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Dear Valued Clients and Partners,
We hope this newsletter finds you in good health and high spirits. As we continue to navigate through the post-Covid era, we are pleased to bring you some noteworthy updates on the economic outlook in Southeast Asia, exciting developments in Vietnam, a significant acquisition, and a new solution offered in Egypt.
Economic Outlook in Southeast Asia:
With the gradual recovery after the pandemic's impact, we are witnessing positive signs in the economies of Southeast Asia. As the United States and Europe cautiously navigate potential recession, Southeast Asia (SEA) emerges as a leading source of growth for the global economy with growth forecast hovering around 4.7% this year. While challenges remain due to slow down in export and manufacturing activities, we remain steadfast in our commitment to support your business expansion into SEA during this crucial period.
Vietnam Economy Outlook and Overseas Investment:
Vietnam has emerged as a robust and promising investment destination in Southeast Asia. Boasting a resilient economy and favorable investment climate, the country continues to attract overseas investors. At Innovare, we have closely monitored these developments and are prepared to assist and facilitate your business development in Vietnam.
With the successful acquisition of JOBLINKS Vietnam by Innovare Group, this strategic move marks a significant milestone in our growth journey and enhances our capabilities to better serve you. Rest assured, our commitment to excellence remains unwavering as we continue to provide innovative solutions tailored to your evolving needs.
New Solution in Egypt:
We are thrilled to introduce our latest offering in Egypt, tailored to meet the unique demands of the Middle East market. This solution reflects our dedication to delivering cost-effective solution beyond the APAC region, enabling you to stay ahead in a competitive landscape. Our team is eager to engage with you and explore how this solution can drive your business forward. At Innovare, our mission is to be your trusted partner in growth and prosperity. As we adapt to dynamic landscapes, rest assured that our focus on delivering exceptional value and unwavering support remains our top priority. We value your continued partnership and look forward to building brighter futures together.
Should you have any inquiries or require further information, please don't hesitate to reach out to our dedicated team.
Warm regards,
Belinda Yu
Director
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It has been an extraordinary three years. As the world peers out from lockdowns and movement restrictions, businesses look forward to a much-needed bounce. The same goes for the contractor management, recruitment and related industries.
Resilience
Innovare saw quite a surprising resilience in the last three years. Whilst the pandemic hinders mobility, projects still needed to continue and companies found remote working an alternative. Contractors remaining in the books were retained as it was difficult to bring in new ones. This technology enabled approach enabled the services to be delivered from their existing location without travel, as we awaited the reopening of borders.
As a result, expats who have been working overseas tend to stay in the country of work while more locals are able to take on overseas’ assignments and work remotely from home country. However, as most countries are going back slowly to pre-Covid days with opening of borders and relaxation of travel restrictions, this trend may shift and more relocation is expected to take place in 2023.
Diversification
Our diversified portfolio meant that some industries were given exceptional travel exemptions to continue the work especially in IT field where remote working is more common than before the pandemic. Regional diversification also allowed us to make a start in countries which chose to relax their border controls.
Hence, the business never really went to a complete halt but rather, into rotation mode.
Crops and the Japanese Connection
Innovare's absorption into Crops in 2019 (a listed company in Japan with Sales revenue overUSD330 million in 2022), also meant that we started refocusing our development in Japan in both inbound and outbound movements of talent. Given the steep cultural entrenchment for many Japanese companies, trust is better built when dealing with another Japanese company
This puts Innovare in a favourable position to both facilitate outbound and inbound movements on behalf of our non- Japanese clients.
With the cash reserves of Crops, there is possibility of further mergers to strengthen the group's presence in the region. We are exciting at these opportunities and will share more good news with our customers
Industry Consolidation
As in past crises, we saw the industry moved into consolidation mode as the big players have acquired smaller ones in the past 2 years and those without a valid proposition might even exit the region significantly.
