How the UK’s Earned Settlement model will impact hiring plans for SMEs

A new immigration model is set to change how migrants qualify for permanent residence in the UK.

The new system, known as Earned Settlement, is expected to be implemented this month, and will tie eligibility for settlement in the UK with what migrants “earn” through work and contributions, rather than how long they’ve lived in the country.

Following reforms to the Skilled Worker Visa last summer, which saw a significant decline in applications in the last year, these changes are expected to impact both international workers and businesses that rely on them.

For companies with international employees, this new system could mean higher costs, longer sponsorship requirements, and more complex planning when hiring or retaining overseas staff.

What is the Earned Settlement model?

The Earned Settlement model is a new system that changes how migrants qualify for Indefinite Leave to Remain (ILR). This means that international workers will have to earn the right to permanent residence over time by meeting certain criteria.

The proposal includes increasing the standard qualifying period for settlement to 10 years, alongside a points-based contribution system that can either reduce or extend that period based on individual circumstances. For example, higher earnings, employment in priority sectors, or public service roles could reduce the qualifying period to years, while lower earnings or less consistent contributions could extend it to 15 years or more.

“This reform represents a fundamental shift from a time-based route to permanent residence, to one focused on earned contribution.” Helena Sheizon, immigration expert at Kadmos Immigration, explains.

“It aims to reward economic contribution and integration, but it also means that thousands of people already on paths to settlement will face new qualifying conditions and longer waits if they do not meet newly introduced criteria.”

These new rules come nearly a year after the Government introduced reforms to the Skilled Worker Visa, including an increase in salary thresholds, a higher B2 CEFR standard for English language proficiency, and skill requirements increasing from A-level (RFQ 3) to degree level (RQF 6). 

How Earned Settlement could affect SME hiring

The new Earned Settlement model is likely going to make hiring more difficult and expensive for SMEs, particularly those that rely on mid-skilled migrant workers.

If the time it takes for employees to gain settlement is extended (such as from five years to 10-15 years), the UK becomes less attractive compared to countries with faster or clearer residency pathways.

After all, the Government’s changes to the Skilled Worker Visa have already had a knock-on effect on visa applications. New data reported by MSR Solicitors reveal that Skilled Worker visa applications fell to 85,500 in 2025 – a 36% drop from the previous year.

Additionally, 30% of employers say that a shortage of skilled UK candidates was the main motivation for visa sponsorship. This was followed by a lack of applicants (25%) and the best candidate requiring sponsorship to take up the role (21%). As a result, these reforms could reduce the pool of overseas candidates willing to join smaller firms, which already struggle to compete with larger companies on salary and employee benefits.

At the same time, small businesses would face higher long-term costs because workers would need visa sponsorship for longer periods. With sponsorship costing up to £6,600 for five years, extension for settlement could increase overall expenses through additional renewals.

What businesses can do to adapt

With these new reforms, businesses will need to become much more deliberate in how they hire internationally. 

Rather than sponsoring a variety of roles, SMEs should focus on hiring for positions where skills are genuinely scarce in the UK, and where the long-term value of the employee justifies the ongoing visa costs. 

Retention will also become an important priority. With longer and less certain routes to settlement, migrant workers may feel less secure and more likely to leave the UK. Therefore, businesses should counter this by offering clear career progression, regular pay development, and practical support with visa processes.

For those who already have international staff, reviewing settlement timelines and making any minor adjustments can help speed up the process. If some employees are close to settlement, businesses should seek legal advice early to ensure all requirements are met to avoid any complications later down the line. 

Ultimately, this latest development means that businesses will need to treat the recruitment process for overseas staff as a long-term strategy that balances cost, retention, and workforce stability.