The rising cost of visa sponsorship has generated renewed interest in the scope and enforceability of clawback clauses in employment contracts and secondment agreements. Clawback clauses provide that an agreed sum must be repaid to the employer in the event that the individual either does not commence employment or does not remain in employment for as long as anticipated – and as such the sponsor is “out of pocket”.
The UK’s competitive labour market, combined with agile migrant workers and sky-rocketing UK immigration fees have made it increasingly important for companies to recoup immigration fees where employment is cut short. Employers are therefore understandably keen to ensure clawback provisions are:
- robust enough to reduce / minimise the risk of financial loss
- fair and well drafted enough to be enforceable
- but still sufficiently equitable that they don’t deter migrant talent.
A delicate balancing act that requires employers to have a firm understanding of both the immigration and employment law considerations.
In this two-part series we explore the immigration and employment considerations that employer’s need to be aware of if you are considering implementing (or reviewing existing) clawback clauses. First up …..
IMMIGRATION LAW CONSIDERATIONS
The Increasing Cost of Sponsorship
In October 2023 the UK Government increased immigration and nationality fees by approximately 20%, whilst on 6 February 2024 the following changes to the NHS Surcharge, also known as the Immigration Health Surcharge (“IHS”), took effect:
- The IHS increased to £1,035 per year for adult applicants;
- The discounted IHS rate (students, under 18s and youth mobility visa holders) increased to £776
These changes have been followed by increases to the annual salary threshold for skilled worker visas – the higher of the general threshold for new skilled worker applicants, £38,700, and the increased ‘going rate’ for an occupation type – introduced in April 2024. April 2024 also saw an increase in the annual income threshold for family route applications to £29,000, with further increases anticipated over the coming year.
As a result of these various fee increases, employers holding a valid Sponsor Licence can expect to pay in excess of £10,000 in Government charges alone in order to sponsor a migrant worker in the UK for up to 5-years. Additional costs apply for the visa application itself (see below), extension applications, dependant visa application costs, legal fees and relocation and tax services that the employer may be providing.
The skilled worker visa category is the go-to sponsorship route for new migrant hires and often a preferred visa route for individual applicants because it can lead to Indefinite Leave to Remain (ILR) in the UK and potentially British Citizenship. Obtaining a visa under this route will require payment of nearly all of the following fees in every circumstance:
- Certificate of Sponsorship (“CoS”) – a charge to issue a CoS to a sponsored worker
- Immigration Skills Charge (“ISC”) – a charge payable by an employer for sponsoring a migrant worker in UK
- Immigration Health Surcharge (“IHS”) – a charge for employees to access NHS services in the UK post-approval
- Visa Application Fee – cost of the immigration application itself
- Sopra Steria Appointment/VFS/TLS Contact (Visa Application Centre) Fee – cost to access the centre through which biometric data is collected
Clawback Clauses – What can’t you claw back…!
In the event a sponsored, skilled worker visa holder leaves their employment early an employer may find themselves having paid significant cost for limited value – making clawback clauses an attractive option. However, the inclusion of a seemingly straightforward contractual provision does have some immigration law restrictions.
The Immigration Skills Charge
The ISC must be paid by the sponsor (employer) when assigning a Certificate of Sponsorship to an employee/prospective employee. However, this key visa cost (at £1,000 per year for large organisations and £364 per year for small organisations and charities) is one where a restriction on recoupment applies.
The Immigration Skills Charge Regulations 2017 state that the sponsor must pay this charge to the Secretary of state each time it assigns a COS. However, Part 2 of the Home Office’s Sponsor makes it clear that not only must employers not pass this charge on to the sponsored worker but that any attempt to recoup this charge (in part or in its entirety) may result in the immediate revocation of an organisation’s sponsor licence.
Salary Thresholds
A skilled worker visa holder must be paid at least the minimum skilled worker salary threshold and the minimum salary for their occupation type throughout their sponsorship. The minimum salary threshold for skilled workers increase substantially to the higher of an occupation going rate or the new maximum general threshold of £38,700 per annum (from 4 April 2024).
