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In our little island nation, small and medium-sized enterprises (SMEs) form the backbone of Singapore’s economy, contributing almost 50% of the country’s GDP and employing 70% of our local workforce. Since 2019, the number of businesses in Singapore has grown from 273,100 to more than 300,000 in 2024, of which 99% are SMEs. Clearly, SMEs are crucial to Singapore’s economic advancement.
However, SMEs often face a different set of HR issues compared to their multinational counterparts. Because they have limited resources and smaller teams, HR challenges are more pronounced than in large corporations. And because HR issues, like talent acquisition and compliance, directly impact productivity and growth, it is important for these businesses to find timely and effective solutions to nip these issues in the bud for the company’s long-term success.
Speaking at one of Workforce Singapore (WSG)’s Employers Connect sessions on navigating an evolving workforce, Stephanie Chua, founder and principal consultant of HR advisory firm Vault Personnel, shared the top 4 challenges faced by SMEs in Singapore, as well as the solutions to help.
Here’s a summary what she shared with fellow employers at the session.
1. Talent cost
In July 2024, the Local Qualifying Salary (LQS) in Singapore went up $200 to $1,600 per month. To combat the rising salary requirements, Stephanie recommended that SMEs improve their work efficiency to manage labour costs better. By optimising work efficiency, SMEs can then better “allocate tasks and streamline processes, leading to increased productivity and reduced operational costs”.
SMEs can also consider outsourcing non-core activities, such as backend functions, to reduce overhead costs and free up internal resources for more strategic functions, she added. Implementing digital solutions can “lower administrative costs to reduce the need for additional staff”, which could impact the bottom line.
Other recommendations include developing a pay structure that addresses competencies rather than tenures, as well as emphasising a positive work culture that offers flexible work arrangements and effective employee recognition programmes to increase job satisfaction and retention despite wage constraints.
2. Talent crunch and turnover
According to recent statistics, the average tenure of employees in Singapore hovers at about two years. It is important, said Stephanie, to know why your staff is leaving your company and to “learn from your staff directly, rather than hearing from the team”. This can be done, she recommended, through enhanced employee retention strategies such as “robust onboarding and training programmes to ensure new hires are well-integrated and supported”.
She also recommended SMEs organise regular monthly feedback sessions and quarterly town halls to address concerns and keep staff informed of company plans. “Actively receiving, addressing and communicating feedback helps to shape a positive company culture,” she said.
Lastly, she strongly urged SME employers to consider internal promotions. This, she said, “not only boosts employee morale but also demonstrates career growth opportunities, making the company more attractive to candidates”. It also reflects the company’s “commitment to career development”.
3. Compliance with statutory laws
“Compliance with statutory laws is not just about avoiding penalties; it’s also about safeguarding your company’s future and maintaining the company’s positive image,” said Stephanie. Some of these changes to statutory laws highlighted in her sharing included the Progressive Wage Model (PWM) implemented in 2022, the increase of the CPF ceiling, as well as changes in retirement/re-employment guidelines that SMEs are to adhere to.
It is, therefore, crucial that companies comply with these laws, which impacts the company’s reputation and viability. “By committing to these practices, you protect your business, ensure operational stability and build trust with stakeholders and employees,” she added.
4. Culture building
A work culture that focuses solely on work with no breaks or team-building activities only leads to burnout and decreased morale. As such, having employee engagement programmes, or even daily lunches, can boost employee morale outside of work. Furthermore, failing to recognise and reward staff can also reduce morale and engagement.
As such, there are three questions that Stephanie raised for companies to think about regarding building a company’s culture:
- What role does the leadership play in shaping and maintaining the company culture?
- What strategy do you use to promote employee engagement and satisfaction?
- How do you ensure new hires fit into the company culture and help them integrate into the team?
One way a company can better engage staff is by introducing changes in the company. Stephanie recommended employers share upcoming plans for the organisation and expectations to assist staff who may be more resistant to change. This helps with better workforce adaptation and growth.
Furthermore, establishing strong HR frameworks, policies, and guidelines can help the company better take care of its people and the business. A weak one only leads to inconsistencies and confusion, which affects employee satisfaction and compliance.
Stephanie concluded by emphasising that it is a strategic necessity for SMEs to adopt good HR practices and that overcoming HR challenges is crucial for a company’s success.
“Proactive human resources is more than just a best practice,” she said. “This includes implementing standard operating procedures, staying current with guidelines and ensuring compliance.”