This led to many large groups being formed to cater to the entire value chain. For example, Velocity Global has acquired Shield GEO in July 2021 after having acquitted iWork Global in April same year. Top source Worldwide has also acquired Compandben, Bradford Jacobs and Blue Black Global after its own merge with PEO Worldwide.
To better serve our customers, Innovare decided it would be best to further establish ourselves in the narrow space of contractor management/EOR. As specialists in the region, we are well positioned to serve our customers as well as act as a valid support for these larger conglomerates where there are gaps in their offering.
Looking Forward
Even as we seem to be leaving the pandemic behind us, other geopolitical tensions are building up that tend to cloud any forecast. What we realize, having gone through so many challenges in the last 20 years of business (SARS, Great recession etc), is that we need to stay true to our regional calling and service delivery. Being specialists in the Asia Pac contractor management/work space has served our customers well and we will continue to fortify this position.
The Philippines is among Asia’s fastest growing economy and have maintained a strong momentum with GDP growth in excess of 6%. After decades of red tape stagnation, the country is poised for robust growth albeit from a low base.
In the contracting realm, we already detected stirrings as early as 2016. Projects in the infrastructure sectors were sprouting in the past years and are set to continue. Even though issues surrounding immigration and the high income and withholding taxes continue to be challenging, there are eventual rewards for the persevering.
In this mailshot, our Philippines director, Karen, gives her take on some of the issues.
Happy prospecting!
-Harry
The Innovare Team
Resilience. That is the best term to describe the Filipino spirit and the Philippines as a whole. Though the country is still suffering from the after effects of graft and corruption from previous administrations, the country has seen an economic boom in the past years and was touted as the Rising Tiger of Asia.
Because of its archipelagic nature, the Philippines is a culturally diverse country. Whilst the country is divided geographically, the Filipinos are collectively known to be resourceful, hospitable and friendly. The Philippines that we see right now is slowly picking up its pace although far from the glorious days in the 60s before it fell down to dictatorship and rampant corruption up to the 70s and 80s.
The 90s saw a revolution in the economy with the advent of the Overseas Filipino Workers injecting dollar reserves in the form of remittances from overseas. Thereafter, the new millennium saw a sprout in the BPO industry and the eventual globalization of Small Medium Enterprises because of internet technology.
Business Opportunities in the Philippines
According to the World Bank, from 2010 to 2018, the Philippine economy has risen steadily by an average of 6.34 percent. Economic reforms under the administration of former President Benigno Aquino III has since started to attract local and foreign private investments. Investor’s confidence has been growing ever since the introduction of the Public-Private Partnership (PPP) model, which encouraged greater private sector participation in government projects on infrastructure and social service and spread to almost every industry.
From the perspective of the contracting world, the initial years were mainly focused on telecommunication companies. Thereafter, we opened our services to the oil and gas sector. And due to slowdown in the energy sector a few years ago, we have witnessed a surge in the Information Technology and Business Process Outsourcing industries for expatriates and locals alike.
The Philippines is home to at least 800 BPO companies and is the fastest growing industry and accounts to at least $30 billion income and 1 million jobs. The IT industry has proven to be competitive as well as compared to its Asian counterparts due to Philippines’ culture proximity to its predominantly Western clients and cheaper labour cost. There is also the emergence of the real estate property boom not only in Metro Manila but in big provinces like Cebu and Davao hence promoting a surge in the industrial and logistics sectors.
Before one decides to venture into this country, it is important to understand the rather complicated system of labor-hiring rules with good understanding on compliance to immigration, tax and social security management. The Presidential Decree 442 under the Labor Code of 1974 introduced the concept of probationary employment to the Philippines and Under Article 281 it states that "employers are allowed to hire people under a probationary status for up to six months. These 6 months are used as a trial period for the employee. If the employee is allowed to work after the 6 month of the probationary period, he/she will be considered a regular employee."
