On 24 March, the UK Government announced significant reforms to Tier 2, the migration route for those who have a confirmed job offer to undertake skilled work in the UK, in response to the Migration Advisory Committee’s (MAC’s) review of Tier 2, which was completed at the end of 2015. Although these changes will not affect the overall structure of the Tier 2 immigration category, they will make it significantly more costly, through increases in the minimum salary thresholds and the introduction of additional charges, for UK companies to sponsor non-EEA nationals to work in the UK.

Set out below are details of the changes that the UK Government intends to implement. They will be introduced in stages: some changes will be implemented in autumn 2016, others in April 2017. Some of the changes will not apply to certain public sector occupations until 2019. It is important to note that the UK Government has decided to implement the majority, but not all, of the MAC’s recommendations.

TIER 2 (GENERAL)

Increase  in  Tier  2  (General)  minimum  salary  threshold:

The UK Government will increase the Tier 2 (General) minimum annual salary threshold, first to £25,000 in autumn 2016 and then to £30,000 in April 2017, for experienced workers, whilst maintaining the current threshold of £20,800 for new entrants. Nurses, medical radiographers, paramedics and teachers in certain subjects will be exempt from the new salary threshold until 2019.  This change has the potential to distort the local labour market since, if an employer is only able to identify a non- EEA worker to undertake a skilled role which would normally attract a salary below the revised minimum salary requirements, it would end up having to offer a higher salary for that role, even if it was eventually filled by a local worker. In addition, this higher threshold for experienced workers will potentially make it even more difficult for new entrants to be able to continue in their roles on a long term basis since they are required to meet this threshold once they have been sponsored for three years.

UK graduates to be given priority under the Tier 2 (General) limit: From autumn 2016, requests for restricted Certificates of Sponsorship (CoSs) for non-EEA nationals who have graduated from UK universities will be weighted more heavily under the Tier 2 (General) limit. When the MAC made this recommendation, it said that, as part of the allocation process, £7,000 should be added to the annual salary for graduates recruited onto graduate schemes as this is the difference between the recommended minimum salary threshold for new entrants and experienced hires under Tier 2. However, given the increases to the minimum salary threshold set out above, it is yet to be seen whether the UK Government will use this method to prioritise these applications or whether it will simply allocate more points to this type of application under the limit. The UK Government will also implement a change to enable graduates to switch roles within a company once they have secured a permanent role at the end of their training programme.

Resident Labour Market Test (RLMT) exemption in certain situations: From April 2017 the UK Government will waive the RLMT and give extra weighting under the Tier 2 (General) limit where the request for a restricted CoS is associated with the relocation of a high-value business to the UK or, potentially, supports an inward investment. This change seems to mark the reintroduction of the inward investment category which had previously been part of the work permit scheme, which was replaced by Tier 2 in November 2008. It will be interesting to see how the UK Government intends to define a “high-value business” and what level of inward investment will trigger this exemption.

Nurses to remain on the Shortage Occupation List: Although nurses will remain on the Shortage Occupation List (SOL), employers will need to carry out a RLMT before recruiting a non-EEA nurse. Consequently, it appears that,although nurses will continue to receive extra weighting under the Tier 2 (General) limit for being on the SOL, they will no longer be subject to the RLMT exemption which applies to other positions on the SOL.

TIER 2 (INTRA-COMPANY TRANSFER) (ICT)

Single minimum salary threshold for all Tier 2 (ICT) routes: In autumn 2016, the UK Government will increase the annual salary threshold for the Tier 2 (ICT) Short Term route to £30,000 and will abolish the Tier 2 (ICT) Skills Transfer category. The Tier 2 (ICT) Short Term category will then be abolished in April 2017 which will mean that all Tier 2 (ICT) migrants (except those entering under the Tier 2 (ICT) Graduate Trainee route) will have to be paid a minimum annual salary of £41,500. This will obviously have a huge impact on those companies, particularly in the IT and consulting industries, that currently transfer large numbers of individuals to the UK for short periods under the Tier 2 (ICT) Short Term route. The minimum annual salary threshold for Tier 2 (ICT) Graduate Trainee migrants will, in autumn 2016, be reduced to £23,000 and the number of places available to companies under this route will increase to 20.

