In the Government’s latest move to reduce net migration and revive the domestic labour market, as of 6 April 2017, employers will have to pay an ‘Immigration Skills Charge’ to bring skilled foreign workers to the UK on a Tier 2 visa.

Under the new charge, all organisations, including care home providers, that hold a Home Office-issued sponsor licence will be made to pay an additional £1,000 per year for every Tier 2 non-EU national they hire. Small employers will be charged a reduced fee of £364 per worker.

Announcing the new skills charge in March 2016, the Home Office stated it was designed to “incentivise training of UK workers”, and to “reduce Britain’s reliance on migrant workers and upskill British workers”.

The latest figures show net migration is currently at 273,000, meaning there is still some way to go for the Government to meet its target of 100,000.

The Government hopes the Immigration Skills Charge will help to bring down current levels of migrant workers by out-pricing employers from the global labour market and increasing the commercial attractiveness of the UK workforce.

New Immigration Skills Charge – in brief

The Immigration Skills Charge is levied at £1,000 per Tier 2 migrant per year for medium or large sponsors, and £364 per year for charitable or small sponsors. Small businesses typically have an annual turnover of up to £10.2 million or 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:

  • 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 (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
  • 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

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

The rising cost of hiring skilled foreign nationals

Importantly for employers, the Immigration Skills Charge is being levied as an addition to the already-burdensome cost of recruiting and sponsoring workers from outside the EU. For example:

  • Tier 2 visa application – £575
  • Certificate of Sponsorship fee – for medium-large employers – £199 per migrant
  • Sponsor licence fee for a small Tier 2 sponsor – £536
  • Immigration Health Surcharge – £200 per annum
  • Other costs including relocation package etc

When totalled over the course of a sponsorship, the cost to employers of hiring skilled workers under Tier 2 becomes substantial, and in some cases, prohibitive.

While a concession has been made for small businesses and charities, the impact on employing migrant workers is expected to be felt across the health and social care sector.

Faced with the mounting costs of Tier 2 sponsorship, small to medium sized businesses may have little choice than to explore alternative visa entry routes to meet their recruitment needs, or even reduce or remove reliance on migrant workers to avoid the financial burden of hiring from overseas. At scale, this could impact UK prospects of economic growth.

Reviving the domestic labour market at the expense of UK employers?

The charge comes into force at a difficult time for UK immigration.

Against a backdrop of Brexit, a survey by the CIPD earlier this year found 27 per cent of employers believe the EU nationals they employ are considering leaving their jobs and possibly the country in 2017. The same survey concluded that sectors which rely on the 3 million-strong EU workforce are already experiencing skills and labour shortages.

Which is where the UK labour market is expected to step up and step in.

There remain however question marks around the degree to which the UK labour market is able – or willing – in its current form to satisfy current and future demand for workers.

The health and social care sector in particular relies on foreign nationals to plug gaps where the domestic labour market fails. Adding further financial burden to the existing cost and effort in retaining a sponsor licence is unlikely to be welcomed.

Faced with an exodus of EU nationals, critical skills shortages in the UK domestic market, and being out-priced in the global labour market, UK employers are facing a potentially costly future to meet their recruitment needs.