Why Employers Must Review Employment Contracts Following Changes to Sponsorship Rules Post 2024

As of 31 December 2024, the Home Office introduced significant changes to UK sponsorship rules, its guidance for employers sponsoring Skilled Workers and Temporary Workers. These updates focus on preventing employers from reclaiming specific costs associated with sponsorship from their sponsored employees, thereby reinforcing fair treatment of migrant workers and ensuring compliance with immigration laws.

Key Changes Employers Need to Note:

1. Prohibition on Recouping Certain Costs

Employers can no longer pass on the following expenses to their sponsored workers:

• Sponsorship licence application fees and related administrative charges incurred after 31 December 2024.
• Certificate of Sponsorship (CoS) fees issued from 31 December 2024 onwards.
• Immigration Skills Charges tied to Skilled Worker or Senior or Specialist Worker sponsorship routes.

2. Potential Penalties for Non-Compliance

Failing to adhere to these changes could result in serious consequences, such as:

• Suspension or revocation of the sponsor licence.
• Operational disruptions caused by inability to sponsor workers.
• Reputational damage and potential financial losses.

Legality of Clawback Clauses:

While these new rules restrict employers from recouping specific sponsorship costs, they do not make all repayment clauses unlawful. Employers are still permitted to include enforceable clawback provisions in employment contracts for other benefits or payments, provided these comply with broader legal principles. For instance, in the case of Steel v Spencer Road LLP [2023] EWHC 2492 (Ch), the High Court upheld the legality of a clawback clause requiring repayment of a bonus upon the employee’s departure. This demonstrates that repayment clauses remain lawful if they are reasonable and do not constitute an unfair restraint of trade.

Steps Employers Should Take:

• Review Current Contracts: Evaluate existing employment contracts to ensure that any repayment clauses comply with the new rules and do not contravene Home Office guidance.

• Update Policies and Practices: Adjust internal processes and sponsorship policies to align with the updated requirements, particularly regarding cost recovery from sponsored employees.

• Seek Professional Advice: Consulting with legal experts can help employers navigate the regulatory changes and maintain compliance while protecting their interests.

By reviewing employment contracts and updating policies to reflect these changes, employers can mitigate legal risks, maintain their sponsorship status, and uphold fair employment practices. Taking proactive steps now will ensure smooth compliance with the Home Office’s updated guidance for 2025 and beyond.