Testing European Markets - HSP Overseas Direct®
This Silicon Valley cellular/WiFi convergence company approached High Street Partners with a problem faced by many high growth companies. Interested in toeing the water in Europe to gauge market opportunities, the company had established third party contractor relationships with resources in the UK and Switzerland. After experiencing success, the client wanted to convert those contractors to permanent employees and hired HSP to provide the financial and HR management support to establish a fully integrated company structure under the US parent. The project scope included local entity set up, with full monthly financial and payroll management, and regularized employment relationships with tailored local country employee benefits packages and employment contracts.Business Challenge
The growth the company had experienced in Europe was positive news, but it came with a realization that the existing employee structure was not sustainable or desirable in the long run. The client needed to employ European resources directly and engage in further local recruitment to establish critical mass. The challenge, therefore, was to set up a minimal European corporate structure which would meet the compliance requirements of these new arrangements, while ensuring that the entity’s requirements regarding finance, payroll and cash management were met. In addition, it was imperative to structure employment terms that would attract third party contractors to transition to permanent employee status, so communication with the contractors during the process was essential to ensure all interests were managed accordingly.
High Street Partners' Solution
After reviewing the desired transaction flow, funding arrangements, monthly timelines and responsibilities with the client, High Street Partners created a UK limited company subsidiary within a matter of days, an entity which included local payroll, accounting and cash management facilities. The process was accordingly documented and set out in an agreed calendar of events.
Next, we determined that a permanent Swiss entity was not necessary, but there was a compliance requirement to set up and operate local payroll that included social security withholdings and the generation of Swiss salary slips. HSP advised the client how to effectively transition contractor payments into a market appropriate cash salary and benefits-in-kind package, while minimizing the overall cost increase to the company.
Because benefits provision varies so widely across Europe, this area required special care. Regulations and expectations differ by country, as do levels of state provided benefits and local mandatory or statutory requirements for benefits and insurance provision (i.e. provident/life assurance, sickness & accident insurance and pension provision). We provided advice on market appropriate packages in both Switzerland and the UK and worked with local benefits providers to implement the benefits-in-kind for the employees.
We also helped the client structure stock option grants for their new European employees, in keeping with the company’s US incentive plan. HSP advised on the income tax and employer/employee social security impact of making such grants in both the UK and Switzerland. In the UK, HSP was able to structure arrangements to mitigate the employer’s social security charge, a permanent saving to the company of 12.8% of the gain to be realized at exercise, which can typically yield a dollar savings in the hundreds of thousands or more should the company ever undertake an IPO or an acquisition by a public company.
Effective Outcome
The end result of this HSP Overseas Direct engagement is a fully compliant UK subsidiary with 100% increase in staff capacity within six months of incorporation and a fully compliant employee in Switzerland. The client’s now secure European platform has enabled the company to realize opportunities across the European arena, and the client is now reviewing hiring plans for France and Italy.
