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How to Employ International Employees Inherited Through M&A Legally

Mergers and acquisitions (M&A) can pose special challenges for HR departments charged with transitioning existing employees to a new buyer. This is even more pronounced when the seller of a company has branches or entities in foreign countries, with active employees on a local payroll. The question comes up of how to maintain uninterrupted operations and employee payroll, if the buyer does not have their own legal entity in the country, which is almost always a requirement.

M&A: Transitioning Employee Contracts, Benefit Plans and Payroll Processing

When one company acquires another during an M&A deal, the employees are often part of the ‘assets’ purchased, giving the buyer the right to continue their employment and utilize their skills.  This can be important to maintain operational continuity and business presence, more so with experienced staff working abroad in key positions.

If you are a HR manager you will need to provide new employee contracts, shift benefit plans and change the payroll to reflect the new ownership.  This is no big deal within your own country of incorporation, but takes on new significance if you don’t have an entity set up yet in the foreign location of employment. 

Most countries don’t permit ‘remote payroll’ of workers on assignment, so you can’t just put them on your home country payroll.  In that case, how do you manage international employment and payroll from the home office during this type of asset sale? 

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Employing in Foreign Countries: The DIY Approach

Of course, the buyer can go ahead and set up their own corporate entities in every country of operations, and then put the employees on the new payroll.  The problem with this approach is that it can take months to properly incorporate and register a foreign branch or subsidiary, depending on host country laws. Then you have to navigate all of the local labor laws and payroll rules on your own.

No acquisition is ever a certainty, and few buyers will want to take these steps ahead of time due to the cost and administrative work.  Some M&A deals will include a Transition Services Agreement (TSA) to handle this issue, but there are pitfalls involved with this method. The employees can be kept on the seller’s payroll for a while using a TSA, but this creates a state of limbo that is less than optimal for all parties. Fortunately, there is another choice: a GEO service.

A Better Alternative: Using a GEO Employer of Record Service

The better alternative is the service of an Global Employment Organization (GEO) to employ the transitioning staff immediately in the country, and take them off the seller’s books and payroll as soon as the deal is concluded.  The reason this can be accomplished so quickly is that the GEO already has a local entity and employer of record (EOR) in the country, and is positioned to onboard those employees right away.

Here are the advantages of using a GEO service, instead of a TSA:

  • The GEO can be engaged while the deal is being negotiated, and ready to onboard new employees once the sale is concluded
  • The buyer can focus on operational and management transition, without concern about foreign employment administration
  • The HR department can be confident that the new employees are in full compliance with the EOR’s payroll
  • The employees are off the seller’s books right away, and have clean switch to their new employer along with contracts, benefits and payroll.
  • Employee morale and confidence is maintained during the sale, which is especially important for those staff on foreign assignment

The Shield GEO International Employment Solution

Shield GEO is experienced in transitioning staff during M&A deal, and can facilitate employment in 90 different countries for the buyer. Our account managers will be well ahead of the process during negotiations, preparing the EOR to employ the new staff without delay. All that is required is a simple administrative shift to the EOR’s payroll, along with existing benefit plans and employment contracts in the host country.

The value of the Shield GEO solution to HR departments becomes obvious when one considers the complexity and cost of a DIY solution. Even if the buyer has entities set up ahead of time, there are still the challenging tasks of running payroll and complying with local employment regulations. Shield GEO handles all of this, and can either be an interim solution or long-term method for your international employment needs.

If your company is involved in this type of M&A deal, we are prepared to support your HR department and employees abroad during every stage. Please contact us so that we can show you how we keep international employment simple and fully compliant for your business expanding into foreign markets.

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