While global mobility plays a critical role in supporting international operations and talent development, it also presents significant challenges, particularly in the areas of governance and compliance. Establishing a Global Employment Company (GEC) can deliver significant benefits including, but not limited to, improving governance and compliance.  In a survey published in March 2023, 86% of responding organizations identified Governance and Compliance as a “high importance” reason for establishing a GEC, and 93% confirmed that the GEC had “achieved” or “partially achieved” this objective.

A GEC model can enhance governance and compliance in several ways. The centralization inherent to the GEC model delivers better visibility of the compliance status of all assignees, regardless of nationalities or host locations. By having a comprehensive overview of compliance statuses, potential issues can be identified and addressed promptly, reducing the risk of non-compliance.

The centralization and aggregation of assignee headcount under the GEC also ensures full and consistent adherence to compliance policies and procedures, thereby minimizing risks.  In addition, the GEC model implies that all the relevant assignee and assignment data is readily available.  Since the GEC is the legal employer of the assignees, in most cases it manages their compensation and benefits, as well as the relationship with a variety of service providers.  Having ready access to this data and information allows easier and streamlined interactions with third-party vendors who provide support in various compliance areas, such as Personal Tax, Corporate Tax, Social Security, Immigration, Employment Law, and more. It follows that compliance audits are also easier to perform, given the availability and clear ownership of data in the GEC.

In addition, the GEC also acts as a Center of Expertise that provides guidance and advice to assignees and their line managers, working with third-party providers, when necessary. This centralized expert support ensures that both assignees and their managers have the necessary resources and knowledge to navigate the complexities of international assignments effectively, operating in accordance with the company’s risk and compliance framework. It is fair to say, therefore, that GECs also play a crucial role in fostering a culture of compliance within the organization. The GEC ensures that compliance is viewed not as a peripheral concern but as a core component of the organization’s operations. This cultural shift is essential in promoting long-term adherence to compliance standards and minimizing the risk of non-compliance in the long term.

Such levels of visibility, consistency and access to data are often more difficult to achieve with more decentralized models, where policies, processes and data are handled by various teams, often with a greater involvement of the home country’s HR teams. In decentralized setups, there can be fragmentation and inconsistencies in policy application and data management, making it difficult to maintain a unified and consistent compliance approach.

In summary, GECs offers significant benefits in enhancing governance and compliance for multinational organizations. For organizations aiming to thrive in the global marketplace, a GEC provides the necessary framework to manage a mobile workforce effectively, ensuring sustainable growth and success.

If you are evaluating the feasibility of a GEC and would like some guidance on how to approach it, please feel free to reach out to an ITX consultant.

Global Employment Companies (GECs) are often assumed to be expensive, deterring many organizations from exploring their potential benefits. However, this notion is increasingly being challenged as more companies recognize the tangible cost savings and efficiency gains that GECs can offer, compared to traditional ways of managing global mobility.  In this respect, it is important to remember a couple of key points. Firstly, there are many “hidden costs” associated with global mobility, which are rarely quantified and monitored. These are usually related to duplications, inefficiencies, risks, financial obligations, and penalties. Identifying and managing these hidden costs can potentially result in significant savings for the organization.  Secondly, it is worth remembering that cost is not always the main factor driving the decision to establish a GEC, although it is always an important consideration.

One of the primary benefits of establishing a GEC is more streamlined, less fragmented and more centralized process, wish less duplication in resources and infrastructure. Typically, the

centralization also releases significant bandwidth and resources in the home countries. This shift ultimately allows a more effective utilization of HR resources and expertise, both in the GEC and in the other HR teams, leading to improved overall performance and productivity within the organization.

Centralization through a GEC also provides substantial efficiency gains and economies of scale, translating into tangible cost savings. By aggregating the assignee headcount into a GEC, organizations can develop faster and more effective interactions with service providers, and negotiate better rates and volume discounts, on the basis of a bigger headcount.

As mentioned elsewhere in this newsletter, a GEC also delivers streamlined compliance by centralizing the monitoring and management of these aspects, thereby reducing the risk of non-compliance and associated penalties. This proactive approach to compliance not only safeguards the organization’s reputation but also prevents financial losses due to legal disputes.  Also, by providing a single employing entity, a GEC can also simplify Transfer Pricing and internal rebilling processes, and enhance the visibility and mitigation of Permanent Establishment risk.

