Global Employment Companies (GECs) have once again become a hot topic for global organisations considering how to manage a global workforce in support of business growth.
Why you might need a Global Employment Company?
The scale of employee mobility is likely to change significantly as a result of the pandemic. For instance, employers are likely to experience increased requests for international working from home arrangements. These will likely come from senior management and directors, as well as employees. Employers may not have the right employment structures in place globally to satisfy and retain employees.
The pursuit of business growth also sees employers sourcing hires in jurisdictions where they have no corporate presence. They also have to manage the associated risks of corporate residence and permanent establishment.
The answer to these challenges and risks may be using a Global Employment Company. A GEC is designed to efficiently and effectively manage globally mobile workforce including international remote workers. Detailed due diligence is advised in determining whether a GEC, or other similar vehicle is the right solution for the business, based on a clear understanding of the objectives.
What is a Global Employment Company?
Typically a GEC has been a separate legal entity established as an employment and pay vehicle for individuals working in global roles, career expats and for talent where the corporate body has no legal entity. This could be extended to cover international remote workers as well.
The GEC provides employer services to other group entities in return for a service fee or management charge backed by appropriate transfer pricing principles.
The GEC, or its equivalent, can be used in a number of ways. For example, it can be a permanent employer, an entity to which individuals are temporarily seconded, a payroll vehicle or simply an administration centre to manage the globally mobile population.
What are the benefits of a GEC?
The relevant employees can be either permanently or temporarily seconded to the GEC which allows for standardisation of management processes, compensation and benefits package design and a tightening of exceptions to mobility policy. A GEC will also improve the efficient management, reporting and compliance of these employees.
The GEC is also very useful as new markets emerge and businesses move into new territories. The GEC can be used to centralise and manage the proliferation of permanent establishment risks to multiple group entities.
Where to establish a GEC?
Once you have decided to use a GEC, the location of that entity becomes a key decision. In the past the location of GECs was often based on low tax rates. However, the changing global tax landscape means that a much wider range of factors are becoming more important.
The key success factors include access to a wide network of tax treaties and social security agreements, the availability of experienced business support staff and overall economic stability. Wider issues such as the regulatory environment, payroll legislation and employment law considerations have meant that the UK, USA, Netherlands and Singapore have all become popular locations for the establishment of GECs.
What are the challenges of setting up a GEC?
There are challenges to be overcome in any move towards a GEC or similar structure. It requires the establishment of the new entity as well as ensuring sufficient substance to the entity. Typically, you will also need to consider the changes of contracts and package inherent in a change of employer. From an employee’s perspective, moving to a GEC can potentially involve the loss of home country social security benefits and it can also impede assimilation with local markets or employees.
When establishing GEC, or a similar structure, you will need to address the unique drivers and challenges of your business and its workforce. The final design of the structure can be quite different to what was originally envisaged and needs careful consideration and implementation.
Please get in touch if you are managing a global workforce or think a Global Employment Company may be a good fit for your business.
You can also read our recent article on the international employment tax, social security and corporate tax considerations of working from home arrangements.
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