The government is tightening the foreign manpower regime further, with a 10 per cent hike to the minimum salary required to hire a young foreign professional on an employment pass (EP) - the category of work passes not subject to quotas and levies.

Also, under new rules to ensure Singaporeans get fair consideration before foreigners are hired, employers will have to advertise job vacancies on a new national jobs bank for two weeks before any applications for EPs for those professional, managerial and executive (PME) jobs will be accepted.

While businesses do expect the higher EP qualifying salary to add to already rising labour costs, reactions from representative bodies after yesterday's announcement were more muted than has been the case for previous rounds of measures to slow the influx of manpower from abroad.

After all, the move had been anticipated by many. "This was expected as we have been warned that the (EP qualifying) salary would increase," said Singapore National Employers' Federation executive director Koh Juan Kiat.

In April this year, Acting Manpower Minister Tan Chuan-Jin said the minimum salary at which foreign PMEs secure EPs would be raised to ensure that their typically lower wages do not depress those of young Singaporeans. Though he said then that salary requirements for the upper P2 and P1 categories of EP would rise too, MOM only announced a hike to the lowest Q1 tier of EPs yesterday.

From Jan 1 next year, businesses will only be able to hire young graduates from "good educational institutions" on an employment pass if they pay them a monthly salary of $3,300, up from $3,000 currently.

The minimum monthly salary for P2 and P1 passes remains at $4,500 and $8,000, respectively. But older applicants will have to command higher salaries commensurate with their work experience to qualify for an EP.

MOM said the $300 hike was "in line with rising salaries". The last revision to EP salary thresholds took place in January 2012.

But Jonathan Asherson, a Singapore International Chamber of Commerce board member and chairman of its manpower and productivity committee, said: "At first glance, the increase seems to be above the average rate of salary rise in the local labour market in the last couple of years."

He estimates that the latest hike adds up to an 18 per cent rise in the minimum qualifying salary for employment pass positions since July 2011. "With the overall global economic growth still uncertain, this increase adds on to the cost of doing business in Singapore for employers," said Mr Asherson, who is also Rolls-Royce's regional director for South-east Asia.

He expects manufacturing and financial services firms to be most affected by the latest move, especially large companies which have greater need to fill EP positions.

But Singapore Business Federation chief executive Ho Meng Kit reckons that it is precisely because most EP holders are hired by larger companies that the policy change "should not have a wide impact of increasing business costs".

"Companies could mitigate this increase by replacing EP holders with a local PMET with a salary increase, of which 40 per cent would be covered through the Wage Credit Scheme," Mr Ho added, referring to the government's pledge at the Budget this year to co-fund 40 per cent of wage increases given to Singaporean employees earning a gross monthly wage of up to $4,000, until 2015. "The government is committed to helping businesses restructure with various schemes available," MOM said.

SMEs, which have been hardest hit by the slew of cuts to the ratio of foreigners a firm can hire for each local employee and moves to raise the levies firms need to pay to hire less-skilled foreigners on work permits and S passes over the past three years, may be relatively less affected by the EP changes.

Said Chan Chong Beng, president of the Association of Small and Medium Enterprises: "This will of course increase business costs, but should be manageable for most businesses."

No additional labour costs are expected to arise from the new rules under the fair consideration framework, which businesses yesterday expressed broad support for.

As placing a job advertisement in the new jobs bank is free, the costs may come in the form of missed opportunities to hire strong candidates during the 14 days the advertisement has to stay up for, said UOB economist Francis Tan.

What is clear is that any increase to business costs will feed into more expensive goods and services and fuel further price inflation, said DBS economist Irvin Seah. "Labour costs have been a number-one driver of inflation in the last three years. And it will remain this way as long as tightening is in place. It is part and parcel of restructuring," he said.

He believes that the number of EP holders - which has declined since the last round of EP changes - will continue to fall. "Some of the workers may have been reclassified under S passes," he said.

But S passes are also subject to dependency ratio ceilings and foreign worker levies which are still on the rise, making it harder overall for employers to hire foreigners.

UOB's Mr Tan thinks that at the margins some employers may be sufficiently disincentivised by the hike in salaries to swap foreign professionals on Q1 employment passes for a younger Singaporean with slightly less experience.

Said SNEF president Mr Koh: "Recent surveys show that the starting median gross salary of fresh university graduates is about $3,000. $3,300 for an EP holder would be comparable to a basic salary of about $2,800 plus employer's CPF. Employers will weigh these costs."

MOM said there will be a transition period for existing EP holders. Those whose passes expire before Jan 1, 2014 will get a one-time renewal based on existing criteria. For those whose passes expire anytime from Jan 1 to June 30 next year, a one-time renewal of up to a year will be granted. But after June 30 next year, all existing EP holders will have to meet the new criteria.