From April 2017 employers face the payment of an Immigration Skills Charge (ISC) for sponsoring migrant workers. We set out the 5 key points that employers need to be aware of.

1. What is an ISC?

The much anticipated ISC came into effect on 6 April 2017 and is levied on employers that employ migrants in skilled roles. It is designed to cut down on the number of businesses taking on migrant workers and for the funds raised to be used to address the skills gap within the domestic workforce; although the precise details of what this would entail are yet to be revealed.

The ISC must be paid if the worker is applying for a visa to work in the UK for 6 months or more under either a Tier 2 (General) visa or a Tier 2 (Intra-company Transfer) visa. If the worker has applied for their visa from within the UK the employer must pay the charge even if the worker is applying for less than 6 months.

2. Are there any exceptions?

An employer will not need to pay the ISC if the worker being sponsored:

  • has a Tier 4 (Student) visa and is switching to a Tier 2 (General) visa;

  • has a Tier 2 (Intra-company Transfer) Graduate Trainee visa;

  • will do a job with a PhD level standard occupational classification (SOC) Code;

  • has a certificate of sponsorship which was assigned before 6 April 2017; and

  • is an to existing Tier 2 worker already in the UK before 6 April 2017 who is subsequently wanting to extend their Tier 2 stay, or change job or employer.

An employer will also not be required to pay the ISC for any of the worker’s dependants, for example their partner or child.

3. How much will employers need to pay?

The ISC is set at £1,000 per worker per year for large employers, with a reduced rate of £364 for small or charitable organisations. For Home Office purposes, an organisation is regarded as a large employer if its annual turnover is in excess of £10.2 million, or if it has more than 50 employees.

The whole charge is payable upfront by the employer at the point of issue of the certificate of sponsorship, and the charge cannot be passed on to the worker. It should therefore be excluded from any claw back provisions in a migrant's contract. This was not something which was made clear prior to the guidance being issued in April 2017.

4. If the circumstances change, can the ISC be refunded?

Employers are able to obtain a full or partial refund in prescribed circumstances:

  • Full refund - where a migrant has a visa application refused or where the application is withdrawn; and

  • Partial refund - where a migrant leaves the job early, they start work but then change to another sponsor, or they receive less time on their visa than which the employer intended to sponsor them for.

Refunds are processed automatically (usually within 90 days) via the Sponsorship Management System (SMS) upon the following:

  • the reporting of the migrant's change in circumstances;

  • 90 days after the expiry of a certificate of sponsorship that has not been used; or

  • 90 days of the date of the worker's visa application being refused or withdrawn (including any application for administrative review).

Notwithstanding the timeframes proposed it is likely that the refund process will be slow in the same way it has been for the Immigration Health Surcharge; with the turnaround time likely to be determined by the number of refund applications being dealt with at any given time. As an employer, you may therefore experience some delay before the ISC paid can be recovered.

5. What does this mean for employers?

Employers are left with little choice but to recruit from outside of the EEA given the skills shortages in certain professions and sectors which remain in the UK. This may well be compounded with the UK's preparations for their exit from the EU.

The rising cost of overseas recruitment, in addition to increases to the minimum salary threshold and the rising cost of visa applications, is a direct move by the Government to reduce the UK’s net migration. This trend is likely to continue for some time. Whilst long term strategies to improve the skill set of UK workforce are being discussed and implemented in some sectors, they are still in their early stages.

In the meantime UK employers hiring from outside the EEA will want to consider taking steps to undertake a 'cost v benefit' analysis of their existing recruitment strategies and the financial implications arising from overseas recruitment. UK employers may also want to start identifying any skills gaps in their existing workforce with a view to training up existing employees. Investing in current employees in this way will assist with reducing the need for recruitment outside of the EEA and may prove to be a more commercially viable investment plan for the future.