Hiring in Post-Brexit UK: The Rise of Sponsor Licenses and Labor Laws

The UK, for years, has been a magnet for global talent, bolstered by its dynamic economy, leading educational institutions, and cosmopolitan culture. Yet, the hiring landscape in the UK has seen a paradigm shift in recent years.

According to the Office for National Statistics. The employment rate hasn’t regained its pre-pandemic strength, declining by 1.0 percentage point. An increase in paid employees and part-time self-employment contrasts with dwindling full-time self-employment, pointing to evolving job structures. Notably, the younger workforce, aged 16 to 24, is facing heightened unemployment, suggesting hurdles in entry-level job accessibility. As vacancies drop by 75,000, it hints at a tighter job market, making hiring more competitive. 

This dynamic, coupled with a 6.4% wage growth, implies that employers need to offer more competitive packages to attract talent amidst a changing and challenging UK employment ecosystem.

The Post-Brexit Era: An Increase in Demand for Sponsor Licenses

Historically, the synergy between the country’s robust economy and its EU membership streamlined the hiring of a diverse workforce. Now, with the tremors of Brexit, the once straightforward processes have become multi-layered, intertwining economic needs, political decisions, and societal expectations. These combined forces have introduced unprecedented complexities and novelties to the country’s labor laws and employment structure, leading businesses to navigate a transformed and often challenging hiring terrain.

Brexit, with all its political and economic implications, has altered the UK’s employment terrain. EU citizens, who once enjoyed the right to work freely in Britain, now necessitate work visas unless they have settled status. This change led to a surge in demand for sponsor licenses.

But what is a sponsor license? A sponsor license allows businesses in the UK to employ individuals from outside the resident labor market. There are primarily two types: the Tier 2, catering to long-term job offers, and the Tier 5, designed for temporary workers. Both licenses are pivotal for businesses aiming to tap into overseas talent.

With this system in place, over the past two years, an extra 20,000 businesses registered to employ workers from overseas, marking a significant rise.

However, not all businesses wish to navigate the complexities of the sponsor license process. Here’s where an ‘Employer of Record’ (EOR) comes into play. An EOR is an organization that hires employees on behalf of another company. Essentially, if a firm wants to hire in London, the EOR manages the hiring process, ensuring adherence to local labor regulations, which streamlines the entire procedure. By using an EOR, companies can sidestep the challenges of securing a sponsor license, making overseas recruitment simpler and more streamlined.

Understanding Labor Shortages in Britain

Brexit coincided with acute labor shortages in the British workforce. These shortages prompted businesses to rethink their hiring strategies, with many looking overseas to fill their vacancies. This shift, combined with the UK’s new immigration system post-Brexit, further increased the demand for sponsor licenses.

The Home Office recognizes the pivotal role of sponsor licenses in addressing the country’s labor shortages. Thus, they have augmented their capacity to process sponsor license applications and pledged commitment to expedite the sponsorship timeline. However, businesses, especially newcomers in the overseas hiring domain, often find the process intimidating. From application to maintenance, the perceived complexities deter some companies from exploring this option.

Potential Hurdles in Comprehending Local Labor Laws

Understanding the UK’s labor laws, especially in a post-Brexit era, can be daunting. The recent employment reform underscores the changes businesses need to assimilate. The ‘Smarter Regulation to Grow the Economy’ policy paper that was published by the UK government on May 2023 delineates several employment-related regulatory reforms that employers need to know:

• Non-Competes limited to three months: The UK government has announced its intention to legislate to limit the length of non-compete clauses to a maximum of three months1. Non-compete clauses are inserted into employment contracts to restrict an individual’s ability to work for a competing business or establish a competing business for a defined period after termination. This change aims to strike a balance between employee freedom and business protection by reducing the typical enforceability period from 12 months to just three months.
• Minor changes to TUPE: The UK government has also announced plans to make minor changes to the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE), which protect the entitlement of UK employees to the same terms and conditions, with continuity of employment, as they had before a transfer2. These changes aim to simplify requirements and ease the consultation process, especially for smaller businesses.
• Changes to Working Time Records: The UK government is planning to make changes to the requirements for keeping working time records3. In a policy paper published on 9 May 2023, the Department for Business and Trade said it would reform the working time regulations, specifically the requirement for employers to keep accurate records of hours worked3. The proposed change will be made as part of a wider project to cut red tape for businesses by removing some EU-derived laws post-Brexit. With this proposal on the horizon, businesses will need to adjust their record-keeping practices.

These reforms, among others, highlight the UK’s drive to reduce bureaucratic red tape while preserving its Labor standards. 

The UK’s hiring landscape is in a state of flux. From the surging demand for sponsor licenses due to Brexit-induced changes, the evolving labor laws, to the benefits of using an Employer of Record, businesses face both challenges and opportunities. As the country continues to reshape its employment structure, one thing remains clear: understanding local labor laws is paramount for seamless and compliant hiring processes.