Australia: 457 Visas - Hiring Overseas Workers On The Temporary Long Stay Business Visa

The current skills shortage in Australia has resulted in many employers looking abroad and sponsoring overseas workers to work in Australia. One of the most common arrangements for such sponsorship is for the employee to obtain a temporary long stay business visa (subclass 457) (457 visa).

The regulatory regime for this type of visa is set out in the Migration Regulations 1994 (Cth). The 457 visa is available to employers wanting to sponsor and employ overseas workers who have recognised qualifications and skills in particular occupations on a temporary basis.

These workers are able to bring any eligible secondary applicants (family members) with them to Australia. Secondary applicants can work or study while they are here. A 457 visa will allow the holder of the visa to work in Australia for a period from anywhere between three months and four years.

The number of overseas workers entering Australia through the temporary skilled migration or 457 visa program has grown by 27 per cent in the past year. 110,570 visas were granted to temporary skilled workers and their dependants in 2007-08, up from 87,310 in 2006-07.

Overview of the regulatory framework

To enable an overseas employee to a obtain a 457 visa, a prospective employer must apply to the Australian Government for "business sponsorship status". An employer will obtain approval as a business sponsor from the Department of Immigration and Citizenship (DIAC), if it can adequately demonstrate all of the following:

  • that the business is of good standing, including sufficient financial ability to undertake sponsorship obligations;
  • how Australia will benefit from the employment of the overseas personnel in question; and
  • the company's past record of, or future commitment to, training Australian citizens or permanent residents, or introducing new technology or business skills.

Once business sponsorship status has been obtained, the prospective employer must nominate the position they wish to fill with an overseas worker. The prospective employee must be able to demonstrate work experience and/or qualifications which match an occupation that is on the Australian Government's gazetted 457 Eligible Occupations List.

The list comprises various managerial, professional, associate professional and trade occupations. In recent times, the industry sectors with the highest proportion of 457 visa workers have been the health and community services sector, property and business services sector and the manufacturing sector.

As part of the application process, the employer must lodge a "Form 1196" with the Australian Government, which includes the following undertakings:

  • to pay at least the "gazetted minimum salary" which is in force for the nominated position;
  • to meet the cost of return travel of the sponsored person to their country of origin;
  • to pay all medical and hospital expenses for a sponsored person arising from treatment administered in a public hospital; and
  • to reimburse the Australian Government for any cost it incurs in relation to locating, detaining and/or removing the sponsored person from Australia as well as processing any application for a protection visa made by the sponsored person.

The above undertakings in relation to the primary 457 visa holder also extend to any secondary applicants sponsored by the employer (i.e. the worker's spouse and/or dependent children).

Navigating through the 457 minefield

Needless to say, the potential costs to an employer in meeting the above undertakings represent a considerable financial risk for the sponsoring employer. This is because the employer is not just hiring an employee but is actually supporting a life (and often more than just one life where secondary applicants have also been sponsored).

However, in addition to these "contingent government costs" there is a second non-contingent category of costs, which we call "employment costs", which are costs that the sponsoring employer will invariably incur – irrespective of whether the employee's (and dependant's) stay in Australia is without incident. Such costs can include:

  • sponsorship and applying for the 457 visa;
  • salary and incentives;
  • recruitment and training costs in Australia;
  • relocation costs;
  • accommodation costs (where the employer elects to pay a Living Away From Home Allowance);
  • migration agent costs; and
  • insurance premiums.

Further, the proposals for reform contained in the Discussion Paper released by Immigration Minister Chris Evans on 30 June 2008, include the proposed imposition of an even more onerous framework of obligations on employers which may include:

  • payment of income protection insurance;
  • payment of travel to Australia for the primary 457 visa holder and all secondary applicants (currently the obligation only extends to return travel costs); and
  • to pay the education costs of secondary applicants who are minors.

The framework for monitoring employers' compliance with the new legislation is also expected to be enhanced,

with the possible imposition of a civil penalty regime mooted to be on the cards.

If given the green light, these proposals will be contained in the Bill amending the Migration Act 1958 (Cth), which is expected some time in September of this year. In addition, these amendments are also expected to have some retrospective operation.

