calculations, and the step-by-step actions every employer should take before 1 July.

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What Is the Local Qualifying Salary — and Why Does It Matter?

The Local Qualifying Salary (LQS) is the minimum gross monthly salary a Singapore citizen or permanent resident must earn to be counted toward your firm's local workforce when calculating foreign worker quota entitlements. In practical terms, it determines how many Work Permit and S Pass holders you are allowed to employ.

Introduced by MOM as part of Singapore's broader strategy to strengthen local employment and manage foreign workforce dependency, the LQS works in tandem with the Dependency Ratio Ceiling (DRC) — the maximum proportion of foreign workers your company can hire relative to its total workforce. If your local employees do not meet the LQS threshold, they are either partially counted or excluded entirely, which directly shrinks your quota headroom.

Here is the key point: the LQS is not a legal minimum wage for all workers. It specifically applies to firms that employ foreign workers on Work Permits or S Passes. If your company has no foreign workers, the LQS does not directly apply to you — though the wage floor it sets has broader market implications.

Who Counts as a "Local Employee"?

For LQS purposes, a local employee is a Singapore citizen or Singapore permanent resident who is employed by your firm and earns a gross monthly salary that meets or exceeds the LQS threshold. This includes basic salary, allowances, and other regular monthly payments — but excludes overtime pay, bonus payments, and reimbursements.

How the LQS Has Evolved Over the Years

The LQS has been steadily increasing over the past decade, reflecting Singapore's policy of raising wage floors for lower-income workers while managing the country's reliance on foreign labour. Understanding this trajectory helps employers plan ahead rather than react to each adjustment.

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The pattern is clear: the government has been raising the LQS regularly over the past decade, with each increase typically ranging from $100 to $200. Employers should expect this upward trend to continue as Singapore pushes to improve wages for lower-income resident workers.

The New Quota Counting Rules from 1 July 2026

This is the section that matters most for workforce planning. From 1 July 2026, the way MOM counts your local employees toward foreign worker quota entitlements changes as follows:

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What This Means in Practice

Let's use a concrete example. Suppose you run a services-sector company with 10 local employees and currently hold Work Permits for 5 foreign workers:

Before 1 July 2026 (LQS at $1,600):

• 8 local employees earn $1,600+ → 8 × 1.0 = 8.0 local workforce count
• 2 local employees earn $1,200 each → 2 × 0.5 = 1.0 local workforce count
• Total local workforce count: 9.0
• Services sector DRC: 35% → You can employ up to 4.8 foreign workers (rounded down to 4)

After 1 July 2026 (LQS at $1,800):

• Same 8 employees now: only 5 earn $1,800+ → 5 × 1.0 = 5.0
• 3 employees earn $1,600–$1,799 → 3 × 0.5 = 1.5
• 2 employees earn $1,200 each → 2 × 0.5 = 1.0
• Total local workforce count: 7.5
• Services sector DRC: 35% → You can employ up to 4.0 foreign workers

In this scenario, if you do not adjust wages, your quota drops and you may need to release a foreign worker or fail a Work Permit renewal. This is why a proactive payroll audit is essential.

Understanding the Dependency Ratio Ceiling by Sector

Your foreign worker quota is calculated by multiplying your local workforce count by the applicable Dependency Ratio Ceiling (DRC) for your sector. Different sectors have different ceilings, reflecting varying levels of labour intensity and foreign workforce dependency.

Services-sector employers face the most risk. With a DRC of just 35%, every fraction of a local workforce count that slips can mean losing the ability to employ a foreign worker. If you operate in F&B, retail, professional services, or any services sub-sector, the LQS increase requires your immediate attention.

Special Considerations for Part-Time Employees

Part-time local employees are subject to an hourly LQS equivalent rather than the monthly figure. From 1 July 2026, the minimum hourly rate to count a part-time local employee toward your quota will be $10.50 per hour (up from $9.00 previously under the 2024 threshold).

How the Part-Time Counting Works

For part-time workers, MOM looks at both the hourly rate and the total monthly gross wages:

• A part-timer must earn at least $10.50 per hour to qualify under the LQS.
• Part-time locals earning a monthly gross wage of $900 or more (at or above the hourly LQS rate) count as 0.5 toward your local workforce.
• Part-time locals earning a monthly gross wage below $900 are not counted toward your local workforce for quota purposes.
• To count as a full 1.0, a part-timer would need to earn at least $1,800 per month (equivalent to a full-time local employee).

The Financial Impact: What Will the LQS Increase Cost You?

