Reform UK has proposed a new employment tax regime that would increase the cost of employing foreign workers while reducing employment costs for British citizens.
Under proposals announced by Treasury spokesperson Robert Jenrick, employers would pay lower National Insurance contributions for British workers while continuing to pay higher rates for non-British workers.
The party has also proposed a separate migrant labour levy payable by employers hiring foreign workers. Reform has suggested that some employers could face additional costs of around £3,750 per year for a worker earning the National Minimum Wage, although full details of the scheme have not yet been published.
The proposed levy would operate on a sliding scale, with higher charges applying to lower-paid workers and lower charges applying at higher salary levels. Reform has indicated that specialist and higher-paid roles would face lower charges than lower-paid positions.
While the headline debate has focused on the potential cost of the levy itself, the proposals are notable because they would introduce a new principle into employment taxation. Employment taxes are currently determined by factors such as earnings, employment status and payroll obligations. Reform’s proposals would instead link part of an employer’s labour costs to the citizenship status of workers.
That distinction may ultimately prove more significant than the proposed levy rate. If implemented, the measures would require employers to consider worker status not only for immigration and right to work purposes, but potentially as a factor in workforce costs, payroll administration and recruitment planning.
The proposals remain political commitments rather than government policy. Reform UK is not currently in government and no draft legislation has been published.
Who Would Be Affected?
One of the most important unanswered questions is exactly which workers would fall within scope.
Reports suggest the proposals could be linked to British citizenship rather than immigration status. If that approach were adopted, the affected workforce could extend beyond temporary visa holders and sponsored workers.
That distinction matters because the proposals may not be limited to future recruitment. Depending on how any legislation is drafted, employers could potentially face higher employment costs for existing members of staff as well as new hires.
Questions also remain regarding workers who already have permanent rights to live and work in the UK, including individuals with indefinite leave to remain and EU citizens with settled status.
For HR and payroll teams, the challenge would therefore extend beyond identifying who falls within scope today. Workforce records would need to remain accurate as employee circumstances change over time.
Workforce Data and Payroll Challenges
The practical challenge for many employers may begin with a relatively simple question: how would affected workers be identified?
Most HR and payroll systems are designed around employment status, earnings, tax codes and right to work requirements. They are not generally configured to apply different employment costs based on citizenship.
Identifying Affected Workers
If the proposals were implemented, employers would need clear rules regarding which workers fall within scope and what evidence would be required to support payroll treatment decisions.
Questions may arise in relation to dual nationals, employees who acquire British citizenship during employment and workers who already have permanent rights to live and work in the UK.
For HR teams, the challenge would extend beyond initial identification. Workforce records would need to remain accurate as employee circumstances change over time.
Payroll System Changes
Current payroll systems are not generally designed to apply different employment tax treatments according to citizenship status.
Software providers may need to introduce new functionality, while employers may need to review payroll controls, reporting processes and internal governance arrangements to ensure different categories of workers are treated correctly.
Even relatively modest changes can create significant administrative work when applied across an entire workforce.
Record Keeping and Audit Requirements
Any system that creates different employment costs for different groups of workers would increase the importance of workforce data and record keeping.
Employers would need clear audit trails demonstrating why particular payroll treatments have been applied and the evidence supporting those decisions.
For many organisations, maintaining accurate workforce records may become just as important as calculating the levy itself.
Recruitment and Workforce Planning Implications
Beyond payroll administration, the proposals have the potential to influence how organisations approach recruitment, budgeting and workforce planning.
For many employers, labour costs represent one of the largest areas of expenditure. Any proposal that changes the cost of employing different categories of workers is likely to attract close scrutiny from finance, HR and operational leaders alike.
Recruitment Decision-Making
Employers often recruit internationally because suitably qualified candidates are not readily available in the domestic labour market. In those circumstances, recruitment decisions are driven by skills availability and operational requirements rather than labour costs alone.
If the cost of employing certain categories of workers increases, organisations may need to reassess recruitment budgets and hiring strategies, particularly in sectors already facing skills shortages.
Budgeting and Labour Costs
The financial impact of any levy would extend beyond the headline charge itself. Employers would need to consider the cumulative effect across their workforce alongside salaries, employer National Insurance contributions, pension costs and other employment-related expenses.
Even relatively modest increases in employment costs can become material when applied across multiple employees or business units.
Existing Workforce Exposure
One of the most significant unanswered questions is whether any future regime would apply only to new recruits or also affect existing employees.
If workers with permanent rights to work in the UK ultimately fall within scope, some employers could face higher employment costs in relation to members of staff who have worked within the business for many years.
For HR and workforce planning teams, that possibility creates an additional layer of uncertainty when forecasting future labour costs and resource requirements.
Author
Gill Laing is a qualified Legal Researcher & Analyst with niche specialisms in Law, Tax, Human Resources, Immigration & Employment Law.
Gill is a Multiple Business Owner and the Managing Director of Prof Services - a Marketing & Content Agency for the Professional Services Sector.