It is prudent for an employer to take steps to protect its investment if the employee resigns or absconds or commences work for a competitor. The way an employer can safeguard against these risks is to protect itself through its contractual relationship with the employee.

457 visa employment contracts

When drafting 457 visa employment contracts for our clients, our philosophy is that an overriding principle should be to ensure that, to the greatest extent possible, the employer does not assume any greater costs or risks in relation to employing the overseas employee than employing a local employee.

A key feature of well drafted employment contracts for 457 visa holders is the inclusion of some "cost insulation" mechanisms which are aimed at insulating the employer, to the maximum possible extent permitted by law, against both "contingent government costs" and "wasted employment costs" that it incurs in relation to the employee.

Depending on the particular circumstances, it may be appropriate to have the employee in question agree that every pay cycle they will contribute a specified amount of their salary to a "contingency fund". These compulsory contributions can be held by the employer on account of the employee in an interest bearing account. The proceeds of this fund will only be retained by the employer in the event that a "contingency" arises. The employer may choose to define such a contingency as a situation where it is ultimately made to pay any of the "contingent government costs" or alternatively where the "employment costs" prove to have been largely wasted as a result of the employee prematurely resigning within a short space of time or taking up employment with a competitor. If on the other hand employment proceeds without the occurrence of such a contingency, then the employee will be paid out the balance of the account, plus accumulated interest.

This method may be particularly useful in situations where it would otherwise be very difficult for the employer to enforce indemnities given by the 457 visa employee because the employee has resigned or absconded. Provided that the employee is paid (after deduction) the higher of the minimum gazetted salary or the minimum rate that the employee is entitled to under an applicable industrial instrument (such as an award) and such deductions are authorised in writing, our view is that there is no legal impediment to the implementation of such an arrangement.

Depending on the particular circumstances, an alternative (or complimentary) cost insulation method that should be considered is one where the "employment costs" are pre-estimated by the employee at a specified amount. This specified amount becomes an immediate debt owed by the employee to the employer on demand.

This debt can be progressively reduced to zero over the intended employment term. If for example, the employment term is four years, the debt will be reduced by 25% every year. If the employee resigns at any time prior to the intended end of the employment term, the remaining debt can be deducted from the employee's final pay.

While the area is not without some controversy, it is generally accepted law that an employer can deduct from an employee's wages or entitlements sums which the employer alleges are due to it if the employee has authorised any such deductions in writing or if the written contract of employment permits it.

It is particularly important to be extremely careful when drafting these provisions given the potential for them to be construed by courts as "penalties" and therefore unenforceable.

As an additional measure, we also recommend inserting a "restraint of trade" clause in all employment contracts. Such clauses are intended to prohibit employees resigning to work for competitors for a particular time. It should, however, be noted that these clauses are somewhat difficult to enforce and require careful and precise legal drafting.

Another priority for the sponsoring employer should be ensuring that the proposed 457 employee's employment is made conditional on the employer being satisfied that the employee will be able to perform the inherent requirements of the position that they are being asked to fill for the duration of the intended employment term - from a purely medical perspective. This can be particularly important in the manufacturing, engineering and construction sectors. In this regard, it is important that if the employment is made conditional on a satisfactory medical examination, that such a condition be drafted in a way that minimises the risk of breaching state and federal anti-discrimination legislation.

Implications for employers

  • Employers should not rely on their standard contract of employment when hiring overseas employees on 457 visas.
  • There are many contingencies that a tailored contract for 457 visa employees should address. These contingencies will almost never be adequately covered by an employer's standard contract of employment. Such contingencies can include both contingent government costs as well as wasted employment costs.
  • Employers should consider implementing robust cost recovery/cost insulation mechanisms to compliment any indemnities that they seek to enforce against 457 visa employees.
  • Employers should consider making the employment of 457 visa employees conditional on a satisfactory medical examination.
  • Employers of 457 visa employees will have dual and concurrent obligations under both immigration law and industrial law. Failure to properly reconcile and provide for both sets of obligations may expose the employer to sanctions under both the 457 visa framework in addition to the risk of prosecution by the Workplace Ombudsman.

Deacons can assist employers with the drafting and preparation of comprehensive employment contracts for 457 visa employees.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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