When is a salary not a salary?
The discussion below is quite long but hang in there, the response from the UKBA dated 10/01/2011 is very telling.
Freedom of information request EFM 3136 - UKBA Tier 1 & Tier 2 - Analysis of salary package allowances paid to migrant workers
From: Peter Kellard
Sent: 01 December 2010 10:12
PM
To: Freedom Of Information
Team ( IND )
Subject: UKBA Tier 1 &
Tier 2 - Analysis of salary package allowances paid to migrant workers
Has there been any
analysis by the UKBA that has shown that allowances paid to Tier 1 and Tier 2
workers as part of their salary packages could be used to undercut the
appropriate rates paid to resident workers?
If such analysis has been conducted when was the analysis done?
If such analysis has been conducted has it ever been communicated to ministers
or ministerial advisers of the current government?
Yours Sincerely
Peter Kellard
On 09/12/2010 16:29, Jackson
Richard (Immigration Policy) wrote:
Dear
Peter,
Thank
you for your e-mail, which has been passed to me for a reply.
No UK
Border Agency analysis has shown that allowances paid to Tier 1 and Tier 2
migrant workers could be used to undercut appropriate rates.
Tier 1 migrants
have free access to the UK labour market and do not need a sponsoring employer.
They are therefore free to take any job at any rate (provided it is lawful). A
UK Border Agency study, published on 27 October, has shown that many of these
workers are in low-skilled and low-paid jobs. Please see: www.ukba.homeoffice.gov.uk/sitecontent/newsarticles/2010/oct/79-highly-skilled-jobs
It is
partly for this reason that the Government intends to close the Tier 1
(General) category from April 2011, and has proposed to close the Tier 1
(Post-Study Work) category as well.
Tier 2
migrants require a skilled job offer from a sponsoring employer before they can
apply. It is a requirement that the sponsor pay a salary equivalent to the
appropriate rate for resident workers. Our guidance for sponsors sets out which
types of allowances we do and do not accept towards salary packages.
We do
not allow tax exemptions in relation to allowances to be used to artificially
inflate salary packages. The stated salary must be the amount the employer is
actually paying.
Further
details are available in the sponsor guidance: www.ukba.homeoffice.gov.uk/sitecontent/documents/employersandsponsors/pbsguidance/
Regards,
Richard
Richard Jackson
Immigration Policy
UK Border Agency
PO Box 3468,
Sheffield, S3 8WA
P
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From: Peter Kellard
Sent: 10 December 2010 9:49
AM
To: Jackson Richard
(Immigration Policy)
Subject: Re: EFM 3136 - UKBA
Tier 1 & Tier 2 - Analysis of salary package allowances paid to migrant
workers
Dear Mr Jackson,
As the gross salary a sponsoring employer quotes can include an allowance of
30% for migrant workers applying to work in the UK for over 12 months and 40%
for those working less than 12 months. Will you provide me with the analysis
referred to in your reply which shows that that these allowances included in
the 'gross salary amount' paid to Tier 1 and Tier 2 migrant workers is not
being used to undercut resident salaries.
Further your reply you have not answered my other questions ie
If such analysis has been conducted when was the
analysis done?
If such analysis has been conducted has it ever been communicated to ministers
or ministerial advisers of the current government?
Yours Sincerely
Peter Kellard
On 13/12/2010 17:03, Jackson
Richard (Immigration Policy) wrote:
Dear Mr
Kellard,
Our
consideration of this issue is available on the archived version of the UK
Border Agency website (see paragraphs 41 to 46): http://webarchive.nationalarchives.gov.uk/20100406043816/http:/www.ukba.homeoffice.gov.uk/sitecontent/documents/news/statement-of-policy
Accommodation
makes up a substantial expense against most people’s wages (through rent
or mortgage payments). It is therefore sensible to include a proportion of
allowances paid for this purpose towards the overall salary package. To
reiterate, this is money that employers are actually paying to employees.
Regards,
Richard
From: Peter Kellard
Sent: 13 December 2010 5:29
PM
To: Jackson Richard
(Immigration Policy)
Subject: Re: EFM 3136 - UKBA Tier
1 & Tier 2 - Analysis of salary package allowances paid to migrant workers
Dear Mr Jackson,
You still have not answered my questions.
