An Employer of Record (EOR) is a partner that can help businesses with the administrative and compliance aspects of hiring employees through various company phases — from launch all the way through to acquisitions, mergers, and spin-offs.
- A merger involves two companies combining to form a new company.
- An acquisition is when one company buys another company.
- A spin-off is when a company separates part of its business into a second publicly-traded entity and distributes shares of the new company to current shareholders. This is also known as a carve-out transaction.
Undergoing one of these processes requires careful HR management to ensure a smooth transition of payroll, benefits, and other HR processes to the new company. This article will cover the ways an EOR like RemoFirst can support businesses going through mergers, acquisitions, and spin-offs.
Benefits of an EOR During Acquisitions, Mergers, and Spin-Offs
HR operations are one of the key considerations in any transaction involving a merger, acquisition, or carve-out. Once the transaction closes, payroll, benefits, and other HR processes are typically disconnected from the original company and transferred to the new one. This means that the newly formed company will need new structures and solutions in place before the transition is complete — adding complexity and urgency to the process.
In some transactions, there will be enough time for the preparation of new entities, new payroll solutions, and customized benefit offerings, but the tight deadlines mean that, in most cases, the company doesn’t have enough time to put all of this in place.
Add to this mix a global workforce spread across multiple countries, and the process becomes even more complicated — making an EOR partner an attractive alternative to the headache of managing it alone. The EOR provides all of this HR infrastructure ‘off the shelf,’ enabling the buyer or new company to transition their team quickly and smoothly after the transaction closes.
The many benefits of using an EOR service provider during acquisitions, mergers, and spin-offs include:
- Reduced administrative burden: EORs can take over the administrative tasks associated with hiring and managing employees, such as payroll, benefits administration, and tax withholding. This can free up time and resources for you to focus on other priorities and aspects of the transition.
- Guaranteed compliance: EORs have expertise in employment laws in multiple jurisdictions, so they can help you ensure your business complies with all applicable laws and help protect it from costly fines and penalties.
- Better employee morale: Employees who are going through a corporate restructuring process may feel anxious or uncertain about their future. An EOR can help to reassure employees that their employment is secure and they will continue to receive the same benefits and protections they had before. This can help to reduce employee stress and improve morale.
EOR Services RemoFirst Can Support You With
RemoFirst has extensive experience in these situations and has helped a number of customers successfully execute spin-off and carve-out transactions in a timely manner while creating a great experience for the impacted employees.
For instance, in January 2023, RemoFirst was brought in about 30 days before the close date of a carve-out to support some of the employees of the entity being acquired who would not have the support of an existing entity or payroll process once the transaction closed.
The RemoFirst team had to move fast to ensure a few key services were delivered prior to the close date, including the following:
- One of the employees had a work visa sponsored by the parent company he would be spun out of, so RemoFirst and our local entity took over the sponsorship of his work visa.
- The employees had extensive and robust benefits with the parent company and we needed to ensure they would have similar benefits once they moved across to our platform.
- The employees had been with the parent company for a number of years and as a result, they had accrued certain benefits, including extended notice periods and holiday allowances. It was important to the client that we could reflect this seniority in the new employment contracts we were putting in place.
- Everything had to happen quickly — it was essential to set everything up in a matter of days to ensure the acquiring could proceed with the scheduled close date.
Let’s take a look at some of the processes we can support you with and the information you will need to provide.
Establishing the Timeline
The first thing we need to understand is the timeline of the deal, and how this impacts a potential start date, so we’ll probably ask you when you expect to close the transaction and how solid the timeline is. The reason we need to know is because close dates tend to shift often, so this can be a moving target.
We’ll also need to know where there is a Transition Service Agreement (TSA) in place. A TSA is an agreement between buyer and seller companies (or divested entities) in which one entity provides services and support (i.e., IT, finance, HR, real estate, payroll, etc.) to another after the closure of a divestiture to ensure business continuity for a predefined period. Typical TSAs can range from 60 days in a smaller transaction to as long as one year in some higher-value transitions.
The answers to these questions will help us understand your needs and propose the most appropriate solutions.
Assessing Current Systems and Solutions
To ensure the transition is as efficient as possible, we will also need to understand what solutions the company already has in place. This will help us assess how we can best replicate the current systems and benefit offerings.
RemoFirst can provide a detailed side-by-side comparison, covering topics like health, dental, vision, and pension plans, as well as specific issues like replicating payroll schedules, technology solutions, integrations, and reporting capabilities.
In many cases, RemoFirst can provide a like-for-like solution. If a comparable solution doesn’t exist in our current set of capabilities, we can often cover this with some sort of cash stipend.
Additionally, if a benefit capability is not currently available but is essential for your business, we can look into engaging a broker to put this benefit in place.
The process for matching the benefits for employees — especially in Europe — is dictated by the Transfer of Undertakings (Protection of Employment) Regulations (TUPE), and its purpose is to protect employees if the business in which they are employed changes hands. Its effect is to move employees and any liabilities associated with them from the old employer to the new employer by operation of law.
Transferring Tenure and Seniority
Another important consideration is employee tenure or seniority. In most countries, the longer an employee is employed with the same company, the more benefits they accrue. These could include additional notice periods for termination of employment, extra paid time off allowances, and more.
You will need to communicate with RemoFirst if you intend to transfer these accrued benefits to the new entity. In general, this is something we can assist with. However, transferring these accrued benefits can create additional risk for RemoFirst and our local partners.
For example, if an employee is owed six months of severance pay upon termination, that creates a significant liability for any EOR. As a result, we may request additional deposits or encourage you to pay out these benefits in advance of employing your team under our local partner.
Ensure a Smooth Transition with RemoFirst
A reliable EOR partner can help make the transition process smooth for businesses going through a merger, acquisition, or spin-off.
The RemoFirst team can support you with our valuable experience, competitive pricing, and round-the-clock customer service. To learn more about the costs of partnering with an EOR like RemoFirst, check out our article on Employer of Record pricing.
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