UK and International MSP - key legal and commercial issues Frances Lewis – 27 June 2012.
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Transcript of UK and International MSP - key legal and commercial issues Frances Lewis – 27 June 2012.
![Page 1: UK and International MSP - key legal and commercial issues Frances Lewis – 27 June 2012.](https://reader034.fdocuments.in/reader034/viewer/2022051614/551abfe4550346856e8b5715/html5/thumbnails/1.jpg)
UK and International MSP - key legal and commercial issuesFrances Lewis – 27 June 2012
![Page 2: UK and International MSP - key legal and commercial issues Frances Lewis – 27 June 2012.](https://reader034.fdocuments.in/reader034/viewer/2022051614/551abfe4550346856e8b5715/html5/thumbnails/2.jpg)
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Agenda
• Introduction
• MSP contracting models: UK and beyond
• Adapting contracts for international MSP
• Key compliance issues for international MSP
• Final word
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Introduction
• 35% global US companies want global contingent workforce programmes by 2014
• Global staffing projects increasingly driven by hirer demand
• US hirers and staffing companies worried about European legislation
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Introduction
• General overview of the common themes – not country-specific
• Each country has its own regime – there is NO one size fits all
– Different laws
– Different enforcement regimes
– Different levels of risk
– Different attitudes to the use of temporary workers = tolerance
• There are ways to reduce risk to acceptable level BUT this usually requires investment and careful management
• "Compliant" UK and overseas operations will add value to your business
• Workplace tax is becoming a high profile issue = valuation issue
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Key issues – where do you start?
What type(s) of recruitment business do you want to do?
•Contract or permanent/both?
•If contract, what type of workers and at what level?
•What is your preferred supply model – a question of chicken and egg?
•Is your preferred model potentially prohibited?
– e.g. Belgium - prohibition on putting your "employees" at the disposal of a third party. Disguised employee risk?
– is a licence or registration required?
•Don't assume that overseas advisors will be familiar with UK staffing models
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MSP contracting models
• UK MSP arrangements usually involve:
– MSP acting as contractual (and payment) intermediary
– …in relation to the supply by second tier staffing companies of all contingent workers
• B2B independent contractors/freelancers/SOW contractors
• leased employees/agency workers/"temps"
• BUT in many countries this "MSP acting as principal" option is not:
– lawful - e.g. German Federal Employment Agency considers that AUG leases may not operate in a chain
– available – many staffing companies would not accept the prime contractor role for fear of inheriting tax and employment law risk
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MSP contracting models
• "Principal" contract structures have been agreed in mainland European countries over the years:
– usually involve a salesman at MSP offering more than can be delivered because he/she is desperate to win the hirer's account in US/UK
– = implementation problems - end up with MSP pulling out/asking for the deal to change
– some MSPs have just taken a risk and e.g. rely on unreliable/non-compliant local partners to pay contingent workers = lack of compliance
– ("Principal" model may, with some adjustments, be ok if you just use genuine independent contractors)
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MSP contracting models
• "Agency" model of MSP
– MSP manages local staffing companies on behalf of hirer and (perhaps) fills some vacancies itself
– Local staffing companies in fact have contracts direct with hirer, but the MSP "runs" those contracts and manages invoicing (consolidated invoicing etc.) E.g. AUG supplies in Germany
• "Margin only" model of MSP
– MSP appoints local recruitment companies to source contingent workers
– Local recruitment company is paid margin only and MSP actually engages and supplies the workers to the hirer
• Each country has its own variations of the agency and margin only models - often involving payment intermediaries
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MSP contracting models
• Benefits of "agency" MSP model:
– Local compliance with licensing requirements
– Reputable staffing companies happy to supply
– (If MSP becomes insolvent e.g. Chimes the hirer's money is safe – reduces supply chain risk + MSPs often prefer because their credit risk reduces and profit ratio increases)
– (If hirer falls out with MSP no need for novation of contracts with all second tier)
• Downside of "agency" MSP model
– (No "one butt to kick")
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MSP contracting models
• Benefits of "margin only" MSP model:
– Local compliance with licensing requirements
– Reputable staffing companies happy to supply
– Removes credit risk for second tier who should be happy to supply
– (Hirer has "one butt to kick")
• Downside of "margin only" MSP model:
– (If MSP becomes insolvent e.g. Chimes the hirer's money is not safe)
– (If hirer falls out with MSP = major novation exercise)
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Adapting contracts for international MSP
• Global master services agreement with:
– All-pervasive terms and conditions which will apply wherever the service is provided e.g. general pricing, general services, term/termination, IPR, confidentiality, some boilerplate
– Template for local country agreements setting out what can be agreed locally country by country
– Timetable for roll out country by country (be careful about big-bang!)
• …supplemented by local country agreements governed by global agreement
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Adapting contracts for international MSP
• Local country agreements governed by global agreement deal with:
– Local basis of "agency", "principal" or "margin only" appointment of MSP's local entity with appropriate amendment of relevant service descriptions
– Local compliance obligations of MSP in terms of checking specific supply chain risk backed by indemnities for liabilities which their checks should have prevented
– Local risk apportionment depending on local:
• laws
• enforcement regimes
• sizes of penalties/risks of class actions
• recruitment cultures and different attitudes to contingent workforces
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Key international compliance issues
• In country advice and from who?
– Local lawyers; Accountants - do they understand staffing and the types of supply you intend to make?
– Management/payroll companies – independent or sales pitch?
– Local tax, social security and labour law authorities?
