The Employment And Immigration Intersection: Clawing Back Immigration Costs From Sponsored Workers

Businesses in the UK are facing soaring immigration-related costs, prompting some to look at mechanisms to share the load with their sponsored workers. This includes 'clawback' obligations, under which employees may be required to repay some of those costs to their employer. We explore the options and the associated risks.

This is part of a series on how to manage the employment law issues associated with hiring and managing migrant workers. For more information on the tensions between employment law and immigration law, including links to our other content, see The employment and immigration intersection.

The costs associated with sponsoring a worker in the UK are higher than ever before. The average cost for a 5-year Skilled Worker entry clearance application for a main applicant is currently around £12,000. The actual costs could be higher (e.g. if expedited processing services, English language testing, tuberculosis screening or criminal records certificates are required). Then there are the extra costs for adding family members

Sponsorship is therefore a significant investment for businesses. Given the scale of this investment, some businesses are hesitant to offer jobs to candidates who require sponsorship, instead preferring to recruit from the settled labour market. Although a business may be tempted to filter out job applicants who have no existing right to work in the UK, this practice poses the risk of it being found to be indirectly race discriminatory by an employment tribunal. We explore this topic in more detail in our earlier article, here.

Businesses often ask us how they can protect their investment in a sponsored worker, including whether certain immigration costs can be recovered from the sponsored worker. This is most commonly conceptualised as a 'clawback' obligation, under which the sponsored worker repays certain immigration costs to the sponsor if their employment terminates earlier than anticipated. Other methods include the sponsor making ongoing deductions from salary during employment or requiring the worker to pay costs themselves upfront.

All these methods carry some commercial, legal and reputational risk. This article explores the key considerations for businesses when thinking about shifting the burden of sponsorship costs to their sponsored workers.

Which costs can and can't be recovered?

Certain costs associated with Skilled Worker sponsorship must never be recovered from the employee, via any method.

A sponsor that attempts to shift the burden of prohibited costs to a sponsored employee risks compliance action being taken by the Home Office against them.

How could immigration costs be recovered?

Sponsors may explore various methods to share the burden of paying immigration costs with sponsored workers:

• Clawback agreement: The most common approach is a clawback agreement, which is triggered if employment ends before the date specified on the CoS. Under this arrangement, the costs would normally be deducted from the employee's final salary payment. Such an arrangement can act as a deterrent against early termination of employment.

• Upfront payment: Less commonly, sponsored employees may be asked, or may even volunteer, to pay the costs upfront.

• Ongoing salary deductions: Another, less common, arrangement is for the employer to make deductions from the sponsored employee's net salary during the lifetime of employment.

None of these methods are unlawful, but each has a measure of risk. These risks are explored in the next section.

Risks of placing the burden of immigration costs on the worker

In this section, we look at some of the key legal, reputational and/or commercial risks associated with requiring employees to enter into agreements to pay or repay immigration costs. As far as we know, the legal points have not yet been tested in the courts and tribunals, but they are ripe to be.

• Discrimination. Clawback arrangements are, on their face, indirectly race discriminatory. This is because they will, in effect, disadvantage non-British/Irish nationals. Indirect discrimination can, potentially, be objectively justified. If challenged in a tribunal, employers should be prepared to explain why the arrangement is necessary and proportionate. While economic factors may form part of justification defence, the employer will probably need to identify another legitimate aim (known as a "costs plus" argument). The means of recovering costs must also be proportionate. Employers should think about steps to narrow the scope of the clawback. See the next section for practical tips on risk mitigation.

• Compliance with sponsorship salary threshold. To be eligible for Skilled Worker sponsorship, the role must meet the relevant minimum salary thresholds set by the government. If a sponsored employee's salary is reduced (including where a clawback arrangement is triggered), the sponsor:
  
  • Must usually notify the Home Office of the reduction; and
  • Stop sponsoring the worker if their revised salary no longer meets the relevant salary threshold for the role in question.

  Also, from 9 April 2025, the Home Office introduced new rules excluding certain salary deductions from being counted towards Skilled Worker salary thresholds. As is often the case with newly introduced rules, some aspects of them are likely to need further elaboration from the Home Office. However, what is clear is that a sponsored employee's salary must meet the salary threshold after a recalculation is made to deduct certain payments by the employee to their sponsor. This will particularly affect arrangements where immigration costs are deducted from the employee's pay packet during the lifetime of employment.

• Penalty. It's possible that an employee may argue that a repayment obligation unenforceable. This is because it may be considered a 'penalty clause'. If the sum the employee must repay is out of all proportion to the employer's legitimate interest. This argument will probably only be relevant if the employee has breached their contract – for example, if they have left without giving proper notice. As with the risk of a discrimination claim, the employer should think about narrowing the obligation as much as possible, so that the payment reflects the amount of service from which the employer benefitted after incurring the costs. See the next section for practical mitigation tips.

• Restraint of trade. Another argument against a clawback is that it has the effect of discouraging an employee from leaving employment. This could mean that it is a restraint of trade and therefore potentially unenforceable. However, this seems like a difficult argument for an employee to run. Recent case law has suggested that something that simply disincentivises someone from leaving is unlikely to be considered a restraint of trade unless the consequences are severe, with case law indicating that this is a high bar.

