ITX Insights - November 2024

In focus: How GECs improve program efficiency 

In response to the need for greater flexibility and scalability when moving talent across borders, Global Employment Companies (GECs) have emerged as a useful approach to streamline the management of international assignments. By centralizing the legal employment and management of assignees within one dedicated entity, GECs typically reduce administrative complexity and introduce operational efficiencies that enhance the effectiveness of Global Mobility programs. 

In traditional global mobility models the number of “home-host combinations” can grow exponentially as new assignments and countries are introduced, resulting in significant administrative workloads for HR teams around the world, many of whom may not have the bandwidth or technical expertise to handle complex Mobility matters. Since a GEC serves as the primary legal employer for international assignees, regardless of their actual “home location” or nationality, this model fundamentally reduces the complexity inherent to assigning employees directly from their home countries to host destinations. With a GEC, HR teams benefit from simplified, centralized processes, freeing up resources for strategic planning and value-added activities. In other words, assuming that the GEC is adequately designed, implemented and operated, it delivers greater efficiencies. It should be stressed that the GEC is much more than a simple administrative hub (such as a Shared Service Center), but an employing entity with a direct contractual relationship with the employee. 

Centralizing expatriate headcount and administration within a GEC also leads to better oversight, visibility, and consistency. By consolidating the employee base under a single employment entity, organizations gain a holistic view of their global assignees. This transparency enhances both governance and efficiency, enabling streamlined compliance and risk management. Policies and procedures for expatriates become more standardized, reducing discrepancies in treatment between different regions and simplifying the management of international talent pools. Additionally, organizations benefit from enhanced reporting capabilities, allowing for more accurate tracking and analysis of international assignments. 

One of the key advantages of a GEC lies in its flexibility to employ talent from regions where an organization lacks an established presence. For instance, an engineering company looking to source specialized engineers from a range of locations might encounter legal and logistical barriers if it lacks subsidiaries or branches in those areas that could act as a “home country”. A GEC acts as a “ready-made” employment entity for these employees, providing established policies and procedures that facilitate the hiring and deployment of talent. This structure unlocks efficiencies by enabling the organization to offer consistent contractual terms and standardized policies to assignees, irrespective of their origin. Such a centralized model is particularly useful for projects that demand a diverse set of skills sourced globally, allowing the organization to focus on project outcomes rather than administrative details. 

The aggregation of expatriate headcount within a GEC further facilitates efficiencies in accounting, reporting, internal recharges, and cost analysis. The availability of consistent, comprehensive data on assignees also simplifies financial reporting and enhances decision-making capabilities. With a centralized approach to managing expatriates, companies can better analyze global costs, compare assignment expenses across projects, and identify areas for improvement. Additionally, the GEC model enables more streamlined compliance processes and helps better manage the costs related to managing payroll and taxes across multiple jurisdictions. For instance, a single set of accounting processes, applied consistently across all assignments, simplifies cost tracking and financial reconciliation, enabling organizations to identify and address cost inefficiencies more effectively. 

Monitoring and managing tax risks, including Permanent Establishment (PE) exposure, is also simpler and more efficient under the GEC model. Apart from making it easier to have a global view of the compliance status of every assignment, a GEC provides a singular interface for engaging tax consultants, who can assess and manage the organization’s PE exposure based on comprehensive, centrally stored data.  By having a dedicated legal entity to employ expatriates, companies gain tighter control over their tax risks and a single interface for addressing tax-related concerns with experts. Similarly, the GEC could also act as the single entity engaging with EOR or PEO providers, allowing visibility and consistency when managing employees working in locations without a subsidiary.  In fact, a GEC could also be registered as a “non resident employer” in several overseas locations, as an alternative to an EOR/PEO arrangement.  In this context, it is important to emphasize that such decisions would need to be evaluated carefully, in terms of their potential legal and tax implications. 

The centralization of governance within a GEC also supports smoother handling of challenging situations, exception requests, and performance monitoring. A GEC can offer quicker resolution pathways, given the unified processes and standards applied across assignments. Moreover, by using key performance indicators (KPIs) to monitor and measure the effectiveness of the Global Mobility program, a GEC facilitates continuous improvement and better alignment between the organization’s strategic goals and operational requirements. The standardized approach supported by a GEC fosters consistent decision-making and equips HR teams with a structured platform to evaluate program outcomes and make data-driven adjustments. Over time, this leads to greater alignment between the strategic and operational elements of Global Mobility, resulting in more efficient processes and an improved experience for both employees and managers. 