• NB the advice should deal with all relevant risk issues
• Don't get too hung up on labour law issues – tax and social security usually pose a bigger risk
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Key international compliance issues - overview
• Labour law issues*
• Wage withholding issues* – income tax and social security
• Any licences or registrations required*?
• Local regulations*? E.g equivalent to UK Employment Agencies Act/Conduct Regs; AWD
• IPR and data privacy laws?
• Transfer pricing – e.g Swiss and German tax authorities have strict rules about this
• Insurance – discuss with your broker
• Foreign exchange controls? E.g. Nigeria, China
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Key international compliance issues - labour law
• Deemed employment risk?
– in many jurisdictions the courts will look at the reality of the relationship between end user and contractor
– therefore contracts provide some useful protection but not all
– try to ensure that contracts are consistent throughout supply chain,
• if the supply at the contractor end is a B2B supply ensure that it is reflected in the contract with end user client and in practice
– many different employment tests but most focus on:
• degree of end user authority over the contractor/temp
• degree of integration into end user client business
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e.g GERMANY - Criteria for personal dependence vs. own responsibility
Duty to accept offered
assignments/ contracts
Subject to orders regarding location,
time, subject
Formal criteria : • deduction of wage tax,
social security, personal files• continued payment when
sick, during holidays • registered business /
Company
Integra-tion into business
Repor-ting duty
Integra-tion into
shift plan
Entrepreneurial presence at the
market
Common treatment of contractors and employees
with similar duties criteria
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Labour law issues continued..
• Who will be liable if supply = disguised employees?
– recruiter or end user client or both?
• How is claim likely to come about?
– individual claimant or authority investigation?
– How active is enforcement regime?
• What are the employer obligations in that country?
• Can you structure the supply to reduce deemed employment risk?
– depend on type and level of work
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Key international compliance issues - wage withholding
Who will pay the contractor/temp?
•If agency worker supply you will probably be the wage withholder
•Management/payroll company? – wage withholder
•If B2B contractor
– individual freelancer or limited company (or equivalent)?
– tax and social security rules for each - where will tax/ss be payable?
– who will advise the contractors?
– authorities and courts will usually assess on a case by case basis
– there may be no IR35 equivalent!
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Key international compliance issues - wage withholding
• Regional tax and social security authorities:
– are the rules the same from region to region?
– e.g. Switzerland – tax enforcement varies between regions. Which
will you do business in?
• What are the risks of contractor/re-classification?
– does agency face tax/social security liability or shared liability?
– chain law consequences, e.g. the Netherlands?
– what is the end user client's attitude to tax/ss risk? – often assume that you are employing the contractors/temps
– disguised employment risk will also increase tax/ss risk
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Key international compliance issues - management companies
• Advisable to rely on local management/companies?
– can offer a quick and cost effective way of starting operations in a new country
• HOWEVER
– thorough independent due diligence required if they are to be relied on for compliance purposes
– understand how they comply with local labour, wage withholding, licensing and regulatory law requirements – does it reflect or undermine your supply model?
– early global RPOs relied too heavily on local payroll providers – how financially/compliant stable are they?
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Key international compliance issues - licence requirements?
• National or regional requirements?
• Contract or perm?
– e.g. Belgium, Hong Kong – need licence for perm but not contract
• "Established" in country? – how does this affect licensing requirements?
• If contract – B2B or agency worker or "grey"?
• Just in case? e.g. AUG
• What are the consequences of not having appropriate licence?
– usually fines, orders to cease business and prohibition on future recruitment business
– Germany – prohibition and/or fine if operate without a AUG licence
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Key international compliance issues - licence requirements?
• Cost and formalities involved?
• Does a management/payroll company require a licence or registration?
– Singapore – management companies probably need a licence
– Germany – should not rely on management company's AUG licence
– margin-only solution?
• Key due diligence issue for potential investors and buyers
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AUG licence contractual nexus
Agency
Staffing Company
Agency Worker
Customer Company
Leasing Contract
Employment Contract
performs employer‘s rights to give directions
works for/at customer
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Final word
• Overseas compliance can be complex and expensive
• Things change. Keep MSP contracts flexible with:
– Anticipation of law and tax changes
– Mechanisms for agreeing changes
• Your competitors may not have invested in compliance but question whether you want to look attractive to an investor/buyer and users
• Seek joined-up, industry-informed, independent advice
• Don't underestimate tax issues and beware of "simple" solutions.
• But don't feel everyone else has got them completely taped – they haven't!
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Recruitment team
Frances LewisConsultantEPI - RecruitmentT +44 (0) 20 7105 [email protected]
Kerry Viner SolicitorEPI - RecruitmentT +44 (0) 20 7105 [email protected]
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[insert photo here]Height = 5.39cmWidth = 5.81cm
Kevin BarrowPartnerEPI - RecruitmentT +44 (0) 20 7105 7030M +44 (0) 7711 [email protected]
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[insert photo here]Height = 5.39cmWidth = 5.81cm
Recruitment team
Andrew SaulPartnerCorporate T +44 (0) 20 [email protected]
Richard Brown PartnerAdvisory T +44 (0) 20 [email protected]
[insert photo here]Height = 5.39cmWidth = 5.81cm
[insert photo here]Height = 5.39cmWidth = 5.81cm
Deepa ParekhSolicitorEPI -RecruitmentT +44 (0) 20 7105 [email protected]
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Summary
Global staffing programmes are often hard to get right
But expertise and best practice is developing