Employers must improve pay and conditions to ‘entice’ new workers after Brexit, report says

Think tank also warns labour shortages could tempt businesses to circumvent immigration rules

Employers in sectors such as retail and hospitality will be forced to improve pay and working conditions if they are to attract enough talent to make up for the shortfall in European labour once new immigration rules come into force, a report has said.

A report from the Resolution Foundation said sectors heavily reliant on migrant labour tended to be lower paid and less compliant with labour rules, warning that these employers would have to do more to “entice” new workers post Brexit.

The think tank said one in seven workers (15 per cent) in the “migrant dense” hospitality sector reported not receiving any holiday pay, while a similar number (14 per cent) had never been given a payslip – both of which are legal rights in the UK.

The report also warned that, instead of improving conditions to attract workers, labour shortages could encourage businesses to circumvent the new migration rules and hire irregular migrant workers at the detriment of working conditions.

Because labour enforcement bodies are far more reliant on workers coming forward with complaints than immigration regulators, there needed to be pathways for irregular migrants to report labour violations without fear of retribution for breaching immigration rules, the report said.

Kathleen Henehan, senior research and policy analyst at the Resolution Foundation, said migrant workers had played a big role in the growth of the UK labour force before the Brexit referendum, but there had been an “exodus” of these workers since the decision to leave the EU. “Firms reliant on lower-paid migrant labour will need to change how they operate over time,” she said. “Higher unemployment may allow them to delay such decisions, but they can’t be avoided altogether.

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“Government too will need to change how it works in the face of this labour market change, with the enforcement of employment rules needing to be strengthened given that some firms may respond to the tighter rules by hiring irregular migrant labour.” 

Commenting on the report, Dr Zofia Bajorek, research fellow at the Institute for Employment Studies, said ensuring good-quality work – making sure work was fair and well rewarded and provided professional development – was key to remaining a competitive employer at times of uncertainty.

“It is not only ‘pay’ or ‘good conditions’ in isolation that improve retention, but a combination of practices and conditions including senior management support, line manager development, a culture of learning and support, and HR practices such as performance management, annual appraisals, pay and reward structures and clear communication that made a difference to the retention of staff,” she said.

Jonathan Beech, managing director of Migrate UK, said given the complexity of the new immigration rules – which come into force on 1 January 2021 – as well as the costs involved with becoming a licensed sponsor, it was understandable why come might consider circumventing the rules. But, he said: “Employers should not get complacent when it comes to compliance.

“The sponsorship system does put the onus on employers to police their own workforce and, although it is unlikely the Home Office will audit every employer that employs migrant workers, the sanctions for illegal working are harsh.”

Beech added businesses that fell foul of the rules could face huge reputational damage alongside a ban from holding a licence to employ overseas citizens.

According to the report, migrant workers accounted for 60 per cent of net employment growth between 1996 and 2019. But in the last year, inflows of migrant workers had declined by almost three-quarters, from 207,000 in 2015-16 to just 58,000 in 2019-20.

During that period, the number of workers from EU8 countries – the Eastern European countries that joined the bloc in 2004, including Poland, Hungary and the Czech Republic – also started falling, with net migration dropping from 69,000 in 2015-16 to -16,000 by 2019-20.

The report also found that the overall number, not just the inflow of migrant workers, is likely to have fallen during the pandemic. It cites “official, but highly uncertain data” that suggested the number of EU migrant workers had fallen by 16 per cent in the year to summer 2020, driven by migrant workers leaving the UK.

The think tank warned that migrant-reliant sectors – “particularly those with fast staff turnovers that are dependent on new arrivals” such as the hospitality sector – will need to adjust to the major change in the UK labour market.