International recruitment: why foreign workers are losing interest in the UK

Overseas workers have helped plug the UK skills gap in recent years, but with unemployment soaring, domestic employees rebelling, the pound on its knees, and taxes on the rise, many are returning home. Nick Martindale examines the implications for HR.

In recent years, the UK has relied heavily on foreign labour as a means of addressing skills shortages in certain industries and filling positions that local people are reluctant to take.

But the economic recession and the Lindsey oil refinery dispute earlier this year – where hundreds of workers went on unofficial strike action in protest over foreign labour being brought in – have highlighted the potential perils of relying on overseas staffing at a time when UK unemployment is at a 14-year high and many foreign workers have opted to return home.

Spice Plc, a provider of outsourced infrastructure support services to the utility sector, hires foreign workers as part of its normal selection policy, but does not actively target people from abroad. “We had one foray into Europe a couple of years back, which was unsuccessful, so we’ve tended to go for the best person, as long as they have the right to work,” says Richard Harris, group services and HR director.

“Even in the recession we have problems with skilled labour, mainly in high-voltage connection operations – project engineers, commissioning engineers, sub-engineers – because they’re rare people.”

Training up talent

Instead, Spice decided to train up its next generation of talent and has just opened a dedicated centre in Corby.

“I haven’t ruled out looking overseas but really I’d like to see what we can do on a UK basis,” adds Harris. “There may come a time when we have to plant ourselves on a European landbase and look at a recruitment exercise, but that’s not in the plans for the next few months. We’re aiming to recruit and train internally, and hopefully be rewarded by the fact that people choose to stay with us.”

Richard Parfitt, a senior recruitment consultant with Reed Energy, based in the UK’s energy capital Aberdeen, believes the energy sector has been unfairly singled out in the wake of the Lindsey dispute, although he admits hostility does exist in certain sectors of the UK workforce.

He argues that employers often have little choice about whether or not to use foreign labour.

“If people in the UK refuse to do this work, or insist on too high a wage, employers must look elsewhere for people who will do the work at the required remuneration,” he says.

Positions within inspection, corrosion and integrity are where the greatest shortages lie in the energy sector, adds Parfitt, so these are where companies are mostly likely to look overseas.

Essential part

For some sectors, foreign labour remains an essential part of the overall recruitment strategy. Despite the downturn, there is still strong demand in construction, says Duncan Bartlett, director of specialist construction recruiter One Way Resourcing.

“A lot of it is historical,” he says. “The massive change in the education system in the 1960s, which resulted in the end of secondary modern education, meant that fewer people took trade apprenticeships. The result was a general shortage of skilled tradespeople and an influx of Eastern Europeans with those missing skills.

“There’s also a real shortage of plant operators; you can’t just get straight into a forklift truck, you have to be trained and have passed all the health and safety regulations.”

The education sector is also dependent on a steady stream of recruits from outside the UK. “The population bias in the South East means it needs a higher number of teachers, and inner-city schools often find it more difficult to attract new teachers,” says Kate Graham, director at Hays Education. “Generally, the problem is more acute for specialist subject areas, such as maths and science, in secondary schools.”

She identifies Ireland, Australia and Canada as decent sources of labour, with staff attracted by similar curriculums and cultures.

John Faraguna, managing director of Hays Health and Social Care, says it is a similar story in his sector. One in nine social worker jobs are currently unfilled and half of the healthcare workforce will reach retirement age in the next decade, he says.

Consistent approach

While more people from the UK are considering switching to the sector, there is still a lag while they are trained, which can be partially addressed by overseas staff. As a result, Hays has recently introduced a new methodology designed to ensure companies adopt a consistent approach to overseas recruitment, and this has so far been used in projects to recruit consultants, mid-grade doctors, anaesthetists, theatre and ITU nurses, as well as qualified social workers.

Aside from simply addressing skills shortages, there are other reasons why using foreign labour can be more attractive than local sources in certain industries. The Lindsey oil dispute stemmed from the EU Posted Workers Directive, says Pam Sidhu, a senior associate at law firm Pinsent Masons. This entitles workers posted overseas on a temporary basis to receive the same basic employment rights as local staff, but does not give them access to collectively agreed terms and conditions that go beyond these. In practice, this means it is possible for employers to hire EU workers on lower rates than UK labour if locally agreed deals are higher.

But HR has to tread a fine line, warns Sidhu, as companies could face claims if they were found to have discriminated against local workers, or indeed if they refused to employ foreign labour, either at all or on the grounds that they require immigration permissions. “Employers must allow applications from individuals of all nationalities and consider them purely on merit,” she says.

Yet companies that still make use of overseas workers have seen the supply of staff decrease in recent months, as the overall health of the UK economy and the weakness of the pound have had an effect.

Kent Thompson, managing director of industrial recruiter Pertemps, says his sector had seen a massive influx of EU staff over the past two years – with many coming from Poland and Slovakia – but adds that this is no longer the case.

“The ones who have stayed are now entrenched in our society, whereas the ones who came over to earn some money, send some back and then go back themselves have probably already done that,” he says.

Returned home

It’s a similar situation in the construction sector, adds Andrew Bredin, managing director of Hays Construction & Property, where Eastern European labourers have returned home.

The introduction of the 50% rate of tax for those earning more than £150,000 – which comes into force in April 2010 – will also have an impact for those in very highly paid roles, says Matt Brooks, group manager at HR recruiter Frazer Jones. “If you ask at the top end whether the 50% rate of tax will have an impact, it’s a resounding ‘yes’,” he says.

“We now have higher taxes than pretty much all the European countries. You see people in Paris who want to increase their international exposure and are thinking about where to look, and London is starting to look a bit less attractive.”

As well as deterring top foreign talent from coming to the UK, this could also see top UK earners consider roles overseas, says Parfitt at Reed Energy.

Such a situation, though, could further the cause of international recruitment as companies in a post-recession world are forced to cast their nets even wider for talent. “Once we enter the upturn, it is likely that many of the shortages will reappear, particularly for skilled workers such as engineers, project managers, surveyors and architects,” says Bredin at Hays Construction & Property.

“In many cases, shortages will be compounded by an ageing workforce and exacerbated because we haven’t nurtured talent during the recession. It is inevitable that sourcing senior professionals will be a challenge when we next enter a growth period, which will put upward pressure on salaries and create an even greater need to understand the global labour market and undertake international recruitment.”

The real victims of the 50% tax rate

The biggest impact of the 50% tax rate will be felt by employers that operate an “equalisation” policy, warns Chris Thomas, a senior associate at law firm Pinsent Masons.

This is common among companies with a large number of internationally mobile employees, and effectively guarantees that staff will not be any better or worse off as a result of relocating.

“If the employee is coming to the UK from, say, Hong Kong, the remuneration package would be adjusted so that they receive the same net benefits after tax as they did before leaving Hong Kong,” says Thomas.

“This means that when tax rates in the UK increase, the cost of this falls entirely on the company. The cost is magnified because the employer cannot simply pay the extra tax; instead it has to ‘gross up’ the net salary, which further increases the total tax bill. National insurance contributions are then due on the higher salary.”

Thomas estimates the tax rise could cost employers an extra 25% in tax costs for an employee on an equalised salary of £100,000.

There are various options open to organisations in this position when it comes to reducing the impact, including salary sacrifice schemes, acceleration of bonuses, use of share-based incentives and share option schemes, and implementing delayed bonus arrangement through trust structures.

Companies in this position are likely to need professional advice to minimise their tax liabilities, adds Thomas.

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