In summary, a GEC can significantly enhance the efficiency of a company’s Global Mobility program by reducing administrative complexity, offering a reliable employment platform in new locations, and improving financial and operational control. By centralizing expatriate headcount and processes, companies benefit from enhanced governance, streamlined reporting, and better risk management. The GEC model also provides a standardized, scalable approach that can support strategic global expansion while ensuring a consistent experience for assignees. Needless to say, unlocking these efficiencies depends ultimately on how well the GEC is designed, implemented and operated.  Assuming these factors are aligned, the efficiencies delivered by a GEC not only optimize the Global Mobility program but also contribute to the organization’s broader objectives of operational excellence and talent mobility.  

If you wish to discuss whether a GEC could potentially work in your organization, please feel free to reach out to an ITX consultant for a free consultation.  You can also take the self-assessment using the QR Code below and receive a customized report in about 60 seconds. 

Dispelling the Myth: Establishing GECs in low-cost locations 

It is a common misconception that, ideally, Global Employment Companies (GEC) should be set up in a low-cost location. While cost is always an important consideration, in this article we reiterate the essential factors beyond cost that determine an optimal GEC location.  

This misconception is often drawn from the model of Shared Service Centers (SSCs), which have flourished in low-cost regions due to potential labor cost savings and streamlined operations. However, unlike SSCs, GECs must navigate complex international requirements, making low-cost labor a minor factor in the location decision.   

The role of a GEC is inherently different from that of an SSC, which consolidates specific business processes, often with high headcount and relatively simple operations. The appeal of locating SSCs in low-cost regions stems from the economies of scale and operational efficiencies that arise in countries with lower wage structures and robust talent pools. However, a GEC is not a simple cost center; it is a global employment entity with a mandate to contract, deploy, and manage a multinational workforce across various legal and regulatory landscapes. Consequently, the choice of location for a GEC extends beyond just labor cost considerations and must be compatible with the company’s strategic and operational needs on a global scale.  

The location of a GEC, therefore, has immediate implications for employment contract enforceability, applicable labor laws, and regulatory compliance. In low-cost regions, employment laws may be more rigid or may lack the flexibility to accommodate international employment structures effectively. By contrast, countries like Switzerland, Singapore, and a few others, are better equipped to handle these complexities. These jurisdictions typically offer robust but flexible and efficient legal frameworks that provide flexibility for GEC operations and support the management of international employment contracts.  

Taxation and social security agreements are among the most intricate considerations for GECs. Choosing a location with a transparent tax system, favorable international tax treaties and Social Security totalization agreements is of critical importance for both the GEC and its globally mobile employees. Low-cost jurisdictions often have onerous Employment Law obligations when hiring foreign employees, as well as during the employment, and at the end of the GEC contract.  Many of these low-cost jurisdictions often also have less extensive Social Security agreement networks to address the concerns of both the employee and the employer. 

It is also worth mentioning that some lower-cost locations, despite their economic advantages, may raise concerns or hesitations for internationally mobile employees when presented with an employment contract based in that country. Factors such as regulatory stability, social security structures, and healthcare systems can vary widely, potentially creating uncertainty for assignees accustomed to other systems. Establishing a GEC in a location known for robust legal protections and transparent regulatory practices can alleviate these concerns, providing employees with a greater sense of security and predictability.  

In conclusion, when viewed from a holistic perspective, the selection of a GEC location is a complex decision influenced by legal, regulatory, tax, and immigration factors — with labor cost playing an important, but not priority role. The goal of a GEC is to support the business by facilitating international mobility, ensuring compliance across multiple jurisdictions, and providing a seamless employment experience for globally mobile employees. Choosing a location based solely on labor cost can lead to reduced talent attraction, operational inefficiencies, legal complications, and added expenses resulting from more burdensome employer obligations. By prioritizing a location that aligns with the full spectrum of GEC requirements, companies can ensure their global employment entity serves as a robust platform for international growth and employee mobility.  

If you have GEC and wish to explore the potential advantages of alternative locations, feel free to reach out to an ITX consultant for a free consultation. 

Learning Corner: The importance of scalability in GECs 

Scalability refers to a business’s ability to grow and manage changes in demand without compromising performance or efficiency. A truly scalable model is designed for both expansion and contraction, ensuring resilience by matching operational capacity to current needs. This adaptability helps businesses sustain quality and profitability, regardless of whether they are growing or streamlining operations. 

