We have all been talking about the new normal for some time now and its impact on the way businesses operate. As we move into a more settled pattern of flexible working, how employers approach their contractual relationships with staff is becoming part of a much broader discussion about how organisations are structured and operate in the future. This requires strategic debate between the functions that traditionally would have had conflicting or even contrarian perspectives.
Post-Covid senior leadership teams must ensure they are not pigeon-holed as behaving in such rigid ways. Above all, it is critical for the chief executive and finance and HR directors to work together, because there are very fundamental questions to address about the way organisations operate. Closer cooperation is essential if organisations are to become more agile, while maintaining the mindset of a well-run business.
So, what will organisations in the future look like?
We are now seeing additional layers of types of employment, which come with relative merits and limitations. Done well, it could give companies the nimbleness they need, even in these times of constrained budgets. Both from an HR and finance perspective there are some fundamental questions to address:
What working models are right for us?
With full-time employees splitting their time between the office and home locations, companies can strike a great balance between culture, offering much-needed flexibility and, in many cases, significantly reducing core fixed costs of large office spaces. The next question for finance and HR then to decide is: how much do we pay these employees? There is growing discussion about the logic of continuing to pay the same salaries and benefits to individuals who are not commuting to the (costly) big city office every day.
Do we need an entity in every country?
There is also a question of tax and legal compliance. Phrases like ‘permanent establishment’ and POEM (place of effective management) may not have been widely discussed before the pandemic, but now they should be a hot discussion point between every finance and HR director. Employers must also be on the lookout for hidden remote workers who could create corporate risk by working from their holiday homes without getting approval from HR.
How can we rapidly respond to new opportunities?
Launching in a new country by employing staff through a professional employment organisation is an attractive way to move quickly into a new market, without having to go through all the regulatory and compliance requirements of setting up a new entity. A step further removed is using specialist consultants or gig workers, perhaps working on a project basis to fulfil a specific requirement for an organisation.
For finance, it limits the company’s exposure and enables a manageable financial commitment to scale up the business in a new or smaller market, but it also limits the level of commitment from your employees on the ground.
Underlying the strategic and financial implications are critical people issues that cannot be ignored. HR and finance must work together closely, along with specialists for talent mobility and general counsel. Above all, this group must develop a core framework around the following priorities:
- Finding and engaging the right talent: sounds obvious, but if you cut an employee’s salary in return for remote working, how will that individual react? Similarly, if you outsource talent how can you ensure quality and consistency?
- Agility without complexity: clearly different HR solutions will work for different markets and business strategies, but the more layers of employment types built into the organisation the more complexity you create.
- Managed costs with limited liabilities: if you do create a complex employment strategy, costs could easily spiral and with it you could be exposed to tax and employment law differences between markets.
- Staying compliant in a shifting landscape: there is likely to be substantial regulatory, tax and compliance changes coming to address the new ways of working, recoup government losses and reimagine the future of work. Companies must have the technology that helps them stay compliant, avoid risk and take advantage of opportunities faster than the competition.
Steve Black is co-founder and chief strategy officer at Topia