The latest planned changes to UK immigration rules take effect in April 2017. They bring with them considerable financial implications for employers of skilled workers from outside the EEA, namely those hiring under the Tier 2 route.

New Immigration Skills Charge

From 6 April 2017 organisations who sponsor Tier 2 migrant workers will have to pay an ‘Immigration Skills Charge’ for each sponsored worker.

The skills charge will be £1,000 per Tier 2 migrant per year for medium or large sponsors, and £364 per year for charitable or small sponsors. You will usually be considered to be a small business if your annual turnover is £10.2 million or less or you have 50 employees or fewer.

The charge covers the total period of time of the certificate of sponsorship (CoS) and will be paid at the same time that the CoS is assigned.

The skills charge will apply to the Tier 2 General or Intra-company Transfer routes and to migrants who will be applying from:

  • outside the UK for a visa
  • inside the UK to switch to this visa from another
  • inside the UK to extend their existing visa

The skills charge will not apply if you are sponsoring:

  • a Tier 2 migrant sponsored before 6 April 2017 and who is applying from inside the UK to extend their Tier 2 stay with either the same sponsor or a different sponsor
  • a Tier 2 (Intra-company Transfer) Graduate Trainee
  • a worker to do a specified PhD level occupation
  • a Tier 4 student visa holder in the UK switching to a Tier 2 (General) visa

The skills charge is not payable for the worker’s family members (‘dependants’).

The rising cost of the Tier 2 visa

The important point for employers is that the Immigration Skills Charge must be added to the existing costs of sponsoring a skilled foreign worker. These include:

  • Tier 2 (General) Visa applications now cost £575
  • CoS fee – for medium-large employers is £199 per migrant.
  • Sponsor licence fee – depending on the size of the organisation. For a large Tier 2 sponsor, the annual fee is £1,475. For a small Tier 2 sponsor, the annual licence is £536.

But there is more! Also to consider are associated costs of hiring Tier 2 workers, such as relocation packages, legal costs and the Immigration Health Surcharge (£200 per annum) etc. When totalled over the course of the sponsorship, the cost to employers of hiring under Tier 2 has become substantial, and in some cases, prohibitive.

While a concession has been made to small businesses and charities, the impact on employing migrant workers is expected – and intended – to be felt across the board.

Reviving the domestic labour market?

Notwithstanding reported domestic skills shortages and reports of EU workers leaving the UK in response to the Brexit referendum result, the rising cost of hiring from overseas is a direct move by the Government to reduce the UK’s net migration.

According to the Home Office, the new Immigration Skills Charge, coupled with the increase in the minimum salary threshold (£30,000 as of 6 April 2017), is intended to incentivise UK employers to invest in development and recruitment of domestic labour.

In response, UK employers hiring overseas workers should take steps to review their existing recruitment strategies, and how these will be impacted by the forthcoming changes to the immigration rules.

In a recent survey by the CIPD, a quarter of employers surveyed stated they intend to absorb the increased cost of hiring foreign workers. By choosing not to adjust their recruitment strategies, it becomes a case of employers simply footing the bill for government’s longer term domestic skills and training strategies.

Other employers however, most likely smaller to medium sized, for lower skilled roles and those not covered by immigration exemptions such as the Shortage Occupation List, may have little choice than to reduce reliance on migrant workers to avoid the financial burden of hiring from overseas.

There remain however question marks around the degree to which the UK labour market is able – or willing – in its current condition, to satisfy this demand now. So while long term strategies to improve the skills of UK born workers take time to embed and bear fruit, through for example apprenticeship schemes, employers may have little choice than to do without in the short term which, taken on a larger scale, would impact prospects of economic growth.

Alternative Immigration Strategies

While nurturing a more competitive, upskilled domestic labour market is critical for the future economic sustainability and success of the UK, particularly as Britain withdraws from the EU, the commercial reality remains that employers need to hire workers to meet they needs today.

Faced with mounting costs of migrant sponsorship, this could mean exploring alternative visa and entry options.