Salary Deductions and Recouping Costs from Sponsored Workers: Are You at Risk?

Getting this wrong can expose a sponsor to compliance action and, in serious cases, may place its sponsor licence at risk.

Many employers assume that immigration and recruitment costs can simply be recovered through salary deductions, repayment agreements or clawback clauses. However, the position is often more complex.

The Home Office guidance distinguishes between costs that a sponsor is required to bear itself and costs that may potentially be recovered from a sponsored worker. In addition, the method used to recover costs can affect immigration salary calculations, employment law obligations, National Minimum Wage compliance and payroll arrangements.

Sponsors should not seek to recover sponsor licence fees, Certificate of Sponsorship (CoS) fees, the Immigration Skills Charge (ISC) or associated administrative costs from sponsored workers. Home Office guidance states that a sponsor licence will normally be revoked where a sponsor recoups, or attempts to recoup, these costs.

Examples of costs that sponsors are prohibited from recouping include:

• •Sponsor licence application fees;
• •Sponsor licence legal fees;
• •Sponsor licence priority processing fees;
• •Certificate of Sponsorship (CoS) fees;
• •CoS legal fees;
• •CoS priority processing fees;
• •Immigration Skills Charge (ISC); and
• •Certain immigration advice or immigration services provided to a sponsored worker where the worker did not have a genuine choice as to whether, or how, those services were obtained.

The Home Office guidance does not prohibit employers from paying certain personal immigration costs on behalf of a worker, such as visa application fees, Immigration Health Surcharge payments, dependant application costs or relocation expenses. However, employers should exercise caution before seeking to recover these costs.

Whether recovery is lawful and appropriate will depend on a range of factors, including:

• •The nature of the cost;
• •The terms of any repayment agreement;
• •Whether deductions from wages are proposed;
• •National Minimum Wage requirements;
• •Payroll arrangements; and
• •Whether the arrangement could affect Skilled Worker salary calculations.

For this reason, employers should not assume that a cost is automatically recoverable simply because it falls outside the Home Office’s specific prohibitions.

Improper deductions, repayment arrangements or clawback provisions can create a number of issues for sponsors.

Potential risks include:

• •Breaches of sponsor licence duties;
• •Findings of non-compliance during a Home Office audit;
• •Sponsored workers falling below the required salary threshold for immigration purposes;
• •National Minimum Wage compliance issues;
• •Employment law disputes relating to unlawful deductions from wages; and
• •Suspension, downgrading or revocation of a sponsor licence in serious cases.

Many employers are surprised to discover that a repayment provision they have used for years may create sponsor compliance concerns when applied to sponsored workers.

A business sponsors a Skilled Worker and pays various immigration-related costs connected with the sponsorship process.

The worker resigns after six months, and the employer seeks to recover all costs incurred by deducting a substantial amount from the employee’s final salary.

During a subsequent compliance review, concerns arise regarding whether all of the costs recovered were recoverable in the first place, whether the deductions were properly authorised and whether the arrangement affected the worker’s salary for immigration purposes.

What initially appeared to be a straightforward repayment arrangement may therefore create wider sponsor licence, payroll and employment law risks.

Employers should regularly review any clawback, repayment or salary deduction provisions that apply to sponsored workers.

In particular, businesses should consider:

• •Which costs they intend to recover;
• •Whether those costs can lawfully be passed on to the worker;
• •Whether the proposed method of recovery could affect immigration salary requirements;
• •Whether any legal or priority processing fees were genuinely optional;
• •Whether repayment provisions are reasonable and proportionate;
• •Whether deductions from wages are properly authorised; and
• •Whether employment contracts remain compliant with sponsor licence obligations.

Employers should be aware that recovering costs from a sponsored worker can have implications beyond sponsor licence compliance. In some circumstances, payments made by a worker to their sponsor, or a related organisation, may affect how salary is assessed for Skilled Worker sponsorship purposes.

Clawback Clauses

Clawback provisions that only require repayment if a worker leaves employment within a specified period will not generally be treated as salary deductions for the purposes of the Skilled Worker minimum salary level requirement.

However, clawback clauses should be carefully drafted, reasonable in scope and duration, and designed to protect a legitimate business interest rather than discourage sponsored workers from changing employment.

Salary Deductions

Where costs are recovered through salary deductions, employers should carefully consider the impact on Skilled Worker salary compliance. For immigration purposes, relevant payments are not necessarily assessed by reference to the rate at which deductions are made. Instead, they may be apportioned across the sponsorship period when determining the salary recognised under the Immigration Rules.

The current approach is not retrospective, and UKVI has confirmed that it is not revisiting salary assessments made in previous applications.

Depending on the nature of the payment, the amount concerned may therefore affect the salary recognised for immigration purposes. Employers should ensure that any proposed deductions are assessed before implementation, particularly where a worker may require a future visa extension or settlement application.

Loans

A genuine loan arrangement will generally be treated differently from a salary deduction when assessing compliance with Skilled Worker salary requirements.

However, where a sponsor pays a cost on a worker’s behalf and subsequently requires reimbursement outside of a genuine loan arrangement, the repayment may be taken into account when assessing whether the worker meets the applicable salary requirements.

Salary Sacrifice Arrangements

A salary sacrifice arrangement will not usually affect the Skilled Worker salary calculation where:

• •The employee genuinely chose to participate in the arrangement;
• •The arrangement provides an additional benefit to the employee; and
• •The arrangement does not relate to immigration costs, business costs or investments.

Examples may include pension contributions, cycle-to-work schemes or electric vehicle schemes.

However, where payments relate to immigration costs, business costs or investments connected with the sponsor or a related organisation, different considerations may apply and the payments may reduce the salary recognised for immigration purposes. Where relevant, such payments may be taken into account across the sponsorship period when assessing salary compliance, rather than solely at the point the deduction is made.

Investments and Share Schemes

Additional considerations may arise where a worker makes payments to invest in the sponsor business or a related organisation.

Whilst such arrangements may be permissible, they can affect the salary recognised for Skilled Worker sponsorship purposes and should therefore be reviewed carefully before implementation.

Before recovering costs from a sponsored worker, employers should consider not only sponsor licence compliance, but also Skilled Worker salary requirements, employment law obligations, National Minimum Wage considerations and payroll implications. Obtaining specialist advice at an early stage can help avoid unintended compliance issues.

At Ashlings Legal, we can advise businesses on sponsor licence compliance, Skilled Worker sponsorship and the risks associated with salary deductions, clawback provisions and repayment arrangements.

We can assess proposed cost recovery arrangements, identify potential sponsor licence compliance risks and advise on the immigration implications of salary deductions, repayments and other financial arrangements involving sponsored workers. We also support employers with sponsor licence audits, compliance reviews and responding to Home Office concerns.

If you are considering recovering costs from a sponsored worker or would like advice on your existing arrangements, please contact our immigration team.