Switzerland: SECO directive on intra-group staff leasing - how does it affect companies with mobile employees?

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1 from Global Mobility Switzerland: SECO directive on intra-group staff leasing - how does it affect companies with mobile employees? November 13, 2017 In brief The State Secretariat for Economic Affairs (SECO) has published a new directive concerning intra-group staff leasing. The new directive states that staff leasing within a group of companies also falls under the federal law on recruitment and staff lending (AVG, LSE, LC) and is no longer automatically exempt from these regulations. The law restricts staff lending, forbids it in some cases, declares others permission free, and subjects it to authorization or a staff lending license in certain situations. These restrictions affect companies operating globally in a variety of ways, depending on how they are set up with regard to their international workforce. There is no one-size-fits-all answer to the new directive. Some of the initial reactions to the new directive suggest that companies are extremely concerned that they will no longer be able to bring in the staff they need for their business. However, a closer look at the directive paints another picture. There are still categories of permissible secondments and for most companies, these will cover the majority of cases. In detail Background The Federal State Secretariat of Economy (SECO) clarified in its new directive, dated June 20, 2017, that intra-group staff leasing in general also requires the relevant staff leasing licenses. An exemption only applies if the assignment serves the purpose of internal knowledge transfer or of acquiring technical or language skills or similar experiences. How does this now affect assignments and specifically intra-group assignments? Firstly, it is important to note that, in this context, not every assignment be it intra-group or to a client qualifies as staff leasing. In general, staff leasing occurs when an employer provides staff to a third party with the simultaneous transfer of its right of instructions. Staff leasing would, for example, include assignments to a group company for the provision of services to the group company s client or assignments to a group company in case of staff shortage. On the other hand, a direct assignment to the client or to the group company for the provision of services does not qualify as staff leasing. Therefore, whether the assignment qualifies as staff leasing should be evaluated on a case-by-case basis. Although staff leasing from abroad remains legally forbidden, an intra-group assignment is still permissible for the purpose of knowledge transfer, internal education, acquisition of experience, etc.

2 Assignments, secondments, and transfers In practice, these terms are used for all kind of cross-border employment situations and are used in policies often irrespective of the purpose of such a cross-border employment. In order to properly understand and apply the SECO Directive on such cases it is necessary to make a clear distinction based on the purpose of cross-border employment cases: Contract for services: Typical for a contract for services is that the seconding employer provides a service to a buyer (third party or intra-group). The seconding employer sends its own personnel to the buyer (receiving entity). However, the instruction rights remain with the seconding employer, i.e., will not be transferred to the buyer of the services. This is typically the case for project assignments where the project (or part of it) is managed by the seconding entity, or where a specific entity within the group provides services to the other group entities, either on a regular or ad-hoc basis (e.g., internal audit, group marketing etc.) Staff transfer: Companies also second employees to another group entity and at the same time transfer the instruction rights to the receiving entity, even if the formal employment contract remains with the seconding entity. This is typically the case for employees on loan to the receiving entity (staffing a project or job) or for the transfer of (senior) management. While from a contractual point of view his may still be structured and intended as a secondment or assignment; from a SECO point of view it is a staff transfer. This view is usually in line with the OECD consideration regarding the economic or factual employer. Analysis The new SECO directive affects global mobility functions in a number of ways: In addition to fulfilling the immigration requirements, for typical secondments, which qualify as staff transfer into Switzerland, it will be necessary that you check them against the criteria of a permission-free secondment. Global Mobility responsible persons should therefore develop the necessary toolkit to do so efficiently. While the new directive might be seen as a threat for multinational companies operating in Switzerland, at the same time it provides the necessity and opportunity to review historic global mobility policy and processes and consider new possibilities. Although secondments into Switzerland are either permission-free or not allowed (if they qualify as staff lending or otherwise do not meet the criteria of one of the exemptions), secondments from Switzerland to another country are less affected from the new directive. Either they are also considered permission-free or the company is able to obtain a license (a cantonal one for secondments within Switzerland, a federal one for overseas secondments), provided they can fulfil the necessary requirements. Employers should also give special attention to global employment companies (GECs). The SECO Directive is explicitly focusing on GECs as it views these companies as body leasing companies since their main purpose is providing staff to other group entities. As a result, Swiss based GECs will always require a license. However, GECs domiciled outside of Switzerland will not be granted a license as Swiss law generally prohibits staff leasing into Switzerland. Therefore, GECs domiciled abroad will generally no longer be able to send their employees to Swiss group companies. Incidental secondments may be allowed, but this needs to be reviewed carefully. Lastly, although providing local contracts in place of secondments into Switzerland may be a possible solution where a license is not acquired or permission-free criteria is not met, this approach will likely result in generating Swiss social security. As a result, this type of arrangement may be less appealing to the employee (and employer) and makes it more difficult to find the right candidate. The takeaway It is important to note that the SECO directive still allows intra-group secondments. The purpose of the directive is to provide guidance to the cantonal authorities in granting licenses or assessing permission-free cases before work visas are granted. Their guidance is not a checklist per se, but is intended to clarify their position that (1) labour supplied by GECs should be viewed as staff leasing and (2) increased scrutiny by the cantonal authorities is necessary when secondments into Switzerland do not have a clear permission-free purpose. Furthermore, as the SECO directive serves as guiding principles, the cantonal authorities still retain their ability to interpret and apply the principles as they deem appropriate. To what extent companies are affected by the SECO directive depends largely on a company s staffing needs in Switzerland. Companies that are staffing Swiss-based projects with a larger number of foreign employees may no longer be able to second them from the foreign affiliate to the Swiss entity. Although companies may consider outsourcing some or all of the project to the foreign affiliate, 2 pwc