For employers with local employees currently earning between $1,600 and $1,799, the wage adjustment needed ranges from $1 to $200 per employee per month. While this may sound modest, the true cost includes CPF contributions on the higher salary.

Calculating the Full Cost per Employee

Here's a breakdown for an employee currently earning $1,600 who needs to be raised to $1,800:

• Salary increase: $200/month ($2,400/year)
• Additional employer CPF contribution (17%): $34/month ($408/year)
• Total additional cost per employee: $234/month ($2,808/year)

For a company with five employees in this salary band, the annual cost would be approximately $14,040 before any government co-funding.

How PWCS Co-Funding Offsets the Cost

The good news is that the Progressive Wage Credit Scheme (PWCS) has been enhanced under Budget 2026 to help employers absorb this increase:

• 2026 co-funding rate: 30% (raised from the original 20% planned for 2026)
• The scheme has been extended to 2028, giving employers longer runway for adjustment
• PWCS payouts are automatic — no application is needed. IRAS computes your payout based on CPF contribution data and disburses it directly

For more details on how to stack PWCS co-funding with Progressive Wage Model requirements, see our detailed guide: PWCS 2025–26: Stack PWM & LQS Co-Funding Guide.

Your 90-Day Employer Action Plan

With less than three months before the 1 July deadline, here is a step-by-step action plan every employer should follow.

Step 1: Conduct a Payroll Audit (Do This Now — April 2026)

Pull a complete list of all local employees (Singapore citizens and permanent residents) and their current gross monthly salaries. Identify every employee who currently earns:

• Less than $1,800/month — these employees will no longer count as a full 1.0 toward your quota after 1 July
• Between $900 and $1,799/month — these employees will count as only 0.5
• Less than $900/month — these employees will not count at all

For part-time employees, calculate their effective hourly rate and average monthly gross to determine whether they meet the new thresholds.

Step 2: Calculate Your New Quota Entitlement (April 2026)

Using the new counting rules, recalculate your local workforce count and compare it against your current foreign worker headcount:

1. Count full-time locals earning ≥ $1,800 → multiply by 1.0
2. Count locals earning $900–$1,799 → multiply by 0.5
3. Exclude locals earning < $900
4. Sum your total local workforce count
5. Apply your sector's DRC to determine your maximum foreign worker quota
6. Compare against your current Work Permit and S Pass holders

If your quota shrinks below your current foreign workforce, you have a compliance gap that must be resolved before 1 July.

Step 3: Decide on Wage Adjustments (May 2026)

For each affected employee, decide whether to:

• Raise their salary to $1,800 to maintain their full count — the most straightforward option for employees close to the threshold
• Accept the 0.5 count if the employee's salary is between $900 and $1,799 and you have sufficient quota headroom
• Restructure the role if the position cannot justify $1,800/month — consider consolidating part-time roles or redeploying responsibilities

When making this decision, factor in the PWCS co-funding (30% of eligible wage increases) and any Progressive Wage Model (PWM) requirements that may already mandate higher wages for certain occupations.

Step 4: Update Employment Contracts and Payroll Systems (May–June 2026)

Once wage decisions are made:

• Issue amended employment contracts or salary adjustment letters to affected employees
• Update your payroll system with new salary figures effective 1 July 2026
• Ensure your CPF submissions will reflect the updated salaries from July onwards
• Notify your HR and finance teams about the changes and the reasons behind them

Step 5: Review Your Foreign Worker Needs (June 2026)

If your recalculated quota no longer supports all your current foreign workers:

• Identify which Work Permits or S Passes are due for renewal in the coming months
• Explore whether any foreign positions can be filled by local hires or automated
• If necessary, begin the process of releasing Work Permits before the deadline to avoid compliance issues
• Consider whether you can hire additional local employees at or above the LQS to expand your quota entitlement

Step 6: Monitor and Verify (July 2026)

After 1 July, verify that:

• All payroll adjustments have taken effect
• Your CPF submissions reflect the correct salary figures
• Your WP Online quota calculation matches your expectations
• No pending Work Permit renewals are at risk

Industry-Specific Impacts

CPF Implications of the Wage Increase

When you raise an employee's salary to meet the new LQS, your CPF obligations increase proportionally. Here's what to plan for:

For employees aged 55 and below:

• Employer CPF contribution rate: 17% of gross wages (up to the Ordinary Wage ceiling of $8,000/month)
• A $200 salary increase triggers an additional $34/month in employer CPF contributions

For employees aged 55 to 65:

• From 1 January 2026, employer CPF contribution rates for this group have increased by 0.5% to strengthen retirement adequacy
• The additional CPF contributions are fully allocated to the Retirement Account (RA)

For employees aged 65 and above:

• Lower employer CPF rates apply, but the same LQS salary thresholds determine quota counting

Factor these CPF costs into your budget alongside the salary increase itself. The total employer cost is the wage adjustment plus the additional CPF contribution, offset partially by PWCS co-funding.

