UK: Tracing The Effects Of Salary Hikes For Sponsored Workers

On April 4, new salary thresholds for sponsored workers came into effect, as part of the wide-ranging changes to immigration rules that the government confirmed in March

In the weeks leading up to this date, there was a rush of requests for certificates of sponsorship from employers that were keen to beat the changes, as these kinds of updates herald sometimes huge increases in the salaries that need to be paid for many commonly sponsored occupations, such as software and IT professionals.

What do the new rules mean?

First, it's important to note that existing salaries continue to apply to certificates of sponsorship assigned to workers before April 4.

Importantly, the related visa or permission to stay application did not have to be made before April 4 to benefit from current rates. As a certificate of sponsorship must be used within three months of assignment, a certificate assigned on April 3 using the old rates is valid for three months, meaning it can be used up until July 3.

The Home Office will now use the 2020 data contained in an updated set of standard occupation classification codes, or SOC codes, rather than the 2010 list. Some new codes have appeared, while some old ones have disappeared.

Workers sponsored under the defunct SOC codes will continue to be able to reference the 2010 list in their extension and settlement applications.

An issue that we have noted with the new SOC codes is some disconnect between old and new occupation codes, and some big salary threshold increases for the 2020 codes under which workers must now be sponsored. For example, old IT jobs are now covered by the SOC codes with salaries up to 84% higher, which will clearly price many employers out of the market for overseas staff.

Yet, more pain for employers comes courtesy of the move from the Office for National Statistics', or ONS, 2021 annual survey of hours and earnings pay data to the 2023 figures. With recent inflation at high levels, this has added significantly to the salary rates.

The biggest hit for employers, however, results from certificates of sponsorship assigned from April 4 being subject to a new set of salary rates in the immigration rules. The general salary threshold has risen from £26,200 ($32,627) to £38,700, while, for individual SOC codes, the rate has increased from the 25th percentile in ONS pay data to the 50th percentile, or median level.

When the government announced these changes in late 2023, the £38,700 figure grabbed the headlines, but it is the increase to median salary figures across all SOC codes that, once published last month, gave employers much food for thought. In the vast majority of the new occupation codes, the required salary exceeds £38,700, often by a huge margin. All these changes together mean major wage rises for the majority of occupations. However, the percentile changes won't apply to health and care visas or jobs where rates are set using national pay scales, such as teachers, where salaries will remain set at the 25th percentile.

The general threshold here is £23,200, up only slightly from £20,960. This reflects continuing staff shortages in these sectors, and will be welcomed by the National Health Service and other public sector employers. It is therefore the private sector that is disproportionately hit by these rule changes.

Is there any respite for the private sector?

Importantly, discounting is introduced for workers already sponsored before April 4 who mneed to extend their stay or settle in the U.K. These transitional salary thresholds carry a general threshold of £29,000 up from £26,200, or the "going rate" for the SOC codes set at the 25th percentile under 2023 pay data.

This is a benefit to employers of overseas staff already in the skilled worker route who will not face the need to pay much higher salaries when a visa needs to be renewed. These transitional rules will remain in place for applications made before April 3, 2030, giving much-needed certainty.

Discounting will also continue for new entrants to the labor market, which covers students, graduates and those under 26. For them, based on the same 70% discount as before, the general salary threshold is £30,960.

For individual SOC codes, however, rates increase from the 25th to the 50th percentile of 2020 pay data, meaning some big rises for particular jobs.

The attraction of sponsoring as a new entrant therefore becomes stronger for employers. Some businesses recognize that this is only a short to medium-term fix, because this type of sponsorship can only be issued for up to four years, including any time the candidate has spent on a graduate visa. The question is what to do with sponsored staff beyond their time as new entrants.

Employers with large graduate recruitment — understood in the broadest sense — recognize that they will feel the pain when their new entrants have to transition to standard sponsorship. By that time, they are likely to still be relatively early in their careers, and much higher salaries will be difficult to justify. It is this middle ground of junior to intermediate-level employees who will feel the pinch the most when it comes to future sponsorship. High-level and C-suite jobs are far more likely to be paid at rates that exceed the new thresholds. It will be retaining, rather than initially recruiting, fresh talent that employers will find challenging, while senior recruitment is likely to be relatively unscathed.

Changes mid-sponsorship clearly have the potential to raise employment law issues for businesses, which may be accused of discriminating against either overseas staff whose contracts are not renewed due to wage requirements, or against resident workers who find themselves being paid less than their foreign counterparts.

Let's take, as an example, a sales executive already sponsored under the 2010 SOC code 3545 — which covers sales accounts and business development managers — as a new entrant who has switched from a graduate visa back in May 2022.

With the 70% discount available to them, their minimum salary is £24,570. However, they spent two years as a graduate before May 2022, so they can only be sponsored at this rate for a further two years. They will complete their maximum four years as a new entrant in May 2024, requiring them to extend their stay under the new rules as they work toward settlement.