Employers are prohibited from deducting immigration costs from a sponsored worker’s pay if it results in their salary falling below the minimum threshold for their particular occupation code. Recoupment clauses therefore need to be considered carefully to ensure that it does not violate this provision and breach the minimum salary requirement which forms a central feature of a skilled worker visa permission.
Home Office Refunds
In some circumstances, a sponsored worker’s early departure may trigger an automatic refund from the Home Office of the IHS and/or ISC. If an employer intends to recoup the cost of the IHS from a leaver, any clawback provisions relating to this payment should be limited to cover the amount that cannot be refunded. To ensure fees are accurately captured and recovered, employers should therefore avoid specifying anticipated values which may become inaccurate should a refund be forthcoming.
Similarly, employers should be cautious when communicating timeframes for IHS refunds, as in practice, these can take several months to processed by the Home Office.
Clawback provisions need therefore to be drafted not only for partial refunds from the Home Office but also to account for potential delays and Home Office errors where a refund may, in error, not be automatically processed.
Clawback Clauses vs. Cost Minimisation
As well as considering the option of clawback clauses employers may wish to consider additional ways in which they can pre-emptively reduce the cost of sponsorship. Some may require a review of company policy, internal processes, and recruitment practices:
- Sponsoring family members on a case-by-case basis – There are no restrictions on recovering the cost of obtaining dependant visas. Employers can therefore require sponsored workers/prospective employees to cover this cost independently. That said, employers do need to keep in mind that whilst there are not the same restrictions on what can be clawed back from a sponsored worker, if PBS Dependant fees are clawed back there will be additional pressure on the sponsored worker’s minimum salary threshold. That may impose its own limit on the amount of dependant fees available for clawback.
- Require employees/prospective employees to cover some of the incidental immigration-related expenses – such as the English Language test, UK ENIC assessment, TB test and certified translation where appropriate. Whilst these costs are perhaps a drop in the ocean of immigration costs it could save hundreds of pounds per candidate.
- Consider applying via IDV Check App – If an individual is eligible, using the IDV check app will remove the cost of attending an in-person biometric appointment. It is currently available to use by EEA, Swiss, British National Overseas (BNO) and Hong Kong Special Administrative Region (HKSAR) nationals who hold biometric passports; and most individuals who hold a valid Biometric Residence Permit (BRP). Another small potential saving of c.£250-300 per candidate (representing the cost of attending a Visa Application Centre).
- Early planning – Starting the immigration process early, 3-4 months before the joining date can remove the need for expedited services. Applications submitted under standard service might take up to 8 weeks to process for certain visa categories, but an early start should give employers sufficient time to obtain a work visa without the need to spend £500 – £1000 in expedited service fees.
- Closer consideration of appropriate visa types:
-
- Short Term Stays – Given the costs involved employers will be prudent to carefully consider all available sponsorship routes and the applicable assignment lengths that might enable them to consider alternative routes. For example, if a prospective employee is engaged on a temporary fixed-term contract, it may be suitable to consider a temporary work route to the UK and to request sponsorship for the exact length of time that is needed. This will ensure employers are only paying for what is required.
-
- Understanding employee expectations and business requirements – Closely linked to the above, considering an employee’s long-term goals in the UK may avoid costly in-country switches from temporary work visas to long-term work visas.
-
- Recognising when alternative immigration routes might carry the right to work – in the UK could remove the need for sponsorship altogether or reduce the length of sponsorship required. This may be particularly relevant for candidates already in the UK for whom a change of employment application to your organisation is required. In those instances reviewing eligibility for indefinite leave to remain in particular can help reduce IHS and ISC fees.
In summary, there is a LOT for employers to factor in on the immigration law side alone, and that is before they start to consider penalty clauses and proportionate drafting – which will we consider in Part 2 – Employment Law Considerations.
For more information, if you would like an advance release of Part Two, or to discuss reviewing, updating or amending your existing clauses please do contact us. No obligation, clear transparency on fees, and lawyers that are approachable, adaptable and collaborative.
Authors
