{"id":2699,"date":"2025-03-14T11:19:42","date_gmt":"2025-03-14T15:19:42","guid":{"rendered":"https:\/\/hsp.com\/?p=2395"},"modified":"2025-03-14T11:19:42","modified_gmt":"2025-03-14T15:19:42","slug":"how-eor-supports-global-mergers-acquisitions-2","status":"publish","type":"post","link":"https:\/\/hsp.com\/how-eor-supports-global-mergers-acquisitions-2\/","title":{"rendered":"The Role of Employer of Record (EoR) in Successful Overseas M&As"},"content":{"rendered":"\t\t
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Companies use mergers and acquisitions (M&As) as a strategic pathway for global expansion for many reasons – market saturation, supply chain diversification and competitive pressures being the most common.<\/span><\/p>

It\u2019s not uncommon for companies that have saturated domestic markets to begin looking abroad for new opportunities. Similarly, competitive pressures can drive businesses to expand overseas, especially if they notice that competitors are doing the same. M&As can also be a savvy response to global disruptions (as we saw during COVID-19-related supply chain breakdowns). Today, many companies have realized that diversifying supply chains through M&As can provide a safety net against localized disruptions. Whatever the reason for an M&A, it\u2019s a safe bet that the opportunities the acquisition brings will be tempered by new challenges, many of which will center on managing the process of hiring, onboarding, and managing employees overseas.<\/span><\/p>

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The Role of EoR in M&A Hiring Overseas<\/b><\/h2>

Employer of Record (EoR) services provide a flexible employment solution, especially in unfamiliar markets. An EoR is a third-party vendor (a legal entity) that hires and manages employees on behalf of your company. While you are still responsible for managing the daily activities of employees, an EoR is legally responsible for the administrative side of the employment relationship, from payroll and taxes to benefits and compliance with all local employment laws.<\/span><\/p>

EoRs are known for being a relatively quick and simple solution to hiring. That\u2019s something that can be particularly useful in M&A scenarios where entity setup can take months, and companies need to ensure continued employment for acquired workers.<\/span><\/p>

In addition to speed, there\u2019s also cost to consider. In cases where a business is acquiring only a small number of employees\u2014such as in a carve-out<\/span>s<\/span>\u2014the cost and administrative burden of setting up a full legal entity may not be justified. EoR services allow companies to hire these employees without the costs associated with establishing a local entity.<\/span><\/p>

Additionally, transition services agreements (TSAs) between the buyer and seller may be short or absent, making EoR a critical stopgap solution, where possible, to maintain workforce continuity.<\/span><\/p>

Permanent Establishment (PE) Risks and EoR Limitations<\/b><\/h4>

While EoR can be a valuable tool, there are important considerations that may limit its usefulness.<\/span><\/p>

  1. Permanent Establishment (PE) Risk:<\/b> The criteria for triggering PE status vary by country (that\u2019s why it\u2019s very important that you partner with a global service provider with extensive in-country expertise). Nonetheless, if a company\u2019s operations (including via an EoR) are deemed to have a taxable presence in a country, the business may face significant financial and legal obligations, limiting the feasibility of using an EoR.<\/span><\/li>
  2. Employee Transfer Regulations:<\/b> Many countries have strict labor laws governing employee transfers in M&A scenarios. Regulations such as the UK\u2019s Transfer of Undertakings (TUPE, a Protection of Employment) or the EU\u2019s Acquired Rights Directive (ARD) require employers to maintain certain employment conditions, making EoR transitions complex or even prohibited.<\/span><\/li>
  3. Commercial Considerations:<\/b> There may also be commercial considerations for the business that would make an EoR solution not realistic, even when there are only a few employees. That\u2019s because EoR is strictly an employment solution, it does not necessarily solve other requirements of the business (for example, if a company needs to issue contracts locally).\u00a0<\/span><\/li>
  4. Employee Experience:<\/b> Employees transitioning to an EoR may struggle with no longer being directly employed by the acquiring company and, instead, to a third party. This can create unease or nervousness in a situation that is already unsettling for employees.<\/span><\/li>
  5. Benefits Limitations:<\/b> Some benefits, such as company cars (a common benefit), may not transfer under an EOR arrangement, which can also affect employee satisfaction.<\/span><\/li>
  6. Health and Safety Compliance:<\/b> Employees in hazardous environments may require that employers meet additional safety measures that EoRs cannot provide or that would create undue liability and risks for both the EoR and the company.<\/span><\/li><\/ol>
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    Benefits of EoR During M&As<\/b><\/h4>

    Despite these limitations, EoR services provide several benefits for companies engaged in M&As. It can be a very effective interim solution while your company is in the lengthy process of setting up an entity in a complex jurisdiction, subject to legal review. EoRs advantages include:<\/span><\/p>