However, in 2017, the Department of Labor and Employment (DOLE) has issued Department Order No. 174, providing a new set of guidelines to govern contracting and subcontracting. DO 174 reiterates the absolute prohibition of “labor-only” contracting and the “Endo” (end of contract) which refers to short-term employment practice in the Philippines. In view of that, our Philippines company, Five Lakes Consulting Services, Inc has been issued the DO 174 certification in compliance with the requirements as provided under the Labor Code of DOLE.
Looking Up
Despite it all, the Philippines has remained resilient and has evolved to be one of our most inquired solutions in the region. With its ample supply of local talents where many MNCs have its presence, it is probably the best time to look for opportunities within the contracting world.
The “Filipino spirit” has always transcended through obstacles and setbacks the country has experienced. As what former President Diosdado Macapagal said, “The strength of the nation lies in the well-being of the common man.”
Business sentiments have remained positive due to the increasing foreign investments backed by the establishment of the ASEAN Economic Community and various domestic sectors valuable to the economy. With the right governance, the Philippines might roar itself not only in Asia but to the rest of the world.
Stay safe and with best regards,
Karen Ferrer
To know more about how we can support you in the Philippines, details of our solution are found here.
We offer contractor management services such as:
Immigration sponsorship and management
Payroll administration
Tax and social security management
Local billing and compliance
COVID-19 has migrated all over from China to Europe and the USA. The stockmarket has crashed 30+% and all asset classes, including gold, have declined (as at 16 Mar 2020). Many European cities are shutting down as fear overshoot due to the uncertainty going forward.
In the last mailshot, we listed some key impact on the contracting business. How are we to respond?
We take lessons from our 2003 SARs (Severe Acute Respiratory Syndrome-related coronavirus) survival kit…
1. Staff Safety
First and foremost, staff needs to be safe and protected. Apart from the usual sanitisation and hygiene factors, Innovare has activated our contingency planning procedure. At this point, we have divided our operations into two groups of equal functional capabilities, whereby one group will work from home and the other from the office. This avoids cross infection in the unlikely event should one group be affected. Our IT systems and other infrastructure are robust and capable of working remotely, so we can activate our “work from home” policy whenever deemed necessary or to adhere to local government regulations.
2. Think Long Term
Whilst we still as yet to know how long this is going to last, most viruses take 6-12 months to tip over. Countries are already putting together their defences by shutting borders and conducting tests and enforcing quarantine measures.
Hence, our business decisions should also be tilted towards the longer term sustainability. For example, one would not want, if possible, to begin retrenching manpower significantly… so that when the pickup happens, the company is ready.
3. Proactively Close all Potential Deals
For the moment, it would not be a pure margin play but to secure contracting deals. This is because such deals typically last 3-12 months. On the other hand, the virus might peak in 3 months (even not, it should be stabilising in some countries by then). This would potentially cushion the business against the quiet moments as the impact of the virus peaks.
4. Cash is King… Extend Credit with Caution
It goes without saying that cash should be conserved via re-examining of overheads, salaries, bonuss etc...
At the same time, funding or credit type of businesses should be accepted with caution. Innovare has taken the approach of remaining operationally debt free so that in times like these, we maintain the stability… being not dependent on financial institutions which might call in loans.
5. Not All Countries are Alike
Some countries have seemingly brought it under control. For example, Singapore has reported that the outbreak is by and large contained. At this point, it has confirmed 631 cases with 160 discharged and 2 deaths (@ 25 March 2020).
This is due to the quick and decisive response of the Ministry of Health. What it means is that we should identify these destinations as amongst the first to return to normalcy and channel the business development and capability efforts in these countries. These are countries where projects will recommence first and contractors will be willing to go.
6. Build Country Capabilities
Once potential recovery spots are identified, we can focus on the building of capabilities. For example, through a series of restructuring, Innovare is able to enhance our quota for certain countries like Singapore, Malaysia, Indonesia and the Philippines, where we deem to be hotspots in 2020.