I am aware of the policy guidelines
41-46, I was after sight of the analysis upon which this policy is based not the
policy detail.
You acknowledge in your first reply that such analysis does exists, will you
forward this to me?. I also asked when was this analysis was conducted and has it been communicated
to ministers or ministerial advisers of the current government?
Yours sincerely
Peter Kellard
On 15/12/2010 13:11, Jackson
Richard (Immigration Policy) wrote:
Dear
Mr Kellard,
No
such analysis exists. We developed the policy in partnership with a number of
the larger system users, UK Border Agency operational experts, and a prominent
trade union. In the circumstances we were content that speaking directly
to users of the system was sufficient and no detailed analysis was required.
Regards,
Richard
From: Peter Kellard
Sent: 15 December 2010 1:46
PM
To: Jackson Richard
(Immigration Policy)
Subject: Re: EFM 3136 - UKBA
Tier 1 & Tier 2 - Analysis of salary package allowances paid to migrant
workers
Dear
Mr Jackson,
I notice that you have not mentioned HMRC. Did the UKBA seek any advice taken
from the Inland Revenue with respect to the UKBA's interpretation of Salary
when formulating this policy on allowances and substantive expenses.
The definition used by the UKBA to get to a Salary amount which is then used
for the resident market test to prevent undercutting resident workers salaries
would not be allowed by HMRC for resident workers. Will you provide details of
requests made to HMRC for clarification on this policy issue and any advice
given by HMRC to such requests?
Will you provide details of the prominent trade union and the large systems
users involved in the policy partnership?
Was there any guidance from ministers or ministerial advisers on including
accommodation and other expenses into the salary figure?
Yours sincerely
Peter Kellard
On
15/12/2010 14:37, Jackson Richard (Immigration Policy) wrote:
Dear Mr Kellard,
We have on
previous occasions discussed these issues verbally with HMRC, who advised us
that tax exemptions apply to certain types of expenditure, regardless of
whether the employee was paid the money relating to the expenditure as tax or
allowances.
I am not sure
what you mean when you say our definition would not be allowed by HMRC, since
HMRC does not operate any sort of appropriate rate test.
For resident
labour market test purposes, we are concerned with the total salary +
allowances package that would be offered to resident workers.
For
intra-company transfers we treat allowances slightly differently (as detailed
in our guidance) because we recognise that there are good reasons why
businesses would not want to alter an employee’s base salary when
transferring them temporarily to the UK, and would pay them a “UK
cost of living” allowance instead. The total package must still be at
least equal to the appropriate rate.
We spoke with
the following organisations when developing the policy. Please note that the
final policy decision was ours alone and not theirs, although we took their
advice on board.
Accenture
Connect
IBM
Logica
PWC
Legal
Sarah
Buttler Associates
We have
discussed the consideration of allowances with our current Ministers and they
have confirmed to us that they are not minded to make changes. The Home
Secretary stated in an answer to the House of Commons on 23 November that there
will continue to be some allowance for allowances.
Regards,
Richard
From: Peter Kellard
Sent: 20 December 2010 12:00
AM
To: Jackson Richard
(Immigration Policy)
Subject: Re: EFM 3136 - UKBA
Tier 1 & Tier 2 - Analysis of salary package allowances paid to migrant
workers
Dear Mr Jackson,
What I mean in that HMRC would not allow the gross salary amount you use for
resident labour market test purposes, is that you are including elements within
the migrant salaray package which HMRC would exclude
from Tax and NI as they do not consider these elements as part of ones taxable
pay, they are allowable business expenses. The UKBA resident labour market test
then compares this amount against the salary ranges provided by Salary Services
Ltd to ensure undercutting of resident workers does not take place. However my
understanding is the salary figures provided by Salary Services Ltd which are
used for this test do not include these non taxable allowances and so it is no
a like for like comparison and therefore a meaningless test.
Will you confirm if the Salary figures provided by Salary Services Ltd and used
by the UKBA in the resident labour test contain non taxable allowance
components and if so what percentage?
