Oil & Gas people survey results The Netherlands

Transcription

1 Oil & Gas people survey results The Netherlands September 2016

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3 Table of contents Results at a glance 5 1. Introduction 6 2 About this survey 7 3 HR strategy Strategic priorities HR initiatives Talent management challenges 9 4 Contingent workforce Contingent workforce strategy Hiring contingent workers 11 5 HR operations Shared services Payroll 13 6 Dutch payroll tax Work related costs scheme Arrangement with the Dutch tax authorities 15 7 International mobility Global employment organisations Coordinating (expat) tax compliance matters Tax reimbursement policies 17 8 Contact 18 9 About our services EY People Advisory Services HVG Legal Services 19 Oil & Gas people survey The Netherlands 3

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5 Results at a glance For this survey we asked a group of professionals at organisations, present within the Netherlands, for their insights in the field of HR, payroll and international mobility within the Oil & Gas industry. Strategic priorities in the next 18 months 100% Cost optimisation/ reduction 67% Pursue growth opportunities in other markets/ geographies 47% Increase alignment of HR strategy with business 40% Implement/ optimise HR technology 33% Execute M&As/ divestitures Oil & Gas conditions in the next 3 years of respondents expect no improvements, possibly even worse conditions Talent management 40% experience difficulties to retain their high performers and recruit new talent 40% face competency and skill gaps in critical positions Contingent workforce 53% of respondents are decreasing their contingent workforce Global Employment Organisation 67% of organisations with at least 500 FTE use a GEO Dutch work related costs scheme (WKR) 33% of participating organisations exceeded WKR budget in 2015 Key challenges tax compliance 33% of respondents indicated cost effectiveness to be the biggest challenge when coordinating (expat) tax compliance matters HR initiatives upcoming year Tax reimbursement policies Re-evaluate vendors/providers and delivery services Workforce planning Compensation freeze Mandatory reduction in workforce 60% 53% 47% 40% 20% Do you have plans to change your current tax reimbursement policies? 80% Yes No 5 Changes to HR technology infrastructure 33% Oil & Gas people survey The Netherlands 5

6 1. Introduction With the oil price at an extreme low, and with diminished expectations of a recovery in the near future, the Oil & Gas industry endures economic heavy weather. Consequently, companies are adapting their business strategies as reducing costs and gaining efficiencies are high on the agenda. HR departments take various measures such as reducing the labour force, reviewing vendors, changing the HR technology infrastructure and seeking further (tax) efficiencies. Also, with respect to the international mobile employees assignment policies are adjusted and more efficient tax reimbursement approaches are introduced. Furthermore, compliancy remains to be at the corporate business agenda. EY recognises the necessity to understand the trends concerning these people strategy decisions. With this survey we aimed to benchmark how Oil & Gas companies, that are present in the Netherlands, deal with the current economic climate. Therefore, as the conditions of the Oil & Gas industry have been declining since 2014, we asked our respondents what their perception is regarding the expected economic climate in the next three years. Survey results demonstrated that only 40% of respondents expect recovery of the market within three years. However, 53% of the respondents indicated that they are expecting no improvements within the industry, some even anticipate worse conditions for the next three years. Therefore it is pivotal for companies to adjust their HR strategy and processes to survive the medium to long term. How does the economic condition of the Oil & Gas industry develop during the upcoming 3 years? Become better Remain the same Worsen Do not know Figure 1: Participants perception of the economic conditions for the next 3 years In this report we discuss our survey findings on how HR is currently dealing with strategic priorities, talent management, the contingent workforce, HR operations (such as shared services and payroll), tax and mobility. 6 Oil & Gas people survey The Netherlands

