Signalling Theory and the Cost of Credibility: What a UK Sponsor Licence Actually Signals

A UK sponsor licence can be used to signal credibility and gain trust from other companies, regulators and customers. Yet, it's also costly in terms of time, money and resources.​

Businesses should seek advice on meeting sponsor licence compliance requirements. That will prevent the financial and reputational costs of losing a sponsor licence.

Understanding Signalling Theory

Signalling theory is an economic concept. It explains how people and organisations communicate information about themselves. Businesses want to give off credible signals to other companies, regulatory bodies, prospective employees and customers. That ensures businesses are happy to work with them, regulators trust them to follow the rules and customers think that they can get good outcomes from using their services.

Given the range of costs associated with getting a sponsor licence, it is up to each business to decide if they are worth it. Ignoring signalling theory will skew this calculation. Businesses that do so will be ignoring the reputational benefits.

A Sponsor Licence is a Trust Signal

Signalling theory shows that a sponsor licence is a trust signal. A company can use it to show that the business is established, legitimate, and prepared to be held accountable by regulators. There are a number of benefits that using this trust signal can bring for a business.​

Firstly, having a sponsor licence will help a company to attract foreign workers. It shows that the company already has the procedures in place to accommodate them and ensure they can apply for the right visa. The longer a business has maintained a sponsor licence and been hiring foreign workers, the more likely prospective foreign workers will feel able to trust it and move to the UK.  

A sponsor licence is also a great trust signal for customers and prospective investors, showing that a business actively follows the rules. That is particularly important for the most highly regulated businesses, such as the UK’s expansive financial services sector. A UK sponsor licence also shows customers and investors that the company already has strong hiring processes in place.

Finally, a UK sponsor licence serves as a trust signal for regulators and the Home Office. Businesses can use it as an example of following relevant regulations and legislation. They may feel less of a need to keep a close eye on the company as a result.

Sponsor Licences are a Meaningful Investment

The credibility a business can gain from a sponsor licence does not come for free. The most obvious cost is the application fee. This won’t be refunded if an application is unsuccessful. Currently, the sponsor licence application fees are as follows:

• Worker sponsor licence for small and charitable sponsors: £611.
• Worker sponsor licence for medium and large sponsors: £1,682.
• Temporary worker licence for any company: £611.
• Combined worker and temporary worker sponsor licence: £1,682.
• Adding a worker sponsor licence to a temporary worker or student licence: £1,071.

These fees are not negligible, but should not pose a significant barrier even for small businesses. A more significant barrier will be the cost of introducing the processes necessary to maintain compliance. Obtaining and maintaining a sponsor licence will require a business to have the following roles in place:

• Authorising officer: the person who is ultimately accountable for the licence, such as the business’s director.
• Key contact: the person from the company who liaises with UK Visas and Immigration (UKVI).
• Level 1 user: the person or persons responsible for managing day-to-day sponsorship processes.

Companies that are large enough to have a dedicated HR team should have no issue absorbing these roles. Things are different for smaller firms. These roles will need to be absorbed by the management team. That can be difficult for already-busy managers.

The Application Process is also Time-Consuming

Another cost associated with acquiring a sponsor licence and achieving the credibility signals is that a company will need to invest the time required to pass the challenging application process. They will need to dedicate a substantial amount of time to undergoing the following steps:

1. Confirm that the organisation meets the sponsor licence eligibility criteria.
2. Select the correct sponsor licence type for the business’s needs.
3. Appoint and nominate the key personnel.
4. Use Appendix A to identify the documentation the business needs to provide.
5. Complete the online application form.
6. Submit the application form and supporting documentation.
7. Pay the correct application fee.
8. Prepare and undergo UKVI site checks.

Once the application is submitted, a business must wait for it to be processed. If the business receives a refusal, it will usually need to resubmit its application having amended any errors. The most obvious cost is having to repay the sponsor licence application fee. However, the business will also need to expend the time needed to prepare another high-quality application. The business may also need to exert significant energy in making itself compatible with the sponsor licence requirements.

The Signals of Losing a Sponsor Licence

Only firms with an A-rated sponsor licence can use it to hire new workers. However, firms with a B-rated sponsor licence can continue to hire their existing foreign talent. Meanwhile, if a business completely loses its sponsor licence, its foreign workers could lose their visas and have to return home.

A business could lose its sponsor licence for not reporting changes to UKVI swiftly. This includes prolonged worker absences and changes to a worker’s circumstances, role, or salary. Maintaining a sponsor licence also requires a business to maintain accurate records, particularly ones that prove all of its foreign workers can be employed in the UK. A business will also need to comply with Home Office requirements and accommodate site visits to ensure it remains compliant. Most embarrassingly, a business will lose its sponsor licence if its found that it lied during the application process.

Signals theory shows why the consequences of losing a sponsor licence reach further than impacting the foreign workers a firm can hire. If a sponsor licence helps customers, regulatory bodies, investors, and workers to trust a company, losing one will have the opposite effect. It is a public signal that a business cannot follow the rules.

Difficulties with maintaining a sponsor licence disproportionately impact small businesses who struggle to balance sponsor licence compliance with their other obligations. As a result, a business should only seek a sponsor licence if it can definitely keep up with the requirements. Without a sponsor licence, a company can still hire some foreign workers. Examples include individuals with indefinite leave to remain or who are on visas that don’t require sponsorship. They will also still have access to the domestic talent pool.