After discussing these issues with HMRC and then finalising your policy did the
UKBA ask HMRC to validate the policy model to ensure that businesses using
migrant workers particularly ICT workers would not gain an advantage through
reduced tax and NI due on the total salary package paid? Were any example
scenarios worked through to ensure there were no such unintended consequences
of the final policy?
What was the name of the prominent trade union invloved
in developing this policy referred to below?
Yours Sincerely
Peter Kellard
On
10/01/2011 10:54, Jackson Richard (Immigration Policy) wrote:
Dear Mr Kellard,
As I mentioned
in my previous e-mail, the advice we have had from HMRC is that detached duty
tax relief is claimable for certain types of expenditure, and applies whether
or not an employee is paid in salary or allowances.
Employers can
(as an alternative to the employee claiming detached duty relief) arrange a tax
dispensation on certain allowances with HMRC. However, if they do this,
we will not allow the employer to artificially inflate the size of the pay
package on the basis of the tax that has not been paid. This means that
businesses cannot benefit financially from the reduced tax paid.
This tax relief
applies to spending on accommodation, food, council tax, utility bills and
travel to work from home for workers who are only coming to the UK for short
periods. Every worker incurs these types of expenses, and therefore we see no
logical reason to exclude money paid to migrant workers for these purposes,
regardless of whether they are paid it in salary or allowances.
The salary
figures provided by Salary Services Ltd are based on advertised salaries. There
is nothing in their published methodology to state that allowances are specifically
included or excluded.
Many businesses
operate a salary model in which a migrant worker continues to be paid their
overseas salary while they are working in the UK, and make up the difference to
the salary that would be paid to a UK worker with a “UK cost of living
allowance”. This
avoids the need to raise the employee’s base salary and then lower it
again when they return overseas. We do not consider this practice to be
unreasonable.
If you have
concerns that businesses are avoiding tax that they should be paying, I suggest
you raise the issue with HMRC.
As per my
previous e-mail, we discussed our approach to salaries and allowances with the
Connect union.
Regards,
Richard
From: Peter Kellard
Sent: 16 January 2011 12:00
AM
To: Jackson Richard
(Immigration Policy)
Subject: Re: EFM 3136 - UKBA
Tier 1 & Tier 2 - Analysis of salary package allowances paid to migrant
workers
Mr Jackson,
For the purpose of the resident labour market test salary comparisons, what was
the UKBA view on the data published by Salary Services and used in formulating
its policy. Did the UKBA base its policy on the view that the advertised
salaries included a component of detached duty relief?
Yours Sincerely
Peter Kellard
On
21/01/2011 14:53, Jackson Richard (Immigration Policy) wrote:
Dear Mr Kellard,
We draw on a
wide variety of sources of salary data for different occupations under Tier
2. Our policy on allowances and detached duty relief is not based on any
one source of salary data used for a particular occupation(s).
Regards,
Richard
From: Peter Kellard
Sent: 24 January 2011 11:24
PM
To: Jackson Richard
(Immigration Policy)
Subject: Re: EFM 3136 - UKBA
Tier 1 & Tier 2 - Analysis of salary package allowances paid to migrant
workers
Mr Jackson,
Irrespective of the variety of sources of salary data for different occupations
under Tier 2. Did the UKBA base its policy on the view that the advertised
salaries included a component of detached duty relief?
Yours Sincerely
Peter Kellard
On
25/01/2011 09:54, Jackson Richard (Immigration Policy) wrote:
Dear Mr Kellard,
We based our
policy on the view that advertised salaries are an accurate indication of the
total salary package on offer. Whether an individual is entitled to a
component of detached duty relief on part of that salary package will depend on
their individual circumstances, rather than on the salary on offer to all
applicants.
Regards,
Richard
From: Peter Kellard
Sent: 25 January 2011 12:56 PM
To:
Jackson Richard (Immigration Policy)
Subject: Re: EFM 3136 - UKBA
Tier 1 & Tier 2 - Analysis of salary package allowances paid to migrant
workers
Mr Jackson,
So did the UKBA base its policy on the view that the advertised salaries were
an accurate indication of the total salary package on offer and that they
included a component of detached duty relief.
