Do the skilled worker salary threshold increases create an equal pay issue for employers?

In April 2024, significant changes were made to the salary thresholds for the skilled worker visa route. The general salary threshold rose from £26,200 to £38,700, along with rises to the various salary concessions including for new entrants and PhD holders. There was also a raise to the ‘going rates’ for particular roles, resulting in the salaries being matched to the 50% percentile of the Annual Survey of Hours and Earnings rather than the 25% percentile.

The end result is that for many occupations and sectors, an applicant requires a higher than average salary to secure skilled worker sponsorship. Unsurprisingly, many companies, struggling to meet these new thresholds, are considering raising salaries for sponsored workers in an effort to retain employees and continue attracting overseas talent.

This has created an issue in terms of the principle of equal pay. If a company decides to pay a sponsored worker more than a resident worker, for performing exactly the same role simply to meet the new skilled worker salary thresholds, could this give rise to potential claims by resident workers under the UK’s equal pay legislation?

What are the laws around equal pay in the UK?

The key point is that the current legal framework on equal pay relates only to differences in pay that have arisen due to the sex of the workers. Under the Equality Act 2010, equal pay legislation applies when two individuals of different sexes are performing equal work, but there is a discrepancy in the pay they receive for it.

‘Equal work’ can take three forms:

1. A’s work is like B’s work and there are no differences in term that are of practical importance;

2. A’s work is rated as equivalent to B’s work, or

3. A’s work is of equal value to B’s work.

When determining whether work is equal, a tribunal will consider factors such as the frequency and nature of any differences, as well as the demands of the job, including the effort and skills required to complete it.

What does the increased skilled worker salary threshold mean for equal pay?

If an employer decides to raise the salaries for sponsored workers to reach the necessary salary thresholds for a skilled worker visa while keeping resident workers at the same level, this could, in theory, lead to an equal pay claim. Assuming the jobs remain the same, this would create a pay disparity within a business.

If this was to get as far as an equal pay claim to an employment tribunal, under the present legal framework, a claimant would need to show that not only does a pay discrepancy exist for roles which are the same or of equal value, but that this disparity was due to their sex. This could prove tricky for a claimant to establish when the reasons for the pay increase were solely to ensure a worker is eligible for a skilled worker visa.

If we imagine that there was a situation where a claimant was able to prove this, an employer would still have a ‘material factor defence’ against this kind of claim. They could argue, for instance, that the pay discrepancy was justified as it was a proportionate response to achieving some form of legitimate aim. This could include reasons such as a need to retain staff with higher salaries as the loss of the sponsored employees would have a detrimental impact on the business or maintaining a diverse workforce.

How might a Labour government affect equal pay laws and the new salary thresholds?

The new Labour government have promised to introduce sweeping changes to employment laws, including expanding the scope of equal pay legislation. This includes a promise to broaden out the framework of equal pay protection beyond sex, to include race discrimination in an effort to protect ethnic minorities from pay disparities. The right to claim race discrimination for a pay disparity already exists within the wider prohibitions on direct and indirect race discrimination, but this change would align the law on sex and race pay disparity claims.

If this legislation is implemented, this could lead to a more complex interaction between equal pay laws and the skilled worker visa salary thresholds. Increases to the salary threshold for skilled worker visa holders benefit the ‘minority’ (overseas workers) to the detriment of the more ‘dominant’ group (the settled work force).

For a claim to be successful, it would require a member of the settled workforce to successfully argue that they have been unfairly treated due to their race by the decision of an employer to raise the salaries for overseas workers to secure their visa permission in the UK. Since the settled workforce encompasses a variety of ethnic backgrounds, a race claim may be hard to establish. A claim would also have to defeat the likely argument from an employer that the pay disparity was a necessary and proportionate response to the need to keep sponsored workers within a business, particularly if their skills are crucial to its operation.

With the Labour government seemingly intent on keeping the present system of salary thresholds for the skilled worker route for the foreseeable future, equal pay claims may start cropping up in the tribunal system. These arguments will then be put to the test. Irrespective of the merits of the arguments raised, equal pay claims are costly to defend for employers and can result in lengthy litigation.  

Employers will therefore have some tough choices to make. They face the risk of a race discrimination claim if they raise salaries for sponsored workers or the cost burden of increasing salaries for all employees in that role to avoid a disparity. Faced with this, employers may simply opt to avoid sponsorship altogether, potentially detrimentally impacting their businesses and their worker’s careers.