In this article, we will explore how GECs can enhance the scalability of the business, when it is likely to expand or contract rapidly or cyclically.  In addition, we will outline how scalability can also be enhanced in the GEC itself, to enable it to cope with fluctuations in the number of international assignments. 

Companies expanding rapidly into new markets may need an efficient way of hiring and deploying staff overseas.  GECs can provide a readily available framework consisting of a legal employing entity, standardized policies, processes, and HR systems that can be quickly adapted to new locations. This integrated structure greatly streamlines and simplifies the complexities of hiring, deploying, and managing talent across borders. GECs can offer the foundational elements needed for rapid talent deployment, including payroll systems, benefits administration, and compliance processes.  Hence, these companies can onboard new employees and ramp up operations quickly, often gaining a competitive advantage by reducing the delay from market entry to revenue generation. 

Additional scalability can be gained through a partially outsourced GEC model, which mitigates the operational complexities of managing ebbs and flows in workforce needs. As demand grows or contracts, the outsourced provider has the responsibility to ensure service continuity and quality, managing the operational adjustments required to meet contractual standards. This structured scalability, built into service-level agreements (SLAs) and performance KPIs, ensures that the provider remains accountable to deliver the same quality of service regardless of demand shifts. The GEC retains control over outcomes and the authority to monitor performance closely, but without the burden of overseeing each adjustment required to manage scaling. This alignment allows for true cost control, as the GEC pays only for the resources it actively requires, resulting in significant financial efficiency. 

In summary, GECs can deliver enhanced scalability and flexibility, wihch can be taken further when the model is coupled with reputable external providers.  With an outsourced partner managing the complexities of scalability, the GEC can focus on broader strategic goals without the need for extensive in-house resources. This flexibility not only enhances operational resilience but also ensures that the GEC remains agile, efficient, and cost-effective in navigating the dynamic landscape of global employee mobility. 

ITX News:  

ITX’s contribution to the Global Workforce Symposium  - October 2024 

ITX was proud to share its knowledge of GECs at the Global Workforce Symposium in Washington DC’s National Harbor from October 22nd to 25th, 2024. The event addressed the challenge of managing continuous and rapid change as the new normal in Global Mobility. ITX highlighted why many leading multinational organizations have chosen to establish a GEC and demonstrated how these decisions continue to deliver value in an ever-evolving mobility landscape.  

Hosted annually by Worldwide ERC, this event brought together experts from around the world to discuss the latest trends and innovations in the industry, including mobility strategies, immigration, technology, and remote work. The symposium featured educational sessions and interactive workshops, providing attendees with opportunities to connect, learn, and collaborate with prominent subject matter experts and industry leaders. 

Join ITX and top-tier Talent Mobility Leaders for an Exclusive Workshop in Dubai on December 9, 2024 

ITX will join top Talent Mobility Leaders and service providers at an exclusive workshop in Dubai, presented by WERC, Aurecon, and Baker Hughes. This corporate-only event is designed specifically for leaders in talent mobility, aiming to enhance success in this dynamic field through strategic insights and collaborative innovation. 

This full-day workshop will offer participants hands-on exercises and engaging sessions, providing valuable insights and proven best practices that empower mobility professionals. Attendees will have the opportunity to advance their expertise, gain fresh perspectives, and strengthen their organization’s mobility strategies. 

Participants will also earn 7 continuing education (CE) credits, applicable toward recognized Global Mobility accreditations, making this event a key opportunity for professional growth.  To register please click here.  

ITX in London at the EMEA Forum for Expatriate Management (FEM) - October 2024 

ITX was privileged to lead a Round Table discussion at the Forum for Expatriate Management (FEM) EMEA Summit in London, UK, on October 29th and 30th, 2024. This forum was an essential gathering for global mobility and HR professionals across Europe, the Middle East, and Africa, offering valuable content and networking opportunities. Attendees engaged in workshops, panel discussions, and roundtables, gaining insights into the latest trends and best practices in global mobility.  

The summit also hosted the prestigious EMEA EMMAs (Expatriate Management & Mobility Awards), celebrating excellence in the field with an elegant awards ceremony. This key event provided professionals an opportunity to advance their knowledge and connect with industry peers. 

Get a customized report for free – Discover what a GEC could potentially do for you 

#globalmobility #expatriates #internationalhr #globalhr #globalemployment