UK immigration norms to shoot up cost of ITeS firms

New immigration rules and stricter enforcement in the UK are likely to shoot up staff costs for Indian IT services companies by about £2 million a year. New guidelines, released in April this year by the UK government agencies, have compelled IT firms employing Indians in the country to restructure minimum wages required for employment.

Top-tier firms, such as Infosys Technologies and Wipro, and mid-tier firms like Mastek, have already completed the required adjustments. During the September quarter, a small part of Wipro's 250 basis points margin dip was a result of changes made in the way wages are now computed in the UK.

An uncertain economic climate and fear of job losses have made many countries raise the entry barriers for migrants. The UK Border Agency (UKBA) wants to ensure that all migrants (onshore workers) are paid an appropriate salary rate so that the resident labour market is not undercut and there is a level playing field between foreign workers and locals.

UKBA's new guidelines want the actual gross salary package to be quoted in the 'Certificate of Sponsorship'—this should include allowances and tax that are actually incurred and not a figure that anticipates future tax relief.

Indian firms, for instance, have been adding a 'dispensation' benefit in calculating the minimum wages. There is no tax on expenses covered by dispensation items such as travel, fuel for company cars and telephones among others. Firms usually would have to wait until the end of the year to know what dispensation can be claimed for each employee and since minimum wages needed to be paid at the point of entry, they added a notional tax in calculating salaries. This has to be now done away with since the UK wants comparable wages for migrants and locals. Dispensation is available only to expatriates for the first two years.

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