Furthermore, depending on their location, GECs could also potentially optimize social security costs by leveraging international agreements, enhancing financial efficiency for both employers and employees.

In summary, when GECs are designed, established and operated on the basis of careful planning, they have the potential to unlock significant cost efficiencies that cannot be achieved with alternative global mobility models.  The magnitude of these cost savings depends on many factors, but it is not uncommon to find GECs that can deliver savings that can be measured in millions or tens of millions of dollars yearly.   Therefore, as more organizations take a closer look at their hidden costs of managing mobility programs, the myth that GECs are expensive is increasingly being debunked.  In fact, in many cases the opposite is true: it may be more expensive not to have a GEC.  These considerations are manifesting in a slow but steady increase in the number of companies transitioning to a GEC model.

Establishing a GEC involves deciding which part of an organization will act as the employing entity of international assignees who are deployed across borders.  Often, the choice of the GEC’s location implies the establishment of a dedicated subsidiary or branch, which would become the legal employer.  These changes have many ramifications in terms of HR, Finance, Tax, Legal, Risk, Operations, and of course also in terms of the assignees’ perspective.

The roadmap to the implementation of a GEC, therefore, needs to be properly planned. Here is a recommended approach:

1. Stakeholder alignment:  Considering the impact of these ramifications, a GEC should not be established unless and until a clear Feasibility Study or Business Case has been prepared.  However, before investing time and resources in a detailed Feasibility Study, a highly recommended first step would be to discuss the general idea with the senior stakeholders representing the various functional areas mentioned above, in order to gauge their general level of interest in the GEC idea, at least in principle. At this stage it may be sufficient to provide a high-level hypothesis of how a GEC may deliver specific benefits to the organization. Be prepared to answer specific questions, provide examples, trends and case studies, which may come up during these initial alignment discussions.  In this regard, ITX is often invited to provide these initial insights, which are based on interactions with a large number of organizations using a GEC model.

2 – Feasibility Study / Business Case:  If the senior stakeholders express an interest in exploring the GEC idea further, a detailed Feasibility Study or/and Business Case is an essential step.  This study will reflect the specific circumstances of the organization (for example, details of its mobility programs, key challenges, desired improvements, expectations) and demonstrate how a transition to a GEC model could achieve the desired objectives.

3 – Evaluate options on GEC operations:  When evaluating the outcome of the Feasibility Study or Business Case, it is also essential to consider how a GEC would be operated in the specified location, if the organization decides to establish one. If the Feasibility Study demonstrates that the GEC would deliver significant advantages to the organization, it is in the company’s interest to ensure that the GEC is implemented as quickly as possible, since delays would represent an “opportunity cost”.  It is important to remember that the benefits delivered by the GEC also depend on the availability of resources with the right skills and experience, in the right location, as well as business continuity factors such as staff retention, scalability, technology infrastructure, and more.  Therefore, as part of this step it is advisable to evaluate a fully in-house model versus a partially or fully outsourced model, which could significantly reduce the implementation timeline and provide fast, easy and constant access to experienced resources and technology infrastructure, in the right location.

4 –  Go/No-Go decision: Based on the evaluation carried out so far, the key stakeholders need to finally decide whether or not to proceed with the establishment of the GEC.

5 –  Set-up the legal entity or branch: Establish the legal framework for the GEC, ensuring it meets all regulatory requirements. At this stage, the GEC is legally formed but not yet operational.

6 –  Prepare and procure resources location and infrastructure: Based on the operational model discussions mentioned in point 3 above, decide on resources, physical location and technology infrastructure. If the GEC will be operated entirely with in-house resources, the selection and procurement processes should be started.

7 –  Develop the tools to operate: This includes the design and roll-out of policies, processes, templates (e.g. GEC contracts), tools (e.g. technology, international payroll, etc.), Roles & Responsibilities, standard reports, communication materials, etc. as well as discussions with third-party vendors regarding any changes in their procedures.

8 –  Transition: Develop a comprehensive plan to transition the assignees into the GEC (e.g. “big-bang” versus “grandfathering”), and roll-out communication to onboard assignees into the GEC.

9 –  Go-live: Launch the GEC and begin operations, Monitor the relevant KPIs and “success metrics” that reflect your original objectives for establishing the GEC.

Like in all other transformation journeys, be prepared for adjustments, diversions and fine-tuning that will be required in order to fully align the GEC to the organization’s needs and priorities, as these evolve over time.

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