Sponsorship allows non‑British and non‑Irish nationals to work in the UK. Under the Skilled Worker route, a licensed organisation sponsors an individual for an eligible role, which involves taking on specific compliance duties and bearing significant costs over the life of the permission. At the moment, five years of permission under this route typically costs around £14,000 where the sponsor is medium or large (although there are often additional costs).
Under the current system, many sponsors plan around a relatively predictable path, usually five years, to “settlement”. This is the point at which the individual is granted settlement and no longer needs to be sponsored. Sponsorship obligations and immigration‑related costs (such as the Immigration Skills Charge and Immigration Health Surcharge) fall away as soon as an individual achieves settlement.
How will the process change?
At the moment, settlement depends partly on time spent in the UK, with additional requirements depending on the immigration route. For Skilled Workers, the time must have been spent in qualifying routes, the sponsor must still be licensed and must confirm ongoing work and salary arrangements above set thresholds. However, the government proposes to introduce an earned settlement model that would up-end the existing system.
As we have explained here, under the earned settlement proposals, all applicants will need to meet specific core requirements based on character, integration, contribution and residence. For residence, a baseline qualifying period, usually of 10 years (but potentially 15 years for Skilled Workers in roles skilled below degree level), will be increased or decreased depending on various factors including taxable earnings and contribution to the state. As we discuss below, this new uncertainty over the settlement path will be a challenge for sponsors and affect the legal risk.
High earners may see their residency requirements cut significantly, with those with taxable earnings of at least £125,140 for three years immediately prior to applying for settlement gaining a reduction of seven years. At the other end of the spectrum, however, an applicant who has overstayed a visa by more than six months could see up to an extra 20 years added to the length of the process.
The range of factors that would become relevant under the new proposals means that this pathway will become much more individual and subject to changing circumstances. You can read more about these here.
What will the immediate impact be?
The consultation document on the earned settlement proposals confirms that the government’s preference is that the new earned settlement model would apply to anyone already in the UK who has not been granted settlement when the rules change. This means that the changes could apply retrospectively, without a transition period.
From the worker’s perspective, the impact could be profound: under the new scheme, a Skilled Worker on the cusp of settlement may instead face a further variable number of years before qualifying, potentially requiring sponsorship until that point.
For sponsors, this could mean extending sponsorship - at considerable cost - where they had expected the individual to achieve settlement in the near future.
An extended period of sponsorship may not be a cost all businesses can meet and sponsors may need to make decisions quickly about how to deal with this. Would termination be justified in those circumstances or would a sponsor need to continue sponsorship and meet this extra cost? Deciding not to extend sponsorship could create risk from both a discrimination and unfair dismissal perspective. These are essentially the same considerations and risks that a sponsor faces now, for example if a worker has only been sponsored initially for three years rather than five. However, as discussed below, the significant uncertainty around the path to settlement under the new proposed regime would place this decision in a markedly different context.
Discrimination risks
If, facing a longer than expected period of sponsorship, a sponsor decides it does not wish to sponsor the worker for longer and their contract is therefore terminated, there is a risk this would amount to indirect race discrimination. British and Irish citizens would have the right to work, but candidates requiring sponsorship would be disadvantaged by any additional qualification criteria that results in a longer qualifying period for settlement. Indirect discrimination can be objectively justified if it’s a proportionate means of achieving a legitimate aim, but what might be enough to meet this test is far from certain.
The leading case on sponsorship and employment is Osborne Clarke v Purohit. In this case the Employment Appeal Tribunal (EAT) held that a law firm’s policy of excluding trainee applicants who did not already have the right to work was unlawful indirect race discrimination. The EAT rejected cost-based arguments and said recruitment should go ahead on merit with sponsorship considered later. While this was about hiring rather than extending sponsorship, the case shows a reluctance to accept cost as a justification for indirect race discrimination in the sponsorship context
If a sponsor refuses to extend sponsorship, this will likely be seen as a decision driven mainly by cost. As we explained in our recent article, cost alone is generally not enough to justify indirect discrimination. However, wider economic factors related to cost may be valid justifications, and cost would not necessarily be the only consideration. Sponsors facing an unexpected extension to a sponsorship may have other legitimate concerns that tribunals may take into account.
