What is a Global Employment Company (GEC)?
Global organisations have an important consideration about how they manage their workforce and talent globally. With the necessity of ensuring corporate governance and the smooth utilisation of global mobility, the use of a Global Employment Company (GEC) has been increasingly considered by organisations.
There can be many different and concurrent approaches to paying your people worldwide, Global EMS can guide you through this complexity.
What is a GEC and should you establish one?
A GEC is an entity of an organisation that has been established to make it easier to manage a global workforce based upon their business and project requirements. There are many benefits to establishing a GEC when a company is sending contractors into different countries on assignment.
The GEC offers an efficient and cost-effective way for holding employment contracts in one jurisdiction, issued by one employer. For example, if a company has numerous branches and subsidiaries around the world and each one sends assignees into different countries on project work, that would entail employment contracts being held in numerous jurisdictions, with variations to ensure local compliance.
A GEC offers the opportunity to centralise all global assignees despatched to various projects worldwide, on one standard form of contract.
As such, a GEC can be “owned” by companies in different countries and thus provide some standardisation and consistency – as well as efficient centralisation for staffing purposes, avoiding replication, in the form of a shared service centre.
In return for the “service” provided by a GEC they can charge other organisations in the company structure a management fee, which would cover the payroll and administration costs.
A GEC can be the vehicle for hiring key staff in one country where they have no entity to deploy them on assignment in a third country – i.e. third country nationals (TCNs). For example, a GEC in Hong Kong can hire people in, say, the Philippines, where they have no presence, to deploy them on assignment to a third country, say Iraq.
However, the spectre of risk of being deemed a Permanent Establishment (PE) exists in the countries where the assignees are deployed. This is a factor often not considered when setting up and running a GEC.
The rules of a GEC do not transcend the local rules in the country where the assignee performs his/her task. In the above example, if the Filipino assignee works in Iraq for 9 months, he/she will likely be deemed as exceeding the internationally recognised rule of thumb, regarding when an individual becomes liable for payroll taxes. To pay the payroll taxes requires an entity or PE in the country to be able to register with the local authorities.
The rule of thumb is that if an employee is resident and works in a jurisdiction for 183 days or more in a year, then they are considered a resident for payroll purposes. As said, this is a rule of thumb and each jurisdiction’s specific regulations need to be ascertained and heeded to avoid the TCN being considered a resident for payroll tax purposes. Furthermore, if the arrangement is “seen through”, the GEC becomes liable to taxation of its profits.
There is also some confusion around the alternative term for a GEC – a Global Employment Organisation or GEO.
In some cases’ a provider of GEO services is, in fact, offering international PEO – a vehicle for employing in a foreign jurisdiction in lieu of an entity in order to specifically register the employees for payroll taxes. A subtle difference.
Other factors need to be considered – one of which is the need to provide pension or retirement savings plans for global employees, that have no home country pension and can’t qualify for one. For example, a British contractor who does not work in Britain but on one assignment abroad after another will not be able to contribute to a UK pension plan.
A GEC is a way of employing talent and being able to provide them with a group international retirement savings plan through bona fide providers. Even if well paid as nomadic contractors, there is still the need to save for retirement.
Whatever the motivation, establishing a GEC has complex rules and regulations that might apply and should be considered alongside any tax policy and in conjunction with your payroll provider and tax provider.
Global EMS is experienced in working with clients operating a GEC and works in conjunction with the client and their tax provider. Contact us today on – firstname.lastname@example.org