From July, foreign workers in three industries must pass it in order to get a work permit as a skilled worker. The industries are hotel, food and beverage, and retail.
The test will have two components, speaking and listening.
If a worker attains skilledstatus, his employer will save $90 a month on the foreign worker levy.
Details of the Service Literacy Test (SLT) to improve standards and productivity in the service sector were revealed yesterday by Mr Lee Yi Shyan, Minister of State for Manpower and Trade & Industry. He first announced the change last month.
The issue of foreigners in service jobs not understanding basic English has been commented upon by Singaporeans.
The three industries employ more than 330,000 local and foreign workers. An employer who hires a worker who passes the SLT test will pay $150 a month in levy, as long as the worker also possesses the relevant skills certification.
Otherwise, the employer pays $240 a month in levy for an unskilled worker.
The Government is not making the test compulsory. 'We will continue to allow employers to make their own business decisions and determine language requirements according to their needs,' said Mr Lee at the Conrad Centennial Hotel yesterday.
'We do not expect foreign workers to be able to speak perfect English after passing the SLT. However, we do expect them to be able to understand and be understood by most Singaporeans and tourists,' he added.
The Manpower Ministry has appointed the Workforce Development Agency to implement the two-hour test. It comprises about 60 questions that will evaluate speaking and listening skills.
Employers can sign their workers up for courses, such as one in basic conversational English by NTUC Learning Hub.
Employers are generally positive about the change.
Mr William Chiam, operations manager of Chinese restaurant Pu Tien, said: 'In Singapore, English is the first language, so it's good for the staff to know basic English.'
Miss Joyce Chan, assistant learning and development manager at retailer Charles & Keith, said having sales staff who know basic English ties in with her company's aim to provide a 'total' shopping experience.
But smaller firms may have difficulty forking out money to prepare their staff for the test, said Mr Ang Kiam Meng, president of the Restaurant Association of Singapore.
Still, lessons alone are not enough, said Mr John Park, 25, who is from South Korea. The junior captain at Conrad Centennial also reads English books and newspapers.