7. Quality Speaks
There is usually a flight to quality offerings during these times. We continue to build a track record of reliability since year 2000, through SARs and the great financial crisis (2008) amongst challenges to emerge stronger. This begets customer confidence during difficult times.
In closing, we hope you, your staff and business stay safe and tight in these times.
Should you need assistance in Asia Pacific, we would be pleased to hear from you.
Please contact:
info@innovare-group.com
or our Sales Manager, Magielyn:
Magielyn.Pastor@innovare-group.com
Tel : (+65) 6817 0167
First, it was SARS (Severe Acute Respiratory Syndrome) in 2003 and now COVID-19!
As the world is slowly being affected by COVID-19, starting from its epicentre in Wuhan, China, this series of short articles first examine the impact it has on the contracting world. Then, we will make practical suggestions on how our industry (recruiters, contractors, management companies) can weather this storm.
The decision to lock down the epicentre cities (Wuhan, Chongqing, followed by Beijing etc.) was necessary to contain the spread. Consequentially, it hindered operations within these major cities… especially Wuhan, being the manufacturing and technological hub.
This has a cascading impact in a globally interconnected world, spreading to South Korea, Japan, Italy and eventually the US. Some of the impacts are:
Supply Chain Disruptions: Manufacturing of products sold globally is affected. For example, Apple and Microsoft cited supply chain disruptions.
Retail Disruptions: Most stores in China are closed, depriving the much needed revenue in an already difficult economy.
Other sectors affected include tourism, retail, food & beverage amongst others.
1. Project Impact
Projects will be held back throughout the region. Telco projects like Huawei, already facing headwinds from the trade war, is further afflicted. This also applies to energy projects as economies contract. Hence, we are seeing a marked decrease in “project type” kind of bids since January.
2. Protectionist Impact
Even prior to the virus, countries are already beginning to guard the employability of their own citizens. These include Australia, Singapore, Indonesia and Japan. The impetus is further strengthened now as the virus infected economies are resulting in business contractions and further job losses.
In Singapore, for example, the penalty for favouring expatriates for job positions has moved from mere rejection of Employment Pass (EP) applications to companies being placed on Watchlists (with unilateral suspension of all approvals) to expulsion of existing EP holders to potential jail for directors.
3. Contractor Mobility Impact
For a start, many countries have banned the entry of China citizens since the virus outbreak. If they should be allowed in, there is usually a 14-day quarantine period. Given the extent of China projects favouring Chinese placements, we see this as a strain on available resources to match project requirements.
4. Timing Impact
Most of these effects will not be felt immediately due to the existing contractors already onboarded. However, the notable impact will be felt in approximate two to three months later as decommissioned contractors are not to be replaced.
In the next mailshot, we will share some of the defensive measures, drawing from our survival from the SARS saga
Should you need assistance in Asia Pacific, we would be pleased to hear from you.
Please contact:
info@innovare-group.com
or our Sales Manager, Magielyn:
Magielyn.Pastor@innovare-group.com
Tel : (+65) 6817 0167
Should you need assistance in Asia Pacific, we would be pleased to hear from you.
Please contact:
Belinda.Yu@innovare-group.com
Magielyn.Pastor@innovare-group.com
Tel : (+65) 6817 0167
Should you need assistance in Asia Pacific, we would be pleased to hear from you.
Please contact:
Belinda.Yu@innovare-group.com
Magielyn.Pastor@innovare-group.com
Tel : (+65) 6817 0167
As the world tilts towards potential trade wars, a different type of protectionist tendency has been brewing over the last decade.
Governments have been shifting towards the "citizens first " protocol with respect to talent. It has become more and more difficult to bring qualified talent to render services in many countries.
This series of articles highlight some of these jurisdictions and the measures taken. We will kick off with Singapore and the Philippines.
