(4 min read)
Recent updates to the Immigration Rules mean that Skilled Workers could potentially be unable to participate in employee-wide share schemes (and other investment arrangements with the company), if doing so causes their salary to fall below the threshold required for sponsorship.
For employers, this update to the rules potentially adds another layer of complexity and challenge to sponsoring individuals, at a time when salary thresholds for sponsorship have recently significantly increased. It’s critical that sponsors carefully assess whether an individual’s participation in share schemes or other investment arrangements with the company could inadvertently reduce their salary below the threshold for sponsorship.
Immigration rules change
Earlier this year, the Government introduced changes to the Immigration Rules for Skilled Workers, including a new provision (SW 14.2A) focusing on what the Home Office includes in an individual’s salary for the purpose of assessing whether it meets the relevant threshold for sponsorship.
The minimum salary thresholds for sponsorship under the Skilled Worker route significantly increased this year - with the minimum salary typically rising to the higher of £41,700 or the ‘going rate’ salary for the individual’s particular role (subject to transitional arrangements in place). For instance, the going rate for Marketing Directors is £87,300, and £52,900 for Human Resource Managers.
The rules now specify that deductions from salary, repayments of loans, and investments will be subtracted from the individual’s salary when determining if the salary meets the required threshold for sponsorship i.e., payments that ‘go back’ to the sponsor will be subtracted.
Payments that are not related to business costs, immigration costs or investment but are instead an additional benefit which an individual has a genuine choice whether opt into or not (such as voluntary salary sacrifice arrangements) will not be subtracted. However, the term ‘investment’ is not defined, creating uncertainty about what exactly an ‘investment’ is in this context, and to what extent the Home Office will subtract an individual’s prior investments in the company.
The impact on share schemes
Employee share schemes are typically an optional, additional benefit offered to all employees of a company. However, as such schemes are, naturally, investment related this means that if a sponsored individual's investment contribution into such a scheme causes their salary to fall below the required threshold for sponsorship, then they will not qualify for sponsorship.
The Explanatory Memorandum accompanying this rule change references the Home Office’s concerns about closing an “unintended loophole whereby applicants could effectively pay towards their own salary through investing in their sponsor’s business”. However, the change, arguably, extends well beyond this. Given the increase in salary thresholds for sponsorship, it is important for sponsored individuals and their employers to be alive to this. Such a restriction could result in sponsored workers being in a different position to non-sponsored colleagues.
We understand that the Home Office has acknowledged this potential issue but considers it a necessary restriction to prevent the ‘loophole’ risk.
Broader implications for other investments
The term ‘investment’ in this context potentially extends beyond shares schemes. For example, an investment amount equivalent to an individual’s legitimate and separate investment in the company prior to their period of sponsorship may also be subtracted from their salary when assessing their salary level for sponsorship. The Home Office has suggested that this is something to be considered on a case-by-case basis.
If the Home Office deducts prior employee investments when assessing an individual’s salary level for sponsorship, then this is likely to have a significant impact on whether such an individual is eligible for sponsorship under the Skilled Worker route. For example, this could mean that a senior individual who potentially invested in and grew a company from the outset could find themselves unable to meet the salary threshold under the Skilled Worker route due to such legitimate, prior investments.
Key takeaways for employers
The ambiguity surrounding the scope of ‘investment’ here is unhelpful but highlights the importance for employers to proactively review their employee investment schemes and arrangements as part of their ongoing and longer-term immigration planning. Specifically:
1. Review: Employers with employee share schemes or other employee investment arrangements, particularly those who sponsor individuals and/or will likely do so in the future, should ensure that they have a system for monitoring compliance in this area.
2. Comply: Employers must continue to monitor and comply with their sponsor compliance obligations, including remaining informed on what is included and/or excluded from an individual’s salary for sponsorship purposes.
3. Seek Advice: Obtain legal advice to help navigate the “grey”, particularly in complex cases involving investments or historic financial arrangements.
