Labour proposes to scrap 20% salary reduction for shortage occupations

13.06.2023

According to the latest official immigration statistics published by the Home Office, net migration to the UK hit a record high of 606,000 last year.

Following the release of the figures, Prime Minister Rishi Sunak has faced criticism from the opposition and from his fellow Conservative MPs for breaking the promises his party made in its 2019 manifesto to reduce immigration.

In a Prime Ministers Questions held last month, Labour party leader Keir Starmer accused the government of having “lost control of immigration” and attacked the “low-wage Tory economy” for being overly reliant on overseas labour to fill skills shortages in the UK.

During the session, Starmer announced his party’s plans to change the post-Brexit immigration system to boost skills and wages, telling MPs that a Labour government would “fix the apprenticeship levy, fill the skills gap and stop businesses from recruiting from abroad if they don’t pay properly.”

If in power, Labour would seek to scrap the current rule which allows employers to pay overseas workers 20% less than the equivalent domestic wage if the migrant will be filling a vacancy on the Shortage Occupation List (SOL).

The changes would aim to stop employers exploiting cheaper overseas labour whilst forcing down wages for domestic workers. However, in many cases the 20% ‘saving’ from paying a lower salary is counterbalanced by the various immigration fees employers must pay the Home Office in order to sponsor a skilled worker from overseas.

Therefore in reality, how would this proposed change impact employers looking to fill shortage roles with migrant workers? We crunch the numbers below.

What are the salary rules for shortage occupations?

Under the current immigration rules, employers sponsoring overseas workers on a Skilled Worker visa must usually pay the worker at least £26,200, £10.75 per hour or the ‘going rate’ for the occupation, whichever is highest.

However, if the worker is being sponsored to work in a role that’s on the SOL, they can qualify for a Skilled Worker visa on a lower salary – currently 80% of the occupation’s going rate. If a worker is eligible for the 20% salary discount for shortage occupations, they must still be paid at least £20,960.

The discount primarily affects higher paid roles on the SOL, such as IT professionals, engineers, architects and veterinarians. Lower paid roles such as senior care workers and laboratory technicians do not benefit from the 20% salary discount as this would bring their salary below the minimum threshold of £20,960.

How much does it cost to sponsor an overseas worker?

Despite the savings afforded by the 20% salary discount, employers filling shortage occupations with overseas labour are still required to pay certain fees for each sponsored worker they recruit. These costs include:

Sponsor licence fee – If your business is not already an approved sponsor, you will need to apply for a sponsor licence before you can recruit Skilled Workers from overseas. The application fee for medium or large sponsors is £1,476 or £536 for small or charitable sponsors.
Certificate of Sponsorship (CoS) fee – For each CoS issued to a sponsored Skilled Worker, the employer must pay a fee of £199.
Immigration Skills Charge (ISC) – This fee must be paid for each sponsored worker you employ. Depending on how long you intend to sponsor the worker, this cost can run into the thousands. Medium or large sponsors must pay £1,000 for the first 12 months of employment and £500 for each additional six-month period. Small or charitable sponsors must pay £364 for the first 12 months and £182 for each additional six months.

How would the proposed change impact employers?

In the case of higher paid roles, the salary discount means it can still be cheaper for an employer to hire a migrant worker compared to a domestic worker on the usual going rate salary, in spite of the additional Home Office fees.

Should the proposed change be implemented, and the government decided to scrap the 20% salary discount for shortage occupations, employers would need to pay overseas workers at least the ‘going rate’ for the occupation, or the general salary threshold of £26,200, whichever is higher.

This higher salary requirement alongside the immigration fees will make it more expensive to recruit from overseas, which Labour hopes will give employers more of an incentive to invest in the domestic workforce.

Example 1: Shortage occupation with salary discount

Let’s look at an example of the potential savings employers can make under the current salary rules for shortage occupations.

Company A is a medium sized IT company recruiting for a Systems Analyst (occupation cod 2135). The ‘going rate’ for this occupation code is £37,600. As the role also appears on the SOL, employers can pay a sponsored migrant worker 80% of this figure – £30,080. This represents a salary saving for the employer of £7,520 per year.

However, in order to sponsor a foreign national to work in this role for one year, the company would also need to pay the following immigration fees:

Sponsor licence application fee – £1,476
Certificate of Sponsorship (CoS) fee – £199
Immigration Skills Charge – £1,000

TOTAL = £2,675.

Once the above fees have been accounted for, the employer still saves £4,845 per year by employing an overseas worker.

Example 2: Shortage occupation at ‘going rate’

In cases where the ‘going rate’ falls below the minimum salary threshold, the discount does not apply and employers could end up paying more to hire an overseas worker. A good example would be in the care sector.

Company B, a small residential care home is recruiting for a Senior Care Worker (occupation code 6146). The annual ‘going rate’ for this job is £18,600. As this is lower than the minimum salary threshold of £20,960, the latter must be paid.

The employer would also need to pay the following Home Office fees to sponsor a migrant worker in this role for one year:

Sponsor licence application fee – £536
Certificate of Sponsorship (CoS) fee – £199
Immigration Skills Charge – £364

TOTAL = £1,099

In this case, the employer would end up paying £3,459 more to hire an overseas worker compared to a domestic worker on the going rate salary.

What’s next?

Following the release of the latest migration statistics, we anticipate further changes being introduced to the Immigration Rules as the government attempts to reduce the number of foreign nationals coming to the UK.

Smith Stone Walters will continue to monitor the situation and provide updates as more information is available. To keep up to date with the latest news and views in UK and global immigration, please sign up to our free news service.

Or to discuss a specific immigration query with a qualified advisor, please contact us today.