Yours Sincerely
Peter Kellard
On 25/01/2011 14:04, Jackson
Richard (Immigration Policy) wrote:
Dear
Mr Kellard,
Our
view is that advertised salaries are an indication of the total salary package
on offer, including any components that may be eligible for detached duty relief
if the individual worker’s circumstances permit it.
Regards,
Richard
From: Peter Kellard
Sent: 25 January 2011 4:00 PM
To:
Jackson Richard (Immigration Policy)
Subject: Re: EFM 3136 - UKBA
Tier 1 & Tier 2 - Analysis of salary package allowances paid to migrant
workers
Dear
Mr Jackson,
You still have not answered the question, eligibility is not an issue as all
employees can claim detached duty relief, there is no difference here between
resident or migrant workers on this. An advertised salary will either have a
component of detached duty relief or it will not, it cannot be both otherwise
your policy will be inconsistent. Which position did the UKBA take with respect
to advertised salaries having a component of detached duty relief
?
Yours Sincerely
Peter Kellard
On 25/01/2011 16:15, Jackson
Richard (Immigration Policy) wrote:
Dear
Mr Kellard,
My
understanding of detached duty relief is that an employee transferred long-distance
to fill a post may claim detached duty relief on certain expenditure, whereas
an employee who lives and works locally, and is filling the same post at the
same salary, cannot. As an employer cannot know at the point of
advertising whether (for example) the post can be filled locally or whether
they will need to transfer an employee from an overseas branch, they cannot
prejudge the detached duty relief component.
As
stated in my previous replies, UKBA took the view that advertised salaries reflect
the total salary package on offer. This includes any components which may
be eligible for detached duty relief. To put it another way, if a salary
includes an element which may be eligible for detached duty relief, we
considered that this will have been included in the advertised rate.
Regards,
Richard
From: Peter Kellard
Sent: 25 January 2011 9:31 PM
To:
Jackson Richard (Immigration Policy)
Subject: Re: EFM 3136 - UKBA
Tier 1 & Tier 2 - Analysis of salary package allowances paid to migrant workers
Dear
Mr Jackson,
I am a little confused by your reply.
You confirm that a resident local worker cannot claim detached duty relief as
part of their salary and that a migrant worker can. You also say that an
employer cannot prejudge the detached duty relief component when advertising a
position. As the employer must advertise in the UK first and a local
worker cannot claim detached duty relief, the total salary package the employer
advertises therefore cannot contain any components of detached duty relief.
Will you confirm that my understanding of your reply on this point is correct?
Yours Sincerely
Peter Kellard
On 26/01/2011 09:39, Jackson
Richard (Immigration Policy) wrote:
Dear
Mr Kellard,
I
think we are saying the same thing. The advertised salary will be the
total salary package on offer. Whether part of that salary attracts
detached duty relief will depend on who takes up the post.
Regards,
Richard
From: Peter Kellard
Sent: 26 January 2011 10:59 PM
To:
Jackson Richard (Immigration Policy)
Subject: Re: EFM 3136 - UKBA
Tier 1 & Tier 2 - Analysis of salary package allowances paid to migrant
workers
Mr Jackson,
I do not think we are saying the same thing.
Detached duty relief cannot be part of an employees
salary as it is not subject to tax or national insurance. All workers, resident
and migrant workers can receive payments which fall into the detached duty
relief category, however receiving such a payment does
not make it salary. As the UKBA has a policy to ensure migrant workers do not
undercut resident workers this boundary is important. The UKBA's interpretation
of salary undermines its own policy in this area (
Appropriate Rates of Pay http://www.ukba.homeoffice.gov.uk/employers/points/sponsoringmigrants/employingmigrants/residentlabourmarkettest/ ) of undercutting
residents workers .