-Harry
The Innovare Team
"...To prevent this (unfair employers discriminating against our locals) from happening, we must be pro-business, but only to those who are pro-worker."
Minister for manpower, Lim Swee Say, Mar 2018The journey to switch towards the local workforce began in earnest about eight years ago. Starting with the lower salaried ones, in recent years, the gear has shifted towards the higher paid ones.
Some of the measures include:
Raising the Employment Pass (EP) salary minimum from S$2,500 to S$3,600 for new graduates and more experienced candidates need higher salaries (at least S$6,000). This has the effect of reducing the number of eligible foreigners applying under this more restrictive scheme.
Introducing the Jobs Bank to ensure that locals are considered first before a high skilled job goes to a foreigner.
From 1 July 2018, the Ministry of Manpower (MOM) will broaden the advertising requirement to firms with 10 or more employees and job positions that pay a fixed monthly salary of less than S$15,000.
“These changes will ensure that the Fair Consideration Framework (FCF) job advertising requirement keeps pace with income changes, and that the local workforce continues to be fairly considered for job opportunities,” MOM said in a release.
Currently, firms with 25 or fewer employees and jobs that pay S$12,000 and above a month are exempted from the FCF advertising requirement.
Blacklisting of employers who are perceived to have practices which discriminate against locals. Thus far 500 companies have been placed on the Ministry of Manpower’s watchlist. For those companies, their ability to sponsor EPs are severely curtailed as they are subjected to greater scrutiny until they demonstrate changes to their policies and practices.
Tightening the Employment Act to protect contract workers:
As part of changes to the Employment Act in 2019, the ministry will be removing the criterion that excludes employees drawing a monthly salary of more than S$4,500 from provisions such as public holiday and sick leave entitlements, timely payment of salary and allowable deductions.
This move would extend legal protection to all workers, except for public servants, domestic workers, and seafarers who are covered separately, such as by other legal provisions, due to their nature of work.
MOM will also improve how employment disputes are settled. Workers will now have to go to Employment Claims Tribunals (ECT) regarding dismissal claims and salary issues to resolve their cases.
In fact, unlike the past where a vast majority of EP applications were approved less than two weeks with an expressed online system put it place to expedite, the past year showed that there were more questions raised during the approval process.
Consequently, since 2016, 1900 EPs were rejected, indicating a reversal of the trend.
Whilst businesses have to take active measures to meet their talent needs, the authorities have assured that those with special skills not readily found locally will still be approved.
"I will not run a country that way. If those who have money won't accept this, then you campaign against me. Make sure tatalunin ninyo ako (Make sure you will beat me). I will not go for it. It is not a policy. It is not good," Duterte declared in Nov 2015, referring to the problem of contractualization.
Contractualization or endo (end of contract) is the illegal practice of hiring fixed-term employees and continuously renewing their contracts to avoid giving benefits a regular worker is entitled to. Endo workers are bound by a five-month timeframe so that companies will not make them regular employees, complete with various benefits after six months of work, for example, 13th month pay. There are an estimated 1.3 million contractual employees in the country.
As early as November 2015, Duterte, then mayor of Davao City, President of the Philippines , said contractualization is not for a country like the Philippines. Ending this labor practice is among the key campaign promises of President Duterte. Since then, various measures and law have been put in place to tighten the control over endo and limit the abuse of short term workers. Notably, in March 2017, DOLE (Department of Labor and Employment) issued Department Order (DO) No. 174, setting stricter guidelines for contractualization with the aim of converting these contract workers into permanent staff with full benefits.
Last year, DOLE was able to regularize at least 125,000 of the 200,000 contractual workers it planned to put in permanent positions.
The sweeping nature of such initiatives mean that even companies who require contract staff for genuine seasonal or short term operational needs, without any intent of worker abuse, are affected. It thus makes some business sectors uncompetitive and unable to respond to short term market changes. Unfortunately, one solution does not fit all.
