Since 2000, more than 790,000 mergers and acquisitions have been announced worldwide with a known value of more than $57 trillion USD. Transactions in the United States, Asia Pacific, and Europe led the merger and acquisition deals worldwide in 2017. If your company has not yet gone through a global transaction, don’t expect that to last for long.
An acquisition or merger with a company in another country poses myriad issues for a payroll professional. You will be confronted with a workforce in a country that you may know little or nothing about. You will have cultural differences and differences in work rules and regulations. You will encounter currency issues, language issues, and system compatibility issues. But you will also be faced with an adventure like nothing you have experienced previously. You will be gaining knowledge of a whole new culture and a whole new way of doing business.
There are a multitude of differences between other countries and the United States. Asia-Pacific is a massive region with a mix of developed and developing economies that do not have similar regulations. With a merger or acquisition, you now need to find a way to get your arms around your Asia-Pacific workforce and the local jurisdiction regulations under which they operate. For example, employees in the United States are generally considered “at will” employees who can be discharged without notice or reason. Selling and buying a business in the European Union often involves the automatic transfer of the seller’s employees to the acquirer. Employees in the European Union generally have more substantial employment protection rights, especially when the business in which they work changes hands. These differences may factor in how you will proceed.
So How Do I Begin?
Your first order of business is to determine exactly what is occurring. Will the acquired company operate independently or are you merging two organizations into one? Is your company going to be the survivor? Will the company continue operating as it has been with just the ownership changing? The answers to these questions will allow you to have the perspective you need to start diving a little deeper.
If you are now going to oversee payroll in this foreign jurisdiction, you will need to do some research. Start by asking the following questions:
Where will payroll be paid from and what currency will be used?
Will payroll be paid from the United States, or will each jurisdiction be responsible for its own payroll in its own currency? Does the jurisdiction have rules around how payment must be made to the employees and in what currency?
How often must employees be paid? What benefits are mandatory?
Many European countries allow you to pay your employees monthly. In China, salaries are generally paid monthly. In Sweden, employees enjoy annual paid leave of a minimum of five weeks, which can rise for older or more senior workers. Besides the 25 days of paid holiday for employees, companies in Sweden are also required by law to offer 16 public holidays and an additional six half-days for employees’ personal needs. Knowing your local jurisdiction requirements and customs is mandatory.
How does the company currently process its payroll: is it in house or outsourced?
Some countries dictate that a local firm must be utilized by a foreign entity that has employees in the country. For example, if you utilize a third-party payroll provider, they may not be able to process payroll in that jurisdiction unless they utilize a provider that is in-country. Many third-party payroll processors do not operate globally or have limited global reach, although this is changing over time. If they are not currently in a jurisdiction where you have employees, they likely have a local resource that they have used in the past to meet your processing and payment needs.
What cultural differences exist in how the workforce is managed?
Religious and cultural differences in the United States abound from state to state. Expanding your company globally multiplies these differences exponentially. What holidays do your new employees observe? Is it proper for men and women to work in the same office? Are employers expected to provide benefits that are not generally provided by the U.S. entity? Researching and acknowledging these differences will be a major undertaking, regardless of the countries involved.
Will terminations occur as the result of the merger or acquisition?
The rules around when and how you pay an employee you are terminating differ in all 50 states in the U.S. You now increase your complexity when you expand globally. For example, employees in Spain who are terminated commonly receive nine weeks of severance pay for each full year of service. Japan’s lifetime employment system restricts employers from firing employees except on the grounds of serious misconduct. In Germany, the Termination Protection Act requires that dismissal be used only after all other options have been exhausted, including transferring an employee to another open position or demoting the individual into another role.
Do you have budget to obtain assistance to work through the details of the transaction?
Vendors that can assist with your transaction exist and are available. To what extent will you be able to utilize these vendors must be researched. Third-party payroll processors, professional employer organizations (PEOs), certified public accounting firms, local accounting firms, and other global consultants are all ready to assist should you desire outside assistance in navigating the complexities of your new workforce.
Are you going to encounter communication issues?
Thirty-one percent of European countries utilize English for professional purposes. The remaining 69% do not. How are you going to communicate if you are doing business in one of the countries that does not utilize English for professional purposes?
How would you handle this situation?
You have just acquired a company with employees in Israel, Japan, and Australia. Your employees in Israel work from 8:00 a.m. to 5:00 p.m., Sunday through Thursday. Religion will play a part which days people work, but there needs to be a rest period of at least 36 hours on Friday and the weekends. Overtime is required at time-and-a-quarter after the first two hours, and then time-and-a half after that. How do you manage the Israel workweek when it differs from your U.S. workweek? How are the religious holidays going to factor into your payroll department staffing when you find out that all European operations will be processed from Israel?
You currently process payroll twice a month. As in many European countries, Japanese companies typically pay their employees once a month, near the end of the month (typically the 25th). This now needs to be addressed when determining your new filing requirements.
Workers in Australia are subject to a maximum of 38 “ordinary” hours per week, though agreements may be implemented to allow for necessary shifts. In instances where termination of employment is for redundancy and the employee has provided at least 12 months of continuous service, severance pay is required under Australian law–with the pay amount scaled according to the length of the employee’s service. This is true in many European countries. If redundancy terminations occur with your Australia employees, local jurisdiction rules must be researched.
Global mergers and acquisitions can be fraught with issues for you to deal with but can also be a wonderful experience, allowing you to expand your knowledge, learn a new way of doing business in another country, and learn about a new culture along the way. Arming yourself with the information necessary to make this journey as painless as possible is key.
Do you like our content? Join the GPMI community to get free education and articles straight to your inbox!
Mindy Mayo, CPP, is Principal and Practice Leader, Human Capital Tax, at Ryan. She specializes in leading and advising organizations in the areas of human capital taxation, including financial and operational risk management, process improvement, and strategic management. She is skilled at representing clients before state and federal agencies in the U.S. during employment tax audits or controversy. In the past, she has been Director, Employment Tax Practice for a national accounting firm, owner of a consulting firm, and Senior Tax Manager, State and Local Tax, with a national accounting firm. She has a bachelor’s degree in accounting from San Jose State University and is a Certified Payroll Professional (CPP).