Understanding the Foreign Worker Levy

Posted on 2 April 2024 by IRIS FMP


The foreign worker levy is a fee that employers in certain countries and markets must pay when they hire foreign employees. It is designed to encourage businesses and organizations to employ local talent over foreign workers and is a government mandate in locations where it applies such as Saudi Arabia, Singapore, Malaysia, and Hong Kong.

This article will explain what foreign worker levy is, how it works, and the implications for employers hiring foreign citizens for work purposes in today’s globalized economy.

What is the foreign worker levy?

Essentially, the foreign worker levy is a type of government pricing system developed to regulate the number of foreign workers in a specific country or sector. It applies to foreign workers that do not have permanent residence (PR) status.

Many businesses and organizations with a global presence rely on foreign talent to meet their workforce needs, but navigating laws and regulations relating to foreign workers and understanding the foreign worker levy can be complex. For instance, the levy involves more than just regular payments to an appropriate government authority and can also include the registration of foreign workers as well as reporting their employment status.

Non-compliance with foreign worker levy requirements can lead to fines, penalties, and legal action for the employer. In order to remain fully compliant with a country’s foreign worker levy rules and ensure employees are paid accurately and on time, many international employers outsource their global payroll function to an experienced provider with specific knowledge and expertise of that region.

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What is the purpose of the foreign worker levy?

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As we touched on, the foreign worker levy is a financial requirement imposed by some governments on employers who hire foreign workers. It is a type of tax or fee that employers must pay for each foreign worker they employ. For example, Saudi Arabia has a monthly expat levy known as the Maktab Amal Fee directed at employers seeking an Iqama Residence Visa and work permit to relocate foreign talent to the region.

There are several reasons why some countries impose a foreign worker levy – the ability to control the number of non-domestic workers within their borders being just one. While the purpose of a foreign levy can vary from country to country, it typically serves the following common objectives:

1. Regulation and control

The foreign worker levy gives governments tighter jurisdiction over the hiring of foreign employees within their borders. By enforcing a levy, they can regulate and control the number of foreign workers operating within a country’s job market.

2. Protection of local workers

For some governments, the foreign worker levy is a method for protecting the interests of domestic workers over those of foreign employees. Essentially, the levy and the fees imposed in those countries discourage employers from hiring foreign workers unless there’s a genuine reason such as a skill or labor shortage.

3. Creation of domestic job opportunities

Conversely, some countries use the foreign worker levy to encourage employers to prioritize the hiring of local talent or permanent residents over foreign employees. Doing so can lead to the creation of new employment opportunities for domestic workers and help boost the local economy.   

4. Greater revenue generation

Imposing foreign worker levies enables governments to generate additional revenue and increase their domestic spending power. Money raised from the foreign worker levy can be redirected to fund a wide variety of sectors and programs such as workforce development, healthcare, education, and public services.

How much are foreign worker levy fees?

The amount employers must pay in foreign worker levy fees differs between each country and depends on several important factors. These include:

  • The duration of the foreign worker’s employment.
  • Local employment laws and regulations.
  • The type of industry.
  • The current exchange rate.
  • The nationality of the foreign worker.
  • Foreign worker employment quotas and restrictions.

The levy rate for foreign workers depends on the country and sector in which the employing company operates. The levy is also determined by the foreign worker’s qualifications and whether they are highly skilled or have basic skills. For example, the foreign worker levy rate in Singapore ranges from S$300 to S$950 depending on that person’s skill level as defined by the country’s Ministry of Manpower.

What are the penalties for failing to pay the foreign worker levy?

Businessman looking at buildings

Foreign worker levy rates and regulations differ from one country to another and are often subject to change due to new government policies and fluctuating economic conditions. Therefore, employers must closely observe foreign worker levy regulations that affect them as they are wholly responsible for covering the cost of the levy.

Neglectful employers that miss foreign worker levy payments or do not pay in full are likely to incur severe fines and penalties. For example, in Singapore this could mean:

  • A late payment penalty of 2% each per month or $20, whichever is greater. Late payment penalties are capped at 30% of the outstanding levy.
  • The employer’s existing Work Permits will be immediately cancelled.
  • Employers will be prevented from applying for or issuing Work Permits, as well as renewing existing Work Permits.
  • Potential legal action to recoup all unpaid levy fees.
  • Any associated companies, partners, or directors may also be denied Work Permits.

Therefore, any employer that hires workers from abroad or another country must fully comply with foreign worker levy regulations or risk severe penalties, reputational damage, and a reduction in business opportunities.

What are the different types of foreign worker levy?

There are several different types of foreign worker levy, and each is aimed at specific industries, sectors, and employment needs within that country. These include:

Quota levies: This is the equivalent of a fine imposed on the employer for breaking the government’s quota on the number of foreign workers they’re allowed to employ.

Work permit levies: The fee that an employer pays to cover the cost of processing the work permit of each foreign worker.

Sector levies: Specific sectors such as those with a greater reliance on foreign labor like construction, health, and hospitality often have their own foreign worker levy fees.

Length of service levies: A fee that is calculated according to the length of time a foreign worker has been in employment with their employer.

Are there exemptions from paying the foreign worker levy?

A group of people having a discussion

Yes, it is possible to waiver the foreign worker levy under certain circumstances such as overseas leave and medical or hospitalization leave. There must be a genuine reason for an employer to waiver a levy, and governments often require proof before a waiver is granted. Reasons for securing a foreign worker levy waiver may include if the worker:

  • Has overseas leave for at least 7 consecutive days, but no more than 60 calendar days per calendar year.
  • Has medical or hospitalization leave by an approved doctor capped at 60 calendar days per calendar year.
  • Is in police or embassy custody.
  • Has passed away.
  • Has become a permanent resident of the foreign country in which they work.
  • Is undertaking National Service in their home country or region.

In general terms, the employer can apply for the foreign worker levy waiver only after the levy has been charged, and within one year of its issue.

Looking for foreign worker levy advice?

Getting to grips with the foreign worker levy can be a challenge, but with proper understanding and compliance, organizations can avoid penalties and legal issues. At FMP, we have vast experience of supporting companies with managing their international workforce. Can we help you? Contact us today.