All job applicants will be expected to prove that they are eligible to work in Britain, under government guidelines published yesterday to tackle illegal working.

The move is intended to protect employers from being accused of discriminating against people on the grounds of ethnicity and race. But ministers have been warned that the recommended checks, aimed at preventing illegal working, will increase recruitment costs and deter firms from employing foreigners.

The proposed checks were published as the Home Office confirmed that bosses who employ illegal immigrants negligently face a maximum fine of £10,000 per worker. Companies that hire illegal immigrants knowingly face an unlimited fine and their directors face being sent to prison and disqualified as company directors for between two and fifteen years.

The Home Office also announced that, under the new points-based immigration system that will be introduced in February, colleges that take foreign students and companies that employ migrants will be under a duty to report to the Border and Immigration Agency if they do not turn up for a course or work within ten days. The same rule applies if a worker’s contract of employment is ended.

Sponsors must also give police information about the worker or student if they are suspected of engaging in terrorism or another crime.

Employers will have to ask prospective employees to produce passports and birth certificates as proof that they are eligible to work in Britain and they will be expected to carry out a follow-up check on an immigrant’s right to work in Britain at least every 12 months.

Jacqui Smith, the Home Secretary, said: “By stamping out illegal working we are making the UK a less attractive destination for illegal migration.”

Kerry Garcia, a senior associate of the employment and immigration team at Stevens and Bolton, a law firm, cautioned of the consequences for business of the new rules.

“At the very least, these obligations are likely to be time-consuming and costly for employers. In particular, employers will have to keep a copy of the employee’s passport and contact details on file and must provide such documents and information to the Border and Immigration Agency.

“This will give rise to data protection issues and employers will need to ensure data is kept secure and is not lost in transit to the Home Office.”

Under the new rules, companies that check a person’s right to work will avoid the £10,000 fine per worker if their employees are found to be illegal immigrants, the Home Office said. But the paper warned employers of the danger of only carrying out checks on workers who they believed were not British, saying that they would be liable for prosecution under race discrimination laws.

The rules tell employers that they should carry out basic visual checks of documents, check for discrepancy in the age of the applicant and the date of birth on documentation and also check stamps that give immigrants the right to be in Britain and to work.

During a consultation of the plans ministers were warned that the effects of the measures would act as a disincentive and would deter employers from hiring immigrants with only a limited amount of time in Britain.

“Thirty per cent of respondents commented that the new measures may give rise to racial discrimination, with employers being reluctant to employ people with limited entitlement to work in the UK,” a Home Office paper, that was published yesterday, said.

One respondent to the consultation said: “It is unrealistic to assume some employers will not favour those individuals who hold passports on the basis of having traditional, established documentation. Those with more acceptable documentation (a national passport) may have a competitive advantage.”

Under the new immigration system most people who want to come to Britain to work or study will need to show that they have enough points to qualify for entry. A sponsor, either a college or employer, will have to be licensed with the Border and Immigration Agency before they are able to issue a certificate of sponsorship to a foreign student or worker. Overseas religous workers will need to be sponsored, as well as sportsmen and women who are seeking to establish themselves, as opposed to those coming to Britain to compete in an event.

Habib Rahman, the chief executive of the Joint Council for the Welfare of Immigrants, said: “The new regime is too focused on punishing administrative slip-ups rather than tackling exploitation or protecting migrants’ rights. The latter would be better tackled through increased funding and powers for the Gangmasters Licensing Authority or a fair employment inspectorate, rather than through immigration control.

“The danger is that small businesses who can’t afford an HR department or a lawyer will be made an example of, while a big business manages to offload its responsibility to subcontractors or recruitment agencies.”

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