3 corporate tax consequences of a permanent establishment will have to be considered as well. While the new directive may be seen as a threat to multinational companies operating in Switzerland, it does provide the opportunity to review existing global mobility policies and processes and evaluate the extent to which past practices should be modified. Actions companies should consider Review your inbound population. Are there secondees whose secondment contract is ending and may be up for renewal? What types of secondments do you have in place and are they in line with either the permit-free criteria or fulfil a business-critical need? Review your outbound population. Assess whether the type and number of secondments require a license, and, if needed, initiate the process by seeking legal advice for obtaining a license. Review your assignment policies and individual assignment contracts and evaluate whether the wording clearly indicates that a secondment meets the permissionfree criteria. If the wording is not explicit, consider amending existing or drafting new policies and standard assignment contracts. Escalate the SECO directive and results of the above review within the group. Establish a process for identifying potential cases that may come under scrutiny as early as possible. Review the staffing of existing and future Swiss-based projects. Consider alternative staffing arrangements along with the corporate tax implications and necessary contractual framework for both clients and intra-group transfers. For global employment companies located outside of Switzerland, assess whether a Swiss-based GEC is a viable alternative. Be prepared to discuss the Swiss social security and pension implications with individuals who can no longer be seconded and may require a local contract. Alternative pension arrangements may also be available in certain circumstances. Create awareness of the risk of staff lending arrangements within the Swiss company, as well as globally, and facilitate the training of local HR and Global Mobility personnel with identification and handling of cross-border employment cases. Apply for a license (cantonal as well as federal) for any Swiss-based global employment companies. 3 pwc

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5 Let s talk For a more detailed discussion of these issues, please contact your Global Mobility Services engagement team or one of the following professionals from PwC Switzerland: Global Mobility Services Switzerland General Robert Schulze robert.schulze@ch.pwc.com Immigration Patrick Arnoldi patrick.arnoldi@ch.pwc.com Ingo Heymanns ingo.heymanns@ch.pwc.com Mirela Stoia mirela.stoia@ch.pwc.com Employment Law Switzerland Christine Bassanello christine.bassanello@ch.pwc.com Global Mobility Services United States Peter Clarke, Global Leader +1 (646) peter.clarke@pwc.com Stay current and connected. Our timely news insights, periodicals, thought leadership, and webcasts help you anticipate and adapt in today's evolving business environment. Subscribe or manage your subscriptions at: pwc.com/us/subscriptions SOLICITATION 2017 PwC. All rights reserved. PwC refers to the PwC network and/or one or more of its member firms, each of which is a separate legal entity. Please see for further details. This content is for general information purposes only, and should not be used as a substitute for consultation with professional advisors. At PwC, our purpose is to build trust in society and solve important problems. We're a network of firms in 157 countries with more than 223,000 people who are committed to delivering quality in assurance, advisory and tax services. Find out more and tell us what matters to you by visiting us at 5 pwc