Converting Full Time Employees to Contractors During Global Mergers and Acquisitions

Retaining staff during mergers and acquisitions can be challenging. Find out more about how CXC assisted three global companies to transition their key staff while enabling continued productivity and growth during a merger.

Summary

This paper reviews how three US based companies converted groups of full time employees in five countries to contractors during an acquisition.  Topics include, global compliance and risk mitigation considerations, Employer of Record (EOR),  International Professional Employer Organization (PEO) and questions to ask when navigating this complex transaction.

Background

Three clients, A major consumer products company, an international investment finance company, and an energy generation company made acquisitions in South America (Colombia and Brazil) and Asia (Thailand, Malaysia, Singapore).  During the acquisition process, they identified several key employees who were crucial to the operation that needed to be retained.  However, the companies were not purchasing the legal entities and were not established in country, nor did they have the expertise to manage the employment of those workers.  The companies turned to CXC Global, a Contractor Management Organization (CMO) for help. All three sought partnership with CXC Global to be the Employer of Record (EOR) in country and their Professional Employer Organization (PEO), in other words, their international employment outsourcing partner.

Objectives

The objective for each company, was to compliantly engage the identified key workers and to ensure that through the acquisition, the talent was retained in region enabling growth and prosperity.   The companies had several options including the establishment of a new entity in country, conversion of the workers to contractors, or outsourced employment of the workers to a third party.  Regardless of the method chosen, all three clients required:

  • Cost transparency to manage a program
  • Understanding of statutory tax and benefit requirements
  • Knowledge of paid time off and termination notice for the worker population
  • Ability to pay contractors in their local currency to ensure compliance
  • Seamless transition of the workers to prevent disruption of work
  • Offer benefits and retirement plans in excess of local statutory obligations

Client Challenges

The challenges faced by these companies:

  • They did not have a physical entity in the country to manage the contractors’ payroll and compliance
  • They did not know local employment standards or payroll requirements
  • They could not match the benefits provided to the workers by their former organizations
  • Domestically in the USA they did not have a processes for purchasing and wiring foreign currency

Questions

Each client had common concerns and questions that needed to be addressed.  Some examples included:

  • How do I make sure that we don’t violate local laws with the local government when hiring these workers?
  • What does the government require me to provide to these workers in terms of statutory benefits like social security or health benefits?
  • How much notice do I have to give employees before changing their employment terms?
  • Do I owe these employees vacation payments, 13th salary payments, separation pay, or pension payments?

The Solution – Global Reach, Local Support

CXC’s approach was to create and implement a solution between CXC USA and each of the three clients, that established CXC as the managing entity, supported by the local CXC Global office, in country.  CXC acted as the Employer of Record (EOR), managing workers’ onboarding, compliance, payroll, taxation and benefits.  This provided local US based support for contracting and administration support, in addition to local in country support for employment and compliance matters.

CXC USA took responsibility for working with the local CXC offices in each country, advising on the statutory requirements and benefits due the workers, paid time off requirements, and termination notices and was able to report back to the three companies how they could compliantly onboard the contractors, manage payroll, provide full indemnity to the clients in-country against risk and most importantly ensure compliance, in their capacity of performing global employment outsourcing “PEO”

As part of the client’s request for capabilities of paying the contractors in local currency, CXC undertook currency management.  This allowed the contractors to be paid in local in-country currency and CXC USA to invoice the three US based clients in USD, thereby providing a seamless solution for accounts payable and full compliance within their own accounting and purchase order systems.

Benefit to the Contractors

The contractors had a local in-country CXC resource dedicated to them, to help with onboarding and any questions during the transition from full time to contractor. They were offered the existing benefit plans CXC had in-country for CXC’s existing workforce population.  CXC directed the contractors to local insurance brokers; government and privatized, for benefits CXC could not procure on behalf of the contractors, allowing them to individually purchase what was needed.  The approach had the added advantage of enabling the contractor to have these costs reimbursed as an approved expense, rather than as an additional expense to the employer.

Each contractor retained the same wage level and was paid on the same schedule in accordance with local laws.  As CXC contractors, they were also granted access to CXC’s resources, which provides tax return assistance, CXC Financial planning services, CXC Travel support and other benefits offered to contractors in local countries and regions.

Implementation

CXC USA provided each client with a dedicated Account Manager as their primary local point of contact.  The Account Manager worked with the local CXC offices in each country to answer any questions regarding employment laws, payroll schedules, onboarding and termination.  A consolidated invoice for all contractors enabled a single invoice to be delivered to each client in USD, simplifying the payment process.   CXC USA then managed payroll and statutory costs with the local CXC offices around the world.  Additionally currency risk was managed by CXC, by using a 90 day average rate allowing Controllers and Financial Managers to plan costs by quarter.

The Result

  • 100% retention rate of contractors across all three companies.
  • Expanded local support and offerings for contractors.
  • Enhanced currency management and conversion.
  • Created reporting of spend by contractor type, spend by country, spend by currency.
  • Approval by client leadership to expand the M&A program with CXC Global supporting contractors globally.

Mergers and Acquisitions are inherently complex transactions.  There are many moving parts.  Add in global considerations and the complexity skyrockets.  International Professional Employer Organization (PEO) and Employer of Record (EOR) considerations are especially challenging, as the transaction affects a worker’s employment.  Fear, uncertainty and doubt at the local level can derail a transaction as workers worry about their livelihoods. CXC’s experience combined with its locally owned and operated support team has proven to be invaluable in cases like this.

Contact us to find out more about how we enable organizations around the globe to implement their contingent workforce programs and compliantly engage their non-permanent workforce.

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