Companies should regularly review its contracting arrangements to ensure that they are legalised contractualization. This includes ensuring that certain mandatory provisions are included in the contractor service agreements and employment practices to ensure compliance. This is to avoid wide sweeping sanctions by the DOLE including disruptions to their operations, damage to reputation and even closures.
Various measures put in place have led to the restricted flow of talent where it is needed most. Often, the interests of the business community are not congruent with the policies in this respect. Hence, there is always an attempt to fine tune, make exceptions and review the impact very regularly. It is a space that needs constant watch, especially in the independent contractor sector.
Our Compliance team continually conducts research, supported by local subject experts to ensure we are abreast with ever changing laws and practices to ensure that our Contractors operate within local requirements.
Should you need assistance in Asia Pacific, we would be pleased to hear from you.
Please contact:
Belinda.Yu@innovare-group.com
Magielyn.Pastor@innovare-group.com
Tel : (+65) 6817 0167
Contracting as a form of work engagement has its many appeals from the contractor’s perspective – flexibility, project based. Many clients use it to manage their headcount and employer related liabilities whilst getting the correct skills to fulfil an interim need.
However, to do it right and seamlessly, there are many areas to address before the processes can run smoothly without nasty surprises. We have touched in past articles (View Here), some of the areas to watch out for: immigration, payroll related costs, taxes, labour law and the protectionist trends.
Here, we would like to highlight a very important aspect of risk management… insurances.
Rather than present an academic description of required insurances (which can be readily found online), we hope to highlight the stumbling blocks in our journey of finding the adequate and relevant cover for the independent contractors and related clients/recruitment agencies.
-Harry
The Innovare Team
Personal Accident (PA)
Most jurisdictions are required by law to provide Workers Compensation/Employer’s Liability cover protecting the employee against work related injuries.
However, contractors might not be adequately covered by Workers Compensation, or the benefits might be significantly lower than those in their home country. Contractors can also move between countries regularly, which complicates this. Sometimes personal accident insurance is combined with travel insurance but this is a dangerous practice as their scope can be quite different. Hence, a separate PA cover is necessary on an ongoing basis.
Importantly, one should be careful where the contractor works in a risky location such as offshore, underground or dangerous places as most general PA policies limit or exclude these.
Health
This covers hospitalisation as well as in patient charges. Although it is readily available, many underwriters offer this on an annual basis. This is not too practical for the independent contractor as his assignment comes in various durations. A monthly rolling coverage and charge mirrors the assignment better but tend to be more expensive when annualised. Make certain any medical policy includes a full medical evacuation extension. In a recent case, medical evacuation for a single expatriate chalked up a bill of US $183,000!
Travel Insurance
Many travel insurance policies omit war and terrorism. This is really dangerous in the possible event of a badly injured expatriate who can’t get urgent medical treatment because this coverage is omitted.Political uprisings like the ones in the Middle East (“Arab Spring”) required rapid action to bring staff to safety. More recently, political evacuation has emerged as an important requirement which should be included in travel insurance policies.
And while travel policies usually have a small extension for kidnap, this tends to be wholly inadequate. The company should have a comprehensive Kidnap Ransom policy with a crisis management plan developed by senior management to determine how to cope if this happened to the contractor.
Employer’s Liability
Most jurisdictions require employers to carry a basic cover to cover injuries whilst on the job. This is mandatory but often inadequate. Hence, the add on to this is the next category on employer’s cover under common law.
Employer’s Liability (Common Law)
This takes the protection a step further for claims beyond what a basic cover can provide. It is an affordable but often omitted protection. This should be arranged on a worldwide basis because litigation can be bought in jurisdictions beyond the place of work; it might be the contractor’s home country or it might be the clients head office location.
Public Liability
This provides protection against third party property and personal injury legal claims as a result of business activities. Litigation can involve both the client and contractor, and often, this might even have been agreed as an additional contractual liability in the indemnity clauses insisted upon by the ultimate end client.
Unfortunately, in addition to the variety of insurances above, there are also exclusions that tend to make some covers practically of limited application. Some examples are:
Limitations to Jurisdiction
Very often, insurance providers tend to be localised and cover some countries better than others. Asia Pacific projects frequently span multiple countries, hence, risks exist if there isn’t in place a worldwide jurisdiction under the liability policies.
Nature of work e.g. onshore vs offshore work; office vs manual work
Most insurers readily cover office and onshore works. However, where manual or offshore works are involved, it becomes difficult to place. This affects sectors like oil & gas, mining, power or even works in the telecommunications sector. The introduction of a small segment of work that is manual in nature, is treated as an exclusion. Hence, the beneficiary might unknowingly be exposed.
Often, a detailed questionnaire is required and this will be presented to the underwriters, who will quote specifically based on the job profile. In the contracting industry, the time taken for this is too lengthy to sustain deal flows.
The exorbitant costs of offshore, manual type of assignments presents a significant hindrance to placements of contractors in these segments. More recently some regional insurers have started imposing a ‘headcount’ limit or maximum number of people off shore at any one time as well as a maximum number of people on any one offshore installation. This creates unnecessary exposure.
Five years back, when Innovare initiated our foray into the mining, O&G industries, we were successful in getting effective covers for office based positions.
Unfortunately, we were unable to economically fulfil the many demands for manual type assignments. We were posed with numerous questions from the underwriters and by the time the quotes came in with the extra high loading (up to 15% of salaries), it was impossible to close the deal.
In mid 2016, Innovare teamed up with specialists insurance brokers AIS. With a track record of multinational clients, particularly in the difficult manual type coverages, a comprehensive regional package was put together that would benefit our contractors and agencies/clients alike.
As a result, we managed to slash costs of insurance as well as obtained covers for challenging manual risks at commercially acceptable prices almost instantaneously. We are pleased to be able to pass on these savings to enable more cost effective and adequate coverage of contactors operating in the region and beyond.
Should you need assistance in Asia Pacific, we would be pleased to hear from you.
Please contact:
Belinda.Yu@innovare-group.com
Magielyn.Pastor@innovare-group.com
Tel : (+65) 6817 0167
Welcome to 2017!
Last year was a year of disruptive changes… from Brexit to the US elections to the rise of Uber... and so on. All these will have profound effects on the environment in Asia Pacific.
The area of risk management is a recurring theme with many clients and recruiters I meet. As uncertainty rises, governments adjust their risk thresholds, affecting the business environment. Areas like immigration and tax are often targeted as protectionist tendencies rise.
Hence, we thought it appropriate to update and reissue and earlier article on risk management as well as extend it subsequently to touch on the all important tool of insurance.
Hope this is timely and useful. Yours sincerely...
-Harry
The Innovare Team
Asia Centric Model
Those familiar with the “limited company” type model we see in Europe might find it quite a lot more complicated in Asia Pacific.
Here, we dwell on the more common form of contracting in Asia Pacific sometimes referred to as the Employee of Record (EOR) model. Some of the characteristics are elaborated below:
Immigration
Immigration laws in most countries in Asia Pacific often hold a local entity responsible for the entry, wellbeing, good behavior and eventual exit of the individual. This also ensures that local immigration and employment laws are adhered to. This host company will be the technical employer of the individual.
The Sponsor
The starting point is usually a host company or sponsor. At the most basic form, the sponsor has to be a registered company in the country where the services are rendered. In reality, it’s not as simple. Some frequently encountered hindrances are:
A. General Protectionist trend.
In a slowing global economy, it becomes more and more common for governments to give job priorities to locals, where relevant skills exist. This manifests itself in the form of local to foreign quota (eg Indonesia and Thailand), more stringent qualifications for expatriates (eg Singapore), compulsory local training budgets (Australia) and use of local compulsory jobsites (eg. Singapore), amongst others. Companies bringing in expatriates are required to meet one or more of these criteria, some of which, are not necessarily officially expressed but rather, enforced in practice.
It is one thing to know the rules and adhere to them, which is the most basic requirement. Often, it takes experience and frequent interactions with the authorities to understand the internal criteria, as this will affect the outcome of applications.
B. Track record of the sponsor plays a part in the ease of a work pass approval.
In Singapore, we sometimes find new companies having difficulty justifying the sponsorship even for a highly paid expatriate. Immigration tend to trust a sponsor who has a good track record of approvals and the absence of labour issues. In addition, the Ministry of Manpower wishes to see companies favoring the local workforce. However, this definition is left vague and some clients have received warning letters for not adhering to the latter.
C. Licencing is sometimes required for effective outsourcing.
For example, companies in Japan wishing to hire and outsource individuals to end clients need to have the Haken (“dispatch”) licence.
Licence holders are subject to regular audits to ensure that the outsourcing terms are fair to the dispatched workers. Unfortunately, such licences are getting harder to obtain and maintain.
Payroll & Tax Administration
The employer is then expected to administer the payroll of the individual and in some jurisdictions, deduct the tax and social security, where applicable.
Salary and tax accountability are required annually or upon completion of the term whichever is sooner. In some jurisdictions like Japan, Indonesia and Australia, a monthly tax deduction is required. This is similar to the practices in the UK. Others will do the final tax settlement annually (eg Singapore, Hong Kong). The challenge for the contracting industry for the latter model is how to ensure the sponsor holds enough taxes at the end of the tax year to settle with Inland Revenue. By then, the contractor has demobilized and left for a different project, leaving the sponsor holding the baby if there is a shortfall in tax retained.
Immigration and Taxes
In more advanced countries eg Singapore, the Immigration and Inland Revenue departments are well linked so that applications made for entry purposes need to tie in with the contracts and the amounts eventually paid as taxes.
This sometimes poses a challenge for contractors as they are typically time based and pay-outs vary from month to month. This goes against the grain of a fixed pay understanding which is more familiar to immigration officers. Hence, contracts need to be properly drafted for consistency as well as to meet prerequisites of the immigration and tax departments.
Social Security
The typical contracting model often involves an "all-in rate" where the contractor is given a total sum that encompasses all social security, taxes and benefits.The applicability of an all-in rate becomes tricky when the law under the EOR model requires the employer to be responsible for the employer portion. It is a cost often overlooked by the contracting companies and has to be addressed in the cost structures, rates and contracts.
Benefits & Labour Law
In the same way, the all-in rate approach makes the handling of benefits a thin line to tread. It is often overlooked that the provision of benefits is required by law in some jurisdictions and agencies/clients are often caught by surprise when there is a claim. It is thus essential to be aware of these potential costs as well as to address then in formulating the transaction.
The so-called “arm’s length” relationship assumed in most Western based model cease to provide adequate protection for the sponsor. Most of the jurisdictions will favour the contractor when it comes to the labour tribunal. This is in spite of the all-encompassing pay rate paid to the contractor as common law seems to triumph. Hence, there has to be mechanisms in place to protect the sponsors.
Certain jurisdictions like Singapore tend to lean towards the contract and might uphold the "all-inclusive rate" relationship if properly stipulated in the contract. The emphasis here is that it needs to be properly stipulated... hence, a balance of clarity and the absence of contradictions within the contract need to exist. It takes time and practice to familiarise with these unique features in Asia Pacific. Nevertheless, once the “tuition fees” are paid, the benefits to be reaped are plentiful. Definitely worth a look for the enterprising!
Should you need assistance in Asia Pacific, we would be pleased to hear from you.
Please contact:
Belinda.Yu@innovare-group.com
Magielyn.Pastor@innovare-group.com
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