The contingent
workforce
Are you aware of the traps to avoid?
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Presenters
► Roselyn Sands
► Partner, Global & French Employment Law Leader
► Ernst & Young Société d'Avocats
► Dr. Karsten Umnuß
► Partner, German Employment Law Leader
► Ernst & Young Law GmbH Rechtsanwaltsgesellschaft Steuerberatungsgesellschaft
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Agenda
► Business context: the use of alternative/contingent workforces
► Key issues in intragroup workforces
► Key issues in external workforces
► Case studies
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Business context: the evolving use of
alternative/contingent workforces
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Challenge: evolving use of internal and
external workforces
► In today’s ODE (on-demand economy), businesses are now resorting to the
use of diverse workforce models across the supply chain.
► Companies are relying more and more not only on their own workforce to get
the job done, but also on the external or contingent workforce.
► The increasing use of a contingent workforce (often with limited involvement of
HR) raises complex HR labor law (and even tax) issues and may expose
companies to financial, criminal and reputational risk.
► HR does not necessarily have a good grasp of the issues/risks relating to the
contingent workforce.
► Today most businesses have not yet implemented policies/processes to
ensure compliance with contingent workforce regulations.
► Awareness of these risks is key to helping ensure that the appropriate
compliance tools are put in place in order to avoid unexpected liabilities and
costs.
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Strategic workforce management: buy, build
or outsource
Post/pre-merger
integration
Acquire a new How to deal with
Buy
workforce the new workforce?
Corporate
transformation Co-employment
In the same country? Data privacy
Where?
In different countries? Transfer of undertaking
directive (TUPE)
Use your internal Matrix organizations?
Build
workforce
Undeclared work
Global employment
organization? Identifying the
How? Social security
potential
Mobility? HR/legal/tax
risks Payroll
Other?
Pension
Freelancers?
Independent Permanent establishment
Non-employees?
contractors?
Business travelers
Other?
Use an external
Outsource
workforce
Transfer pricing
Subcontractors?
Employees of “others”? Franchisees?
Temporary agency
workers?
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Alternative workforce solutions
External Internal
workforce workforce
*GEO - global employer organization
**SSC - shared service center
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Internal or external workforce, that is the
question
Benefits of using an external workforce:
Key talent on an as-needed basis
Less management time on performance evaluations/salary discussions
No social security contributions
No employee protection laws
No protection against dismissal
No continued remuneration
Use of his own working equipment
Reduced impact on works council issues
Decreased direct and non-wage labor costs
Business continuity while reducing employee headcount/fixed HR costs
Increased flexibility and competitiveness
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Key issues: intragroup workforces
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Challenge: localization of business activities in a global
environment – substance, key functions and people
France
R&D
communications/
marketing
Switzerland Netherlands
Technical
HQ (project manager)
Reporting lines?
Co-employment?
The right BEPS?
person in the
right place
with the right
Finance IT and global India
USA skills
(budget setting) talent hub
HR and
Manufacturing administrative/
back office
China Poland
*BEPS – base erosion profit sharing
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Who is the “employer” in global
organizations?
► The legal entity employing the
The responsible party is the workforce?
one who:
► Procures and makes
decisions?
► Gives orders and
instructions? ► The legal entity using the employee?
► Controls work
performance?
► Deals with HR issues?
► Double reporting lines?
Disconnect between the HR/operational organization and the legal entity structures
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Challenge: managing increased risk of
internationalization of employment disputes
Matrix
organization
Risks
co-employment
Discovery
Proof
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Key issues: external workforces
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Key HR-related issues with external
workforces …
Social security
Civil and
contribution
criminal
(employer and
liabilities
employee)
Employment
status (therefore
loss of all the
benefits from non-
Applicable employee status)
employment
law
Severance costs
(including all
employment rights,
such as paid
Illegal leasing of
holidays, pension
employees and
rights …)
criminal offense
Works of
council subcontracting
issues of employees
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… but not only HR-related issues …
Unfair
competition/
non-
compete
Data privacy obligations
Loss of Damage to
confidentiality, reputation
disclosure of trade
secrets
Permanent
establishment
IP Rights for the
group Third-party
liability, null and
void
BEPS decision/act
Bribery
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Buy, build or outsource – solutions and
checklist
External workforce Internal workforce
solutions solutions
1. Establish an external 1. Have the right person
business partner at the right place to
policy align substance/
2. Establish clear rules assets and function
and guidelines around 2. Ensure employment
outsourcing, taking documentation
international norms squarely matches tax
into account External Internal documentation
3. Monitor compliance by workforce workforce 3. Avoid co-employment
regular audits of risk, which could
business partners compromise the
4. Never instruct the efficiency model
employees of 4. Ensure compliance
business partners with works council
directly consultations and
5. Involve HR/legal from labor laws in general
the start
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Case studies
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Case study: intragroup employees
The challenge Leading multinational
Running the group efficiently across the globe through matrix
organization model while taking into account IP rights group
apportionment across the legal entities of the group
What we did Litigation defense
► Alerted the client of risks relating to co-employer liability
► Awareness of different types of claims and risks abroad (US)
► Defense of litigation brought in New Jersey federal court under
the Conscientious Employee Protection Act
► Managed issues relating to discovery in international context
Result
► Litigation pending
► Expensive to defend the case (over US$1M estimated to trial)
► Lessons learned
► New approach to minimize HR legal risk
► Loss of valuable time of executives needed to defend the case
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Case study: external workforce audit
The challenge
The client is one of the largest telecom companies in Germany. It required
Leading
assistance for undertaking a legal review of all relationships with external service
providers and supplier of external workforces as well as the respective telecommunications
procurement processes in order to evaluate compliance with employment, tax
and social security law. company
What we did
► Conducted interview with process owners to obtain process understanding External workforce review
► Implemented an interim procedure to review all existing relationships with
external service providers and winding up of unlawful relationships
► Developed an evaluation, risk map and interview guide to conduct the
analysis
► Involved in interim procurement procedure for external service providers and
development of a future procurement operation model
Result
► Resolution of unlawful relationships with external service providers and
reduction of compliance risks
► Liability exemption for the board members regarding compliance issues
► Organizational change by the interim procedure to obtain legal compliance
► Implementation of a new procurement operating model to assure procedures
in line with legal requirements
► Development of an automated tool to support the legal assessment of the
relationships with external service providers as part of the new procurement
operating model
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Questions
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