Australian startups face a number of challenges when attempting to use employer sponsored visas. These issues were recently highlighted by Scott Farquhar, Atlassian CEO and co-founder, who argued for a simplification of Australia’s ‘byzantine’ employer sponsored visa laws.
Since then the federal government has announced the National Industry Innovation and Competitiveness Agenda, which includes several reforms to employer sponsored visas which will affect startups.
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While reforms will go some way to reducing the burden on startups, it is unlikely that the overall process will become substantially simpler or cheaper in the short term. Employer sponsored visas are a challenging area for policy development, particularly during periods of increasing unemployment.
Startups would be best advised to do their research early when considering sponsoring employees through the 457 visa program and look at the limited alternatives that may be available.
Impending changes: Industry Innovation and Competitiveness Agenda
As part of the Innovation and Competiveness Agenda, the government has announced it will implement measures to reduce the burden imposed on startup businesses. These reforms include lengthening the period that Business Sponsorships are valid from 12 to 18 months, reducing sponsorship requirements for employers, and retaining the Temporary Skilled Migration Income Threshold at $53,900 for two years.
The announcements failed to confirm whether reforms would also occur in related areas such as increasing the duration of 457 visas sponsored by startups from the current maximum of 12 months.
Factors to consider: Business sponsorships and 457
From an immigration perspective, a ‘startup’ is any business that has been operating for less than 12 months. Businesses with less than one year of trading history are likely to be considered as a startup.
Under the reform agenda, startups will see the period of sponsorship increase to 18 months; however, this does little to reduce costs. The business must pay for the initial sponsorship and renewal 18 months later. The business must also pay for most costs associated with the 457 visa – the visa application charge being the exception. It is unclear whether 457 visas sponsored by employers will be increased from 12 to 18 months.
Subsequent sponsorship periods and visas are valid for up to three and four years respectively. However, the cost implications are significant in addition to the salaries and other related costs such as paying return travel costs.
The 457 visa program requires employers to pay sponsored visa holders at ‘market rates’. Market rates are based on what an Australian would be paid in the same role. As such, startups are not in a position to pay a founder or early entrant at a minimal rate to push for growth. Any 457 hire must be engaged through a contract of employment and base remuneration must be guaranteed. These factors will need to be taken into consideration when deciding if the 457 is an appropriate option for the business.
Startup businesses will need to present an ‘auditable training plan’ as part of the Business Sponsorship process. The plan must show how the business trains Australian employees (or directors if there are no employees) over the first 12 months. Expenditure on training must equate to at least 1% of payroll, or where there are no employees, 1% of directors drawings.
When renewing the application the business will need to demonstrate that these training benchmarks have been met. The business will need to meet this training benchmark for each year a 457 visa holder remains in the business.
The current sponsorship obligations require employers to be on top of their paperwork. It is critical that businesses retain documents relating to training, payroll, job descriptions, and employee records as required by the Sponsorship Obligations. Any startup considering employer sponsored visa options must be prepared to ensure the relevant documentation is in place at all times and the business is able to show the Department of Immigration that it is meeting these requirements.
What are the alternatives?
If the 457 visa is not an option then startups may consider whether the Working Holiday visa or Work and Holiday visa are better temporary solutions. The visa is not a substitute for the 457, however, where startups are willing to engage an employee for an initial six months these visas may be useful. Both visas are only available for citizens of limited countries and for people under 31 who have not held the visa previously. This initial six-month period may give the business sufficient time to improve its financial position to meets 457 visa requirements.
Due to the limitations on startups it is not possible to sponsor staff directly for Permanent Residency at the early stages of the business. Further, businesses should be aware that sponsoring staff who are overseas directly may take 6 to 12 months.
Business should also be aware that if overseas staff visit Australia to engage in work then they should verify whether the appropriate visa is a Business Visitor visa or a 400 Short Stay Work visa. In circumstances where work will be conducted the 400 Short Stay Work visa would be required.
Despite the proposed reforms for startups the visa process will remain complex. The changes will do little to reduce the financial and administrative burden for startups. At this time there is no suggestion of a new visa being considered for startups.
Startups should consider whether the business has the resources to meet the financial and administrative costs. If it is essential for international talent to join the local business, but the 457 is too burdensome, then the Working Holiday visa may fill the gap in some circumstances.
Despite the proposed Innovation Agenda there is no easy answer to immigration issues for startups.
Jackson Taylor is a registered migration agent and principal of Eventus Corporate Immigration.