Companies crossed borders in 2015 at an explosive rate. International growth appears to be the business model of the 20-teens. Everyone wants to get in on the action provided by an international market for products, international growth by acquisition or just plain cross-border expansion to take advantage of certain employment markets. As you or your clients are taking advantage of world-wide markets, are you also considering the potential impact these expansions could have on your employment costs? The issues are not just payroll and benefits – those are obvious. The issues are the cost of expatriates creating a corporate tax presence; the cost of purchasing or maintaining expensive benefits plans that cannot be changed; or even the cost of an aging employment population that cannot be terminated.
During the recent economic downturn, countries began looking for low-hanging fruit from which to extract additional revenues. Taxing businesses that do not correctly operate by classifying their employees as “contractors” or that send employees on a business visa to “scout” out the territory have become more prevalent as other tax revenues fail to cover government spending. A country’s need to increase taxable revenue makes this previously “easy” solution to evaluating a new country expansion risky, and opens companies up to significant tax or penalty obligations.
Expansion through acquisition is a favored way of ensuring a market presence and growing a business without having to do so from the ground up. Cross-border acquisition of entities with employees, benefits plans or other perquisites that exceed basic minimums may appear to result in easy solutions or changes. But frequently local laws and local practices often combine to make the process of change exceedingly expensive. In some countries, companies are restricted in making changes to the workforce given local protections of certain classes of employees based on age and social position (i.e., with a family, nearing retirement, etc.).
Business-savvy transnational companies include in their legal budgets the cost of employment compliance to ensure against getting caught in these traps. If companies or clients have not taken a look at these issues in a while, now is the time to prepare for 2016 by putting this topic into the 2016 legal spend. Greenberg Traurig’s Labor & Employment Practice has more than 25 collective years of experience evaluating cross-border employment relationships, decisions and systems with the purpose of working within company structures to avoid potential risks arising from employment relationships that cross borders. We can help.