7 2. About this survey For this survey we asked a group of professionals at organisations within the Oil & Gas industry whom are present within the Netherlands for their insights in the field of HR, payroll and international mobility. We provided these professionals with an invitation to an electronic survey. The answers were collected and processed mid Respondents of this survey represent a wide range of Oil & Gas companies, including global multinationals as well as companies who are predominantly operating in the Netherlands. These respondents are responsible for their organisation s HR, payroll policy and/or mobility strategy, policy and processes. Figure 2 displays how the participating respondents and their organisations are distributed in terms of Full Time Equivalent (FTE). As shown in figure 2 respondents are quite evenly distributed across the different organisational sizes. The participating companies represent four groups within the Oil & Gas industry: Upstream, midstream, downstream and services. Organisations were able to indicate more than one sector within the Oil & Gas industry and the analysis of the gathered data revealed that most participants are active within the downstream or the services sectors of the industry. Respondents were also asked to indicate to what extent their organisation s headcount is employed in the Netherlands. As can be seen in the figure below, the majority of respondents indicated that their headcount is mainly employed outside the Netherlands. Most respondents have their corporate headquarters in the Netherlands, some are based abroad and have regional or local presence in the Netherlands. Figure 2: Participants in terms of organisation size Figure 4: Organisation s headcount employed within the Netherlands Figure 3: Participants per Oil & Gas sector Oil & Gas people survey The Netherlands 7

8 3. HR strategy 3.1 Strategic priorities Companies operating in the Oil & Gas industry are facing difficult strategic decisions as the industry is experiencing its deepest downturn since the 1980 s. Companies should think of how best to position themselves for the future and what their operating practices should look like. Companies are currently focused on reducing their spending pattern, as oil prices are low and will likely stay low for the remainder of 2016 and deep into In our survey we asked which (HR) initiatives are planned to take place within the next 18 months. Pursuing growth opportunities in other markets and geographies is an initiative most of the respondents have planned for, while a third of respondents will go through mergers and acquisitions and/or divestures. As in other industries, aligning HR with the business should be a top priority on the corporate agenda of Oil & Gas companies. In our study we found that especially larger multinational organisations are pursuing this priority. All of respondents indicated to seek cost optimisations and cost reductions within the coming 18 months. Almost 90% of the companies ranked these as their number 1 strategic priority. This clearly does not come as a surprise. We often see that organisations address HR technology in order to ensure cost optimisation 2. Correspondingly, in our HR Technology Survey respondents indicated that 92% plans to change their current HR landscape in % Cost optimisation/ reduction 67% Pursue growth opportunities in other markets/ geographies 47% Increase alignment of HR strategy with business 40% Implement/ optimise HR technology 33% Execute M&As/ divestitures Figure 5: Respondents top 5 strategic priorities 1 accessed on August 1st, EY Pulse Survey HR technology, April Oil & Gas people survey The Netherlands

9 3.2 HR initiatives Respondents were also asked to indicate which HR initiatives were undertaken during the past 12 months and will be taken throughout the upcoming 12 months in order to meet the aforementioned strategic priorities. In line with the cost reduction priority, top initiatives indicated by 67% of respondents which were already executed during the past 12 months were compensation freeze and the mandatory reduction in workforce. As the Oil & Gas industry is still struggling with lower margins, the industry still continues to freeze compensation and reduce its workforce (globally 250,000 jobs have been cut 3 ). Survey results however showed that for the upcoming 12 months also quality directed measures are taken. Companies need to be careful undertaking the immediate cost reducing measures as they can impair organisations coping ability regarding their volatile market conditions. Anticipating the upcoming 12 months, respondents predicted that they will re-evaluate vendors and/or providers and the delivery of services. Also, they are likely to devote more time and resources regarding workforce planning and changing their HR technology infrastructure. Especially companies with a maximum of 500 FTE (89%) indicated that they are planning to re-evaluate vendors and/or providers and the delivery of services. Of these respondents 44% indicated to plan changing their HR technology infrastructure. In this year s HR Technology survey 4, we already concluded that global organisations are struggling to keep people and HR costs at a competitive level and maintain legal and regulatory compliance. By means of addressing technology, companies can cut costs in the short term more effortlessly, but also in the long term by for example improving their operating model, service delivery and by better addressing talent management. 3.3 Talent management challenges Past 12 months Compensation freeze Mandatory reduction in workforce Re-evaluate vendors/providers and delivery services Changes to incentive plan targets Workforce planning 67% 67% 60% 47% 40% As the Oil & Gas industry is struggling to keep costs low, organisations need to reassess their talent management strategy in order to take both the present downturn and the rising millennial generation into account. Job cuts in the Oil & Gas industry now make it crucial for companies to retain their high performers and recruit new talent in order to preserve the talent pipeline as those that are still employed often worry about the organisation s long-term stability and as a result are uncertain about their future with their organisation. Correspondingly, on that note, respondents of the survey indicated that they experience difficulties to retain their high performers and recruit new talent (40%), whether it concerns experienced or inexperienced hires. Additionally, survey results showed that organisations face competency and skills gaps in critical positions (40%). Upcoming 12 months Re-evaluate vendors/providers and delivery services Workforce planning Compensation freeze Mandatory reduction in workforce Figure 6: HR initiatives Changes to HR technology infrastructure 67% 67% 60% 47% 40% Adjacent, 40% of all respondents indicated that they are faced with ineffective career path planning and talent mobility (e.g. cross-functional and/or upward mobility). As ineffective career path planning occurs, little talent mobility takes place. In turn, 33% of the participants indicated their organisation struggles with ineffective succession planning. The final challenge mentioned by respondents is that of the ineffective utilisation of a contingent workforce. 33% of total respondents listed it as one of their top three talent management challenges. The next chapter elaborates upon this challenge. 3 EY Dutch oilfield services analysis 2015, EY Pulse Survey HR technology, April 2016 Oil & Gas people survey The Netherlands 9