• National Minimum Wage. Employers must assess whether the recovery of immigration costs could take the employee's remuneration (i.e. gross pay in the pay reference period, less deductions) below the National Minimum Wage. This will depend on the salary level and is probably more likely to be an issue in lower paid jobs. However, employers should be mindful of the impact of recent significant increases to National Minimum Wage rates. There are also certain categories of sponsored employees who may be on lower salaries. These include certain health and education sector roles, and those whose salary levels are on lower minimum salary arrangements, such as new entrants and those on 'transitional' rates that straddled the sponsorship salary threshold increase in April 2024. National Minimum Wage is a technical and complex area of employment law. Whether deductions for fees connected to sponsorship would constitute a deduction under the National Minimum Wage Regulations is not certain. However, from a legal and reputational perspective, it's probably safest to assume that they would.

• Compliance action. Recent cases have highlighted the risk that clawback arrangements may contribute towards the Home Office's decision to take compliance action against a sponsor. In one case the Home Office cited the requirement to "pay a penalty if they left the Claimant's employment within 3 years of their start date" as one of a few circumstances justifying the decision to revoke the sponsor licence. It's not clear from the judgment what the 'penalty' constituted. It's also a case concerning the care sector, which has recently been in the Home Office's crosshairs. However, the case still serves to highlight the risk of compliance action. These are probably alleviated by ensuring the obligation is structured in an even-handed way – see the next section.

• Debt bondage. There is a risk that a clawback arrangement may restrict an employee's ability to move jobs and could become a kind of financial 'trap'. In other words, the employee is being forced to work to repay a debt. In its most oppressive forms, this could amount to forced labour and would be legally and ethically unconscionable. However, a repayment obligation that complies with National Minimum Wage requirements, is not a penalty, and which was notified to the individual before they started employment is unlikely to be characterised in this way. That said, employers would be well advised to consider the optics of these arrangements, given the risk of the question even arising.

• Tax implications. Tax and National Insurance Contributions paid on immigration costs by the employer cannot be reclaimed or adjusted. Accordingly, employers will need to consider whether they claw back the costs on a gross or net basis. Also, when an employer chooses to make ongoing deductions during employment, from a tax and NICs perspective, HMRC would treat the arrangement as a benefit in kind – namely an interest-free, beneficial loan. Employers should consider taking detailed tax advice on how to make any proposed arrangements tax-compliant, as well as being seen as fair and reasonable by both parties.

• Worker affordability considerations. Sponsors should consider affordability concerns for workers who are required to bear immigration costs, especially if it is proposed for the worker to bear the costs upfront. If the worker does not have the funds available, they may decline the offer of sponsorship or may be vulnerable to entering into high-interest loan or other undesirable arrangements.

Practical tips when implementing clawback arrangements

Given the legal and reputational risks associated with clawback arrangements, employers should give careful thought to the arrangement's form and drafting. In particular, employers will want to give themselves the best chance of enforcing the arrangement, by ensuring that it has contractual effect and is kept as narrow and proportionate as possible (to mitigate against the risks of the arrangement being perceived as discriminatory or a penalty).

• Contractual effect. If the employer wants to enforce its clawback, it must have clear contractual effect. It should display the hallmarks of a valid contract: offer, acceptance and certainty. The clawback could either be embedded as a clause in the employment contract or set out in a separate side letter which is counter-signed by the employee. Putting the clawback in a non-contractual company policy will likely render the clawback unenforceable.

• Sunset. The clawback should include a 'sunset' point, under which the obligation to repay immigration costs extinguishes after a period of service by the employee. A one- or two-year sunset period is most commonly used.

• Tapering. Similar to a sunset, we recommend that the employer tapers the obligation over time, so that the amount of the costs that would be repaid incrementally decreases. Typically, an initial 100% repayment obligation would decrease to 50% and then 25%, before extinguishing altogether. Tapering in this way would hopefully help demonstrate that the clawback is proportionate to the value derived from the employee's tenure.

• Excluding costs. Some costs cannot be passed to the employee, such as the Certificate of Sponsorship and Immigration Skills Charge. For further information on these, see our earlier article here. Others can be passed on, but that doesn't always mean that they should. The employer may want to consider whether it's proportionate to include all permissible costs within the scope of the clawback. The fewer costs covered by the clawback, the more proportionate it's likely to be.

• Excluding termination reasons. Again, in the interests of keeping the clawback as narrow and proportionate as possible, we recommend that the employer seeks to exclude certain reasons for termination of employment that would trigger the clawback. These could include, for example, redundancy, ill health, fundamental breach of contract by the employer and/or the employer stopping (or not renewing) sponsorship.

• Tax implications of enforcement. If enforcing a clawback agreement, employers should ensure this is done in compliance with tax law and that items that the employer will be refunded by the Home Office are not included in the figure the employee is required to pay.

• Reporting to the Home Office. If a clawback agreement is enforced in relation to a sponsored worker, this should be reported to the Home Office on the Sponsor Management System as a salary deduction. Specific immigration advice should be sought on how to do this.

Practical tips when implementing loan arrangements

Although loan arrangements are still relatively rare, more employers have been offering this to sponsored workers in recent years as an alternative to upfront payment. This practice has caught the attention of the Home Office, with the outcome that the Home Office is increasingly regulating it.

• Excluding costs. As with clawback agreements, some costs cannot be passed to the employee at all. For further information on these, see our earlier article here.

• Considering immigration advice costs. Fees for immigration advice or immigration services provided by the sponsor or a third party such as an immigration lawyer in relation to the worker's immigration application may be recouped, but only if the sponsored worker had a genuine choice in whether or how to obtain them.

As UK employers grapple with escalating immigration costs, the need to explore cost-sharing mechanisms with sponsored employees becomes increasingly acute. While clawback agreements, upfront payments, and ongoing salary deductions offer potential solutions, each comes with its own set of risks. Employers must navigate these risks carefully, being mindful of the legal, commercial and reputational implications.

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.