As transitional provisions apply and SOC code 3545 no longer applies, we look at replacement codes. Using the 2020 SOC code 3556 "Sales accounts and business development managers," the transitional going rate for a salary is £39,100.

By way of comparison, if this worker were starting out as a new entrant sales executive inMay 2024, their salary would have to be at least £36,750, an increase of almost 50% on what they are currently paid.

This example also serves to illustrate the complexity of the new rules, in particular their transitional arrangements. Employers will have to take care when requesting and assigning certificates of sponsorship after April 4.

There are changes to discounting

For PhD applicants, discounting remains at 90%. The general threshold increases from £23,580 to £34,830, and individual SOC codes are set at the 50th percentile instead of the 25th.

A PhD in a science, technology, engineering and mathematics subject attracts an 80% discount, which gives a general threshold of £30,960, up from £20,960, and the same percentile increase for individual SOC codes.

Finally, the shortage occupation list has been replaced by a much shorter immigration salary list. Under the latter, a general salary threshold of £30,960 — compared to the old shortage occupation list figure of £20,960 — will apply, with going rates for individual SOC codes rising from the 25th to the 50th percentile. The new rules remove going rate discounting for immigration salary list jobs.

Let's consider another example for shortage occupations under the old 2010 SOC code 2137 for web design and development professionals. Under pre-April 4 rules, the standard salary minimum is £26,800, but this is a role that was included in the shortage occupation list, so it qualified for an 80% discount, giving a minimum salary of £21,440. After April 4, the new 2020 SOC code 2137 covers IT network professionals, but importantly it does not include the old 2010 code 2137. Instead, we must look at the successor codes for 2137 for the most appropriate fit.

If we settle on SOC code 2139 for IT professionals not elsewhere classified, the standard minimum salary rises from the 25th to the 50th percentile based on ONS 2023 data, giving a starting point of £42,800, which is a huge 60% increase. If we had to choose successor code 2134 for programmers and software development professionals, the figure is £49,400, up 84%.

Neither of these SOC codes are included in the immigration salary list, so no shortage occupation discounting applies to those new to these sponsored work codes. These rises are likely to have a huge impact on the recruitment of overseas staff into such roles. Some companies have commented that their IT recruitment program will have to be completely redesigned as a result of these changes, highlighting their reliance on overseas hires.

The situation is slightly better for a worker who is already sponsored as a shortage occupation list hire in this set of SOC codes and who needs to extend their visa or settle with their current employer. Transitional rules give a going rate of £25,280 for SOC code 2139 and £29,040 for SOC code 2134. The inclusion on the shortage occupation list passports the worker to continued discounting, despite the fact that their role is not on the immigration salary list.

However, it should be noted that these discounts will not apply if switching employers, making it more difficult for workers to move around and potentially leave a position in which they do not feel comfortable.

Additional sponsored work changes have been implemented

In unexpected changes to supplementary work rules, the government will no longer require such work to be either in the same SOC code as the sponsored position, or in a shortage occupation list or immigration salary list role. Instead, sponsored workers will be able to do up to 20 hours per week of supplementary work in any role that is capable of sponsorship under skilled worker rules.

The salary thresholds in global business mobility routes — including senior and specialist workers and expansion workers — will rise from £45,800 to £48,500. The so-called high earner threshold remains at £73,900. And, finally, for graduate trainees, the threshold has risen from £24,220 to £25,410.

The sponsorship landscape is changing

This article is a summary of changes to immigration rules that span almost 300 pages. The various twists and turns of the new sponsored worker rules leave the impression of a hugely complex system. The need to insert a whole new tranche of transitional arrangements is a direct result of the huge salary hikes across occupations, which will almost exclusively affect private sector employers.

Without them, currently sponsored staff would have found themselves high and dry when extending their visas or applying for permanent residence, with employers unable to afford massive percentage increases to wages. Such staff will still struggle when moving jobs, either at their employer's behest or of their own volition. Unhappy overseas workers will increasingly find they need to stick with their current position.

Larger employers with defined salary structures will struggle to sponsor more than smaller businesses hiring one or two key staff a year into sponsored roles, since overseas talent will often have to be paid outside that employer's salary structure in many jobs — a move that is simply not palatable for many.

While this disparity has always existed for regional employers, when compared to those in London and the southeast of England, these new wage thresholds will make it more difficult for them to sponsor overseas talent. Big increases across the board, without any regional variation or nuance, will price many of them out of the market.

A form of weighting depending on location could go some way to leveling up the system,and may be something for a future Labour government to consider, if it does not have thestomach for wholesale overhaul of the sponsored work scheme.

We anticipate significant falls in levels of sponsorship for overseas workers, something that the government has made clear was its policy intention when these changes were announced in December 2023.

What may rankle with the private sector is that public sector jobs are left largely unscathed. We are now seeing regular reporting of abuses in, for example, the care sector, which — while private — continues to benefit from lower pay rates.[1] Unscrupulous care employers are, in fact, facing increased Home Office scrutiny as they sponsor overseas staff, but they remain able to pay their staff at far lower rates than sectors recruiting into specialized and highly-skilled roles.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.