Using the UKBA's own example guidance on page 7 for a short term transfer ( http://www.ukba.homeoffice.gov.uk/sitecontent/applicationforms/pbs/tier2-guidance.pdf ) Lets consider
the following illustration of including detached duty relief as 'salary' an
whether a company would benefit under these guidelines to bring migrant workers
into the country rather than hire resident workers :-
A
company based in Sheffield has an assignment with a client in Reading
for a period of 12 months less 1 day (a short term transfer). It requires 3 staff, it already has one resident worker on a salary of
£30,000 in Sheffield. The company advertises for the other two positions
at the same salary of £30,000. It fills one position from a resident
worker who lives in Reading on a Salary of £30,000 and then brings in a
migrant worker from outside the EU from one of its overseas offices. This
migrant worker is paid a salary of £18,000. The staff member from
Sheffield and the migrant worker are both paid £12,000 accommodation
allowance (detached duty relief), the £12,000 paid to the migrant worker
is considered by the UKBA as part of the workers salary and used to check the
appropriate level of pay. The same £12,000 accommodation allowance paid
to the resident worker is ignored by the UKBA and is not considered as part of
the residents workers pay (HMRC would ignore the £12,000 accommodation
allowance for both workers as it is not part of taxable pay it is detached duty
relief).
Using a standard rate tax coding what is the total cost to the company for
these workers, and how much will each of the workers receive after tax and NI
has been deducted?
As you can see resident workers are
undercut by 10.36% and 50.036%. Suppose the requirement in Reading is
more involved than originally thought, and an extra 3 workers are required.
What would any employer do with access to a pool of migrant workers who could
fill these positions? When a company can bring migrant workers into the country
following the UKBA's guidance and their costs will be less than recruiting or
training resident workers that is exactly what they will do. The UKBA's
policy in this area actively encourages undercutting of resident workers.
Will you confirm the above illustration is correct?
Yours Sincerely
Peter Kellard
On 31/01/2011 16:36, Jackson
Richard (Immigration Policy) wrote:
Dear
Mr Kellard,
You
say, “All workers, resident and migrant workers can receive
payments which fall into the detached duty relief category, however receiving
such a payment does not make it salary”
The
converse is also true. Classing a payment as something other than salary
does not make ineligible for detached duty relief. Using your example, if
a worker was paid £30,000 in salary and zero allowances, rather than
£18,000 salary and £12,000 allowances, this would not affect the
amount of detached duty relief that could be claimed. It is therefore
difficult to see what would be achieved by altering our current policy on
allowances.
The
requirement to advertise the job to resident workers applies to the Tier 2
(General) category. Under this category, as per my previous e-mail, we
only consider allowances that are also on offer to resident workers. A
salary package of £30,000 + £18,000 allowances is very different
from a salary package of £30,000 including £18,000
allowances. If the former is what is on offer to resident workers, we
would expect to see that reflected in any job advertisement, or our Resident
Labour Market Test will not have been met. We would also expect that to
be offered to any migrant worker being sponsored.
For
the Tier 2 (Intra-Company Transfer) category, we accept allowances other than
those on offer to resident workers for the reasons I have given in my previous
e-mails. However, this does not mean that it will be cheaper to hire a
migrant worker. The only difference in cost to the employer for your Reading example and your
non-EU migrant example is that you have not included NI contributions. NI
contributions must be paid for migrant workers, either in the UK or (where a
bilateral agreement between the two countries exists) the equivalent
contributions in the sending country. The cost to the employer may not be
exactly the same in the latter case, but it will not be zero, and in any event
it is not UKBA’s policy to interfere with international tax agreements.
Regards,
Richard
From: Peter Kellard
Sent: 17
February 2011
12:25
AM
To:
Jackson
Richard
(Immigration Policy)
Subject: Re: EFM 3136 - UKBA
Tier 1 & Tier 2 - Analysis of salary package allowances paid to migrant
workers
Dear
Mr Jackson,
You have replied to my email but it appears you prefer to reword my
illustration and then answer my questions using your version rather than
addressing the points I have raised.
To help your understanding of my question, I will try a simpler example for you
relating to migrant worker ICT's.
Two companies A & B have a client in Reading requiring IT resources for a
period of 12 months less 1 day, all roles are the same and the 'rate' for doing
the job is £30,000 pa.
Company A transfers a resident worker from Sheffield onto the
client site in Reading (think of
this is an ICT within the UK). The company
also has a Reading based
resident worker working on the client site.
Company B has no workers in the UK to fill the
requirement so transfers a worker into the UK from outside
the EU via the ICT route.