Lowering the high earners’ threshold: From April 2017 the UK Government will lower the high earners’ annual salary threshold from £155,300 to £120,000 for Tier 2 (ICT) migrants looking to stay in the UK for between five and nine years. Disappointingly, it appears that the high earners’ threshold will not be lowered in all situations, for example to secure an exemption from the 12 month “cooling off” period or, in the case of the Tier 2 (General) route, the RLMT.

Removal of the 12 month experience requirement: From April 2017, for those applying to enter the UK under Tier 2 (ICT) (other than the Tier 2 (ICT) Graduate Trainee route) who will receive an annual salary of £73,900 in the UK, the UK Government will remove the requirement that they must have one year’s experience working for the sponsor overseas before submitting their application.

Immigration Health Surcharge (IHS) to apply to Tier 2 (ICT) migrants: From autumn 2016, Tier 2 (ICT) migrants will be required to pay the IHS.

Review of the use of allowances: The UK Government will undertake a review of the allowances that make up a component of a Tier 2 (ICT) migrant’s salary to see whether these work in the interest of the UK, and implement any changes in April 2017.

ACROSS BOTH TIER 2 ROUTES

Introduction of the Immigration Skills Charge (ISC): From April 2017, the ISC will be levied on Tier 2 employers at a rate of £1,000 (£364 for small and charitable sponsors) per person per year. PhD roles, Tier 2 (ICT) Graduate Trainees and Tier 4 to Tier 2 switchers will be exempt. From a cost perspective, this is the change which is likely to have the largest impact on employers, especially as it will be in addition to the Apprenticeship Levy which is also due to be introduced in April 2017.

Simplification of the Immigration Rules: The UK Government intends to simplify the Immigration Rules which apply to Tier 2, with the aim of making them easier for sponsors and applicants to understand. The UK Government undertook a similar exercise last year in relation to the Immigration Rules which applied to visitors.

MAC RECOMMENDATIONS WHICH ARE NOT BEING IMPLEMENTED

The UK Government states that it recognises the importance of encouraging international students to undertake skilled work in the UK after their studies. Consequently it is not implementing the MAC’s recommendations that students switching from Tier 4 to Tier 2 should be included in the annual limit and be subject to the RLMT.

It is also not implementing the recommendation that those intending to enter the UK under Tier 2 (ICT) should be required to have worked for their sponsor overseas for two years, rather than 12 months. Furthermore, it is not introducing a separate category for Tier 2 (ICT) migrants who are coming to the UK to work on third party contracts. However, it should be noted that, by requiring all Tier 2 (ICT) migrants to be paid at least £41,500, the UK Government is effectively introducing all of the MAC’s recommendations in relation to Tier 2 (ICT) migrants working on third party contracts.

CONCLUSION

These far reaching changes will drastically increase the cost to UK employers of sponsoring non-EEA nationals to work in the UK under Tier 2 and it remains to be seen whether this increase in cost, and inevitable decrease in the numbers of skilled migrants coming into the UK, will affect the attractiveness of the UK as a place to do business and for inward investment. In addition, it will be interesting to see whether measures to prioritise those coming to the UK to work for high-value businesses or support inward investment will be enough to encourage overseas companies to establish entities and invest in their UK businesses, taking into account the additional costs which will be involved in transferring and / or hiring non-EEA migrants to work in the UK.

The UK Government is keen to engage with stakeholders regarding the precise details of the proposed changes and Macfarlanes will be closely involved in this consultation process. In the meantime, it is important that employers who currently sponsor non-EEA migrant workers under Tier 2, or who are considering doing so in the future, review their HR, recruitment and global mobility policies, processes and procedures to see whether any amendments need to be made in advance of these changes being implemented.