For example, sponsors may have planned their budgets expecting sponsorship costs to end at a certain point. An unexpected extension could therefore disrupt business and workforce planning. Another challenge is that settlement eligibility under the new rules depends on several factors (such as salary, criminal record, and previous visa compliance). This makes it hard to predict when a worker will become eligible for settlement.
Another question is whether Osborne Clarke would still be relevant in such a different context. Although a 2009 decision, and therefore significantly predating the current sponsorship system, it remains binding. The core message of the decision is reinforced by the Home Office’s Code of Practice and the Equality and Human Rights Commission’s Employment Code: employers should ensure selections are based on suitability for the role.
However, both the Osborne Clarke judgment and the Home Office code also state that there is no obligation to sponsor someone. Ultimately the position is untested, but now that the immigration system is changing even more radically, arguments that Osborne Clarke would now be decided differently, or that the principles should not be applied to extension of sponsorship, must be even stronger. It is worth noting that at the time of that decision, a work permit (the scheme before sponsorship was introduced) only cost £190. This is very different from the high costs and uncertain timescales of sponsorship under the new proposals.
Unfair dismissal risks
The risk of an unfair dismissal claim applies if the sponsored individual is an employee (rather than a worker or self-employed). If defending a claim for unfair dismissal, what fair reason would a sponsor rely on? If a sponsor could technically continue to sponsor but chooses not to for cost reasons, the individual would lose the right to work once their existing immigration permission expires. Although illegality can be a fair reason for dismissal where the right to work has been lost, in practice here the dismissal would likely be before permission expires. Similarly, the role itself is not redundant. The sponsor would therefore probably need to rely on the catch all ‘some other substantial reason’ (known as SOSR). This particular scenario is untested.
Reasons behind SOSR dismissals are not a closed list; whether this would be enough to justify a dismissal would be most likely to come down to whether this was a genuine and rational reason on the facts. The sponsor’s argument might be that business planning and budgeting was based on the previous trajectory towards settlement and that the sponsor can’t afford to meet the costs of a longer period of sponsorship. Also relevant would be the uncertainties associated with the new settlement rules touched on above. This would therefore need to be supported by evidence.
The dismissal would also need to be procedurally fair. Sponsors who act too quickly, without considering alternatives to termination or discussing the situation with the sponsored employee, risk procedural unfairness. And in this scenario, there may be real alternatives that the sponsor is not aware of: it is not uncommon for people to be on one immigration route but in fact eligible for another. For example, the employee could potentially have the option to become a dependant on their partner’s Skilled Worker permission, or the employee’s personal life might mean that they qualify under the partner route.
At the moment, these immigration reforms look likely to come before the recently passed Employment Rights Act in the queue for implementation. This means that when the rules come into force, only employees with two years’ service could bring an unfair dismissal claim, and compensation would be capped at the lesser of one year’s salary or £118,223.
However, once the reforms do take effect, the landscape will be very different due to the significantly reduced qualifying period of six months and the removal of the cap on unfair dismissal compensation (due to take effect in January 2027). Under the new Act, unfair dismissal will carry much the same financial risk as a discrimination claim. A successful unfair dismissal claim could therefore be extremely costly, particularly where the individual is unable to secure another role or a comparable salary. Those without other immigration permission will struggle to mitigate this loss, leaving former sponsors exposed. For this reason, organisations will need to keep a close eye on the timescales for both reform processes.