Company B must follow the UKBA guidelines to ensure the appropriate salary is
paid. They can include allowances in addition to a base salary in a 'Salary
Package' (as per your email 13/12/2010) to be used
for job pay rate comparison purposes to meet the UKBA's rules before entry can
be granted.
The illustration below was prepared by Accountants ExceedUK http://www.exceeduk.co.uk/
Contrary
to your email of 13/12/2010 employees transferred into the UK are here on
company business. These costs are incurred in the process of doing business,
they should not be included for salary comparison purposes by UKBA as HMRC
allows them to be tax free business expenses Travel,
accommodation and subsistence expenses
As you
can see company B follows the UKBA's rules which allow a 'salary package' of
£30,000 to pass its salary comparison test and once in the UK uses HMRC's
rules on businesses expenses. The result is a loss of Tax and NI revenue and
the undercutting of resident businesses and workers. If the UKBA salary
comparison test was valid the figures for company B employee should match those
for company A employee from Sheffield.
Please advise if there are any errors in the figures in the illustration for
the Company B migrant worker. I believe company B would meet all of the UKBA's
guidelines to get to a 'salary package' which would be accepted as not
undercutting the rate for the job by the UKBA under its current guidelines. You
are incorrect in your reply below that NI will not be zero for such migrant
workers National
Insurance for people coming to the UK
A rough
calculation reveals that upward of £234 million of lost revenue (25,000
ICT migrant workers * £9,379) could be occurring if this was repeated Average
Salary and Allowances from tier 2 ICT used CoS Q4 2010 & (salary for programmers for November 2010 should read
£26,804.15)
The
recent advice of the Migration Advisory Committee on allowances was rejected by
the government Immigration
House of Lords written answers, 22 December 2010
You
refer to discussions with current Ministers in your email of 15/12/2010 relating to
allowances. You can see from the above illustration that the UKBA treatment of
allowances will result in significant differences in Tax & NI revenue paid
by non resident migrant workers and their companies compared to resident
workers and companies.
What
was the UKBA policy recommendation to Ministers on allowances during the above
discussions?
During
these discussions were Ministers presented with any figures or illustrations as
above or any estimates to the Tax and NI revenue implications of the UKBA
policy teams recommendations on allowances?
Yours
Sincerely
Peter Kellard
Date:
Thu, 17 Feb 2011 10:49:56 -0000
[2011-02-17 10:49:56 GMT]
From: Jackson Richard (Immigration Policy)
To:
Peter Kellard
Subject: RE: EFM 3136 - UKBA Tier 1 & Tier 2 - Analysis of salary package allowances paid to migrant workers
Dear Mr Kellard,
I
understand the point you are making, but you are overlooking two key factors:
(i)
Salary packages
reflect the cost of living. It is reasonable for a worker transferred
from, say, Bangalore to Reading to be paid to cover
the cost of living in Bangalore and in Reading. However,
there is no rationale in requiring them to be paid to cover the cost of living
in Sheffield and in Reading, and so
drawing a direct cost comparison with a transfer from Sheffield would be
flawed. As long as the transferee from Bangalore was paid at
least the appropriate rate for a local worker, we would consider this
acceptable.
(ii)
“Total cost to
employer” is the line in your table that we would look at, not the total
cost before taxes. As long as the figure in this line meets the UK appropriate rate
(as detailed in our codes of practice for sponsors) we will accept the salary
package on offer. So in the Company B example, if the UK appropriate rate
for the job on offer was £30,000, the application would be granted.
If the UK appropriate rate
was £33,000, the application would be refused.
I
have considered your request for precise details of policy discussions with
Ministers, and on balance I do not consider that it would be appropriate to
disclose these. There is a public interest in Ministers and officials
having space to hold candid discussions, challenge ideas and develop policy,
and as such these discussions may be exempted from disclosure under section 35
(1)(a) of the Freedom of Information Act 2000. This allows us to exempt
information if it relates to the formulation or development of Government
policy.
I
have answered your other questions and explained our policy in my previous
e-mails. There is little further I can add and I believe that there is
little merit in continuing this e-mail discussion further.
Regards,
Richard
Richard
Jackson
Immigration Policy
UK Border Agency
PO Box 3468, Sheffield, S3
8WA
P
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