Changes to Sponsorship of Temporary Workers to Harm Australian Economy

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Significant changes to the legislation dealing with sponsorship of temporary workers for 457 visas came into effect on the 14th of September 2009. The 457 program is the main way Australian businesses have open to them to bring highly skilled workers to Australia, and the visa can last for up to 4 years.

One of the first initiatives of the new Labour Government elected in November 2007 was to significantly speed up processing of 457 visas to allow businesses to more easily bring overseas workers to Australia. At the end of 2007, there were some 65,000 457 holders in Australia. By the end of 2008, there were 83,000 457 holders. Grants of 457 visas peaked at 7,000 per month in May 2008.

With the economic downturn, the Government has completely overhauled the 457 system. These changes make the 457 visa much more unattractive for employers. The stated reason for these changes is to enhance the “integrity” of the 457 program and to avoid exploitation of overseas workers. However, it is clear that the measures are a thinly veiled measure of protecting Australian jobs and work conditions.

1. Sponsorship Requirements

In order to sponsor overseas employers, a business must first apply for approval as a business sponsor. The requirements for approval have now been completely re-written. The main changes are as follows:

• There is no longer any requirement to show a benefit to Australia in sponsoring overseas workers
• Tougher requirements for the business to demonstrate training of Australians in the business
• Removal of the option of demonstrating new technology instead of training

Of most concern is the training requirement – the Department of Immigration has introduced an objective test requiring, in most cases, that at least 1% of wages and salaries be spent on training. This may not seem much, and for most large employers who can afford to employ a dedicated training department, will not be much of an issue.

However, for smaller businesses, establishing the training requirement will be almost impossible. It is not possible to count on-the-job training or training undertaken by owners of the business towards the required amount. Small businesses rely almost entirely on such training.

The only alternative for a business which does not meet the 1% training requirement is to pay at least 2% of wages and salaries into an industry training fund.

Businesses which have been established less than 12 months ago are only required to show that they have an auditable plan to reach the required level of expenditure. However, if the business has been trading for more than 12 months, there is no escaping the training requirement.

The situation gets even worse for overseas businesses seeking to establish operations in Australia. Such businesses would typically bring highly skilled staff from overseas and hire only a few local staff. As only training for Australians counts towards the requirement, such businesses will be expected to be spending at least 1% of wages and salaries on training of Australians within 12 months of commencing operations. This is a very tough requirement, especially when considering that it may take several years for an overseas business to establish itself in Australia.

Many such businesses are ones which we want in Australia – those at the cutting edge of science and technology. Employers were previously able to show that they were introducing or using new technology in Australia as an alternative to the training requirement. This is no longer possible after 14 September 2009

2. Market Rate Salaries

The 457 system previously required that employees be paid a specified Minimum Salary Level (MSL). This was a simple system – most employees had to be paid at least $45,220 or $61,920 for IT professionals. From September 2009, unless the base salary of the employee is at least $180,000, the employer must show that the employee is to be paid at the “market rate”.

If the employer can show that there is an Australian employed in the business who is paid at the same level or less than the overseas employee, then the requirement is met. However, this would require providing salary level details of Australian employees to the Department of Immigration – either in the form of an employment contract or payslips. The possibility of violation of privacy for Australians working in the business is apparent.

Otherwise, the employer can provide ABS or job market survey data to support the case – however, the Department of Immigration will wish to see information on salary levels for the same occupation in the same location of Australia. Whilst we previously had a very clear and objective test, we now have a very subjective test which may involve significant research and expense for employers.

And it gets worse – by 1 January 2010, all 457 employees (all 80,000 or so of them) must be paid at the market rate or the employers could face serious penalties. The Department of Immigration now has expanded powers to request any relevant document from employers in assessing compliance with the new rules. The Department has indicated that they may request payroll details for all employees – whether Australian or not – to determine whether the market salary is being paid.

3. Transfer to New Employers

Previously, it was not possible for a person holding a 457 visa to work for any other employer. If they wished to change employer, this would require them to lodge a new 457 visa application – this would involve payment of further fees, completion of new medical checks and in some cases English language testing.

From September it is much easier for 457 holders to change employers. The new employer just needs to lodge a nomination for the employee – this costs $70 – and once the nomination is approved, the employee can start working for the new employer. If the employee decides to stop working for the sponsoring employer, then the employee will have 28 days to find a new employer to nominate them.

If they are unable to find a job, they can then ask the sponsoring employer to pay for return airfare for themselves and their family members. Employers are not able to ask the employee to reimburse the cost of recruitment or sponsorship of the employee under the new regulations.

Whilst this may address a power imbalance which was previously in favour of employer, there is a clear possibility of abuse by unscrupulous employees. Employers are far less likely to go to the time and effort of locating and bringing an employee to Australia if the employee is then able to simply switch employers through a simple and inexpensive proves on arrival in Australia.

4. Regional Sponsorship

A series of concessions in terms of minimum salary level and a wider range of possible occupations previously existed under the old 457 visa system. These have now been scrapped, meaning that regional employers will find it much more difficult to bring overseas workers to Australia.

Conclusion

It is critical to Australia’s economy that employers are able to bring highly skilled overseas employees to Australia to meet skill shortages. Previously, the 457 visa was a very effective way of doing this – it was fast, the criteria were relatively easy to understand and if the employee did not perform or was no longer required, they would return home.

The new system is significantly less transparent – what is clear is that the regulations have been hastily drafted and there is still a lot of uncertainty about what the rules are. We can expect longer processing times, and a higher refusal rate. The Department of Immigration is stepping up its compliance operations with more power to request documentation, greater cooperation with other bodies such as the ATO and Department of Employment and higher penalties for breaches – but the rules are less clear than they were before.

Ironically, it is now more attractive for employers to use permanent employer sponsored options such as the Employer Nomination Scheme (ENS). These do not require a market rate to be paid, have no sponsorship obligations and are more flexible in terms of training requirements. However, if the employee does not perform and is fired, they would remain permanent members of the Australian workforce.

The 457 changes are protectionism at its worst – there are clear consequences for smaller employers, rural employers, overseas businesses seeking to establish themselves in Australia and high technology companies. They stifle innovation and entrepreneurship at a time when such efforts should be encouraged.

Perhaps the most significant change is that whilst the 457 visa program previously put downward pressure on wages and salaries and had a positive impact on productivity, the new changes effectively nullify this effect. All in the name of protecting Australian jobs in the short term.

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Source by Mark A Webster