Longer term considerations
Recruitment policies: As noted above, high earners stand to benefit under the new proposals, with settlement in as little as three years. Those with taxable earnings above £50,270 may be able to settle in as little as five years, maintaining the status quo. However, for workers with earnings below these levels, sponsors may well be concerned about lengthy and expensive periods of sponsorship. If a sponsor wants to put in place a recruitment policy to minimise this risk – for example a policy of not recruiting candidates whose settlement is likely to take over five years – would this be legally permissible?
The analysis here would be similar to the discrimination risks arising from termination at the point sponsorship increases. However, a tribunal may be less open to objective justification arguments when a sponsor, fully aware of the new rules, has actively chosen this sort of a policy than it would be for a sponsor that has had the rug pulled from beneath its feet when rules change with no transition period. Arguments around workforce planning uncertainty may still be persuasive though, since the timeline to settlement for each individual will be harder to predict.
Salary-based accelerators: The government proposes taxable earnings thresholds that materially shorten the route to settlement. This introduces clear incentives for sponsors to consider targeted pay increases for sponsored workers. In some cases, a pay rise might cost the business less than continuing sponsorship for another few years.
What risks would this carry?
- Significant commitment: As noted, the worker would need to be earning the higher salary for three years before applying for settlement. The proposals are based on taxable earnings, meaning pay after salary sacrificed benefits and charitable giving are taken into account. This could be a significant financial commitment for sponsors.
- Race discrimination: Any strategy that links pay progression to immigration outcomes carries discrimination risks and would need to be applied with caution. Workers in comparable roles who do not need to be sponsored and therefore receive a lower salary would have strong discrimination or equal pay arguments. Legal risks aside, from an employee relations perspective, this would bake unfairness into the reward structure.
- Sex and disability discrimination: The reference in the earned settlement proposals to earnings over three to five years would place at a disadvantage those who have taken time out for family leave, or worked part-time to accommodate family responsibilities. Statistics suggest that workers in that group are more likely to be women. Similarly, those with a long-term illness or disability who have had significant periods of absence or whose earning capacity is affected due to their conditions may be less likely to satisfy this eligibility requirement.
Whether these groups should benefit from exemptions under the eligibility requirements is being considered by the government. It certainly seems likely that quite complicated rules will need to be put in place to address this.
However, sponsors should be mindful that how this is addressed in the reformed scheme (if at all) may not remove the discrimination risk entirely. As we have observed previously, employment and immigration law are not always entirely compatible.
What will sponsors be able to do to help speed settlement up?
The earned settlement model includes a wider set of “accelerators” and “decelerators” tied to taxable earnings, language, integration and contribution. For sponsors, this means more complex workforce planning and monitoring. It may also mean a more creative approach to what sponsors might require from those on the settlement path. For example, working in the community might offer a very significant discount of between three and five years. While many sponsors require responsible business activities, this sort of commitment would likely need to go much further. There are no details in the earned settlement consultation document of what contributions might be recognised or how they may be assessed, but the expectation is that the contributions must be “extensive” to count.
While there would of course be potential long-term benefits to the individual, if a sponsor were to tie an onerous volunteering obligation to employment, there would be some tricky legal considerations. Would this need to be paid? And if the worker is already working full-time to meet their sponsorship salary requirement, would they have time for this?
Another option for sponsors would be to support sponsored workers with language classes, as competency in English at C1 Level under the Common European Framework of Reference for Languages can justify a reduction of a year to the relevant baseline. However, given this attracts only a one-year reduction (compared to up to seven years for other attributes), the impact is much more limited.
What can sponsors do now?
At this time, the earned settlement policy is yet to be finalised, but the intention is to move quickly after the consultation period (which ended on 12 February 2026). New Immigration Rules implementing the system could be brought forward as early as April 2026.
Auditing the existing sponsored workforce and understanding how each individual may be impacted will be key. For other recommendations, see our article here.
We’ll be providing an update on the earned settlement proposals at our regular What’s happening in immigration law webinar on 26 March 2026. Click here for further information and to sign up. If you have more specific queries, please get in touch with your usual Lewis Silkin Employment Team or Immigration Team contact.