Common Mistakes Employers Make During LQS Transitions

Based on past LQS increases, these are the most frequent errors employers make — and how to avoid them.

1. Waiting until 1 July to act. MOM does not provide a grace period. Your quota is recalculated the moment the new LQS takes effect. If your payroll is not updated by 1 July, you may immediately lose quota headroom.

2. Overlooking part-time employees. Part-timers with irregular hours can slip below the $900/month threshold or the $10.50/hour rate without anyone noticing. Set up payroll alerts for any part-timer approaching these minimums.

3. Forgetting about CPF top-ups. Raising salaries increases your CPF liability. Budget for the full cost — not just the salary adjustment.

4. Not checking Work Permit renewal dates. If a Work Permit renewal falls in July or August 2026, your quota must support that renewal under the new LQS rules. Check renewal dates now and prioritise any that fall in Q3 2026.

5. Assuming PWCS covers the entire cost. PWCS co-funds 30% of the eligible wage increase, not 100%. Plan your budget accordingly.

6. Ignoring the half-count band. Some employers focus only on the $1,800 threshold and forget that employees earning between $900 and $1,799 count as 0.5. This can lead to overestimating quota entitlements.

Connecting the Dots: LQS, PWM, and the Broader Wage Landscape

The LQS increase does not exist in isolation. It is part of a broader suite of wage and workforce policy changes in 2026:

• Progressive Wage Model (PWM): Mandatory wage floors for specific sectors (cleaning, security, landscape, retail, food services, and waste management) and specific occupations (administrators and drivers) continue to rise. If your employees are covered by PWM, the required PWM wage may already exceed $1,800 — in which case the LQS is not your binding constraint.
• S Pass qualifying salary: The S Pass minimum qualifying salary remains at $3,300 (with higher thresholds for financial services), with a confirmed increase to $3,600 from 1 July 2026. Factor this into your medium-term workforce planning.
• Employment Pass changes: While EP holders are not counted in the LQS/quota framework, the COMPASS scoring system introduced in 2023 uses local-to-foreign ratios as a factor — meaning your overall workforce composition still matters.

For a full breakdown of Budget 2026 workforce measures, see our article: Singapore Budget 2026: What Every HR Leader and Employer Needs to Know.

Frequently Asked Questions

Does the LQS apply to all employers in Singapore?

No. The LQS only applies to employers who hire or intend to hire foreign workers on Work Permits or S Passes. If your company employs only Singapore citizens and permanent residents with no foreign workers, the LQS does not affect you — though it does set a benchmark that influences broader market wages.

What counts as "gross monthly salary" for LQS purposes?

Gross monthly salary includes basic salary and fixed monthly allowances. It excludes overtime pay, bonuses, commissions, reimbursements, and any other variable payments. MOM uses CPF contribution data to verify reported salaries.

Can I count a local employee on no-pay leave toward my quota?

No. An employee on extended no-pay leave who is not receiving wages at or above the LQS will not be counted toward your local workforce for quota purposes during that period.

What happens if my quota falls below my current foreign worker count?

MOM will not immediately cancel existing Work Permits, but you will be unable to obtain new Work Permits or S Passes, and you may face issues at renewal. It is strongly advisable to resolve any quota shortfall before renewals come due.

Is there a grace period for the transition?

No. The new LQS threshold takes effect on 1 July 2026. Employers should have payroll adjustments in place by that date.

Conclusion

The LQS increase to $1,800 on 1 July 2026 is not just a payroll adjustment — it is a compliance deadline that directly impacts your ability to employ foreign workers. With the services sector's tight 35% DRC, even a small reduction in your local workforce count can have outsized consequences.

The good news is that the enhanced PWCS co-funding at 30% and its extension to 2028 provide meaningful financial support. But the window to act is narrowing. Start your payroll audit today, recalculate your quota projections, and make wage adjustment decisions by May so that your payroll systems are ready well before the 1 July cutoff.

If you need help navigating the LQS transition — whether it's auditing your workforce composition, restructuring roles, or understanding how the change interacts with PWM and other regulatory requirements — Mavenside's HR advisory team can help.