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11 4. Contingent workforce 4.1 Contingent workforce strategy In order to overcome the talent management challenges the contingent workforce becomes increasingly important to the Oil & Gas industry, as it provides opportunities to scale companies workforce. A more efficient and perhaps broader use of the contingent workforce can help these organisations achieve cost-cutting objectives while allowing for maximum flexibility as needs change. Today s global workforce comprises between 30% to 40% contingent workers, as such the contingent workforce can be a pivotal part of an effective labour pool and talent strategy. Economists even argue that by % of the global workforce will be composed of an external or contingent workforce 5. Survey results show that 27% of respondents acknowledged an increase of its contingent workforce. Increasing the use of a contingent workforce could be explained by focusing on cost reduction as organisations struggle with rising labour costs and the need for a workforce that can quickly adapt to market conditions. Figure 7: Recent strategy in using a contingent workforce 4.2 Hiring contingent workers Since the contingent workforce is becoming more imperative in ensuring an effective labour pool and talent strategy, organisations need to have a process in place that mitigates all related risks regarding their contingent workforce in order to be compliant. Yet, 60% of respondents indicated not having such a process in place. Due to the rise of the contingent worker, legislation is changing. In 2015 the Work and Security Act was implemented and currently the Declaration of Independent Contractor Status (in Dutch: Verklaring Arbeidsrelatie (VAR)) is abolished, generating many questions from both employers and (contingent) workers. For example, due to the Work and Security Act it is nowadays required that organisations apply a one month notice when deciding not to continue working with a certain contingent worker anymore. Although the Work and Security Act makes it harder to terminate an employment agreement, consequently favouring the hiring of contingent workers, it is important that companies ensure that they remain compliant. Due to the abolishment of the VAR per May 1st, 2016 contractors cannot use a VAR anymore to certify that no Dutch wage tax and social security contributions are to be withheld by the principal. Instead, one of the approved model agreements as published by the Dutch tax authorities on their website can be used. If a model agreement is used, then the principal does not have to withhold Dutch wage tax and social security contributions under the condition that the practice does not deviate from the contents of this agreement. Hence, the performance of the activities of the contracting parties should be completely in accordance with the approved model agreement. These organisations need to be wary of the complex HR labour law (and even tax) issues and may be exposed to legal, financial, criminal and reputational risk. Additionally, it is expected that making use of a contingent workforce due to a focus on cost cutting may lead to higher costs in the long run as companies risk a lack of critical talent. Therefore it is key to have a sound understanding of the diverse legal and talent related issues concerning the contingent workforce. Have you implemented a process that mitigates all related risks? Is it standard policy to obtain a VAR statement when hiring contractors? The majority (53%) of the survey participants however stated that they are decreasing their contingent workforce. This may be due to a decline in projects and the necessity of hiring third parties. Even though the market is experiencing volatile conditions, Oil & Gas organisations need to be cautious regarding their talent pipeline. These companies need to weigh their options regarding the build-up of their workforce. By identifying and hiring the right people and at the right time at the right cost, all the while focusing on retention will provide a competitive advantage that will pay off. Leading companies will view their contingent workforce as part of the organisation s overall talent pool and will manage those relationships accordingly. Are you (or will you soon) change your processes due to the abolishment of the VAR system? Yes No Do you feel your company is in control/compliant? 5 EY Labor & Employment Law Newsletter, Spring 2016 Figure 8: Hiring contingent workers Oil & Gas people survey The Netherlands 11

12 5. HR operations 5.1 Shared services Regarding service delivery and the application of shared services within Oil & Gas organisations, 40% of respondents reported to have HR shared services in place or plan to implement shared services. The other 60% of respondents have not implemented any shared services or are not planning to implement shared services in any form. However, in order to survive and thrive, organisations need to focus on improving productivity, consistent operations and controlling costs. As such it is necessary for organisations to develop a flexible HR structure and operating model which allow global implementation if required and at the same time being agile enough to address local business needs. For example, about 75% of the Fortune 500 companies currently use some form of shared services model. Figure 9: Application of shared services 12 Oil & Gas people survey The Netherlands

13 5.2 Payroll Results of this survey demonstrated that 87% of surveyed companies make use of either a fully outsourced or hybrid payroll model. Only 13% of companies surveyed use an in-house model for its payroll delivery. It can be stated that larger companies are more likely to use an in-house delivery model for its payroll activities. Depending on the processes retained in-house in the hybrid models, the smaller companies may realise cost savings by outsourcing certain activities and allowing HR professionals to focus on strategically value adding activities. Legislative compliance 40% of all participants ranked legislative compliance as their primary challenge for global payroll. Organisational inconsistency in payroll processes 27% of all participants ranked organizational inconsistency in payroll processes as their top challenge. < 100 FTE In-house 0% Hybrid 0% Fully Outsourced 100% Management reporting Management reporting is ranked by participants as their top challenge (27%). > 100 FTE In-house 0% Hybrid 60% Fully Outsourced 40% Administration cost 27% of respondents indicated administration cost as their top challenge. Organisational inconsistency in remuneration & benefits 20% of respondents ranked it as their top challenge. > 500 FTE In-house 0% Hybrid 100% Fully Outsourced 0% Figure 11: Global payroll issues > 1,000 FTE Figure 10: Current payroll model In-house 50% Hybrid 50% Fully Outsourced 0% We also asked the participants to indicate what global payroll issues that they are facing. Since many of the surveyed organisations have global mobile employees, it is not surprising that companies current challenges are related to legislative compliance. The survey demonstrated that 40% ranked legislative compliance as the main payroll concern, followed by organisational consistency in payroll processes, management reporting and administrative costs. Organisational inconsistency in remuneration and benefits complements the top 5 of the (global) payroll issues. In order to overcome these challenges companies could limit their exposure to certain risks associated with a globally mobile workforce by improving payroll processes. For instance, having a clear division of roles, clear communication between stakeholders and the right supporting technology. Oil & Gas people survey The Netherlands 13

14 6. Dutch payroll tax 6.1 Work related costs scheme In principle all benefits employees receive constitutes taxable wage. However, under the work related costs scheme (in Dutch: Werkkostenregeling (WKR)), the employer has a tax free budget of 1.2% of the total taxable wage bill for benefits. If this budget is exceeded the employer is faced with an 80% employer levy on the excessive amount. Survey results show that 33% of respondents exceeded the WKR budget in % of companies indicated to have used all possibilities to optimise the WKR position while 40% (also) adjusted the remuneration policies. The outcome of the survey is in line with the trend we see with all organisations. With cost reduction as the main priority, the WKR can be a tax costs saver for some companies when the WKR position is further optimised. Yes No Figure 12: Work related costs scheme The survey also shows that within the organisations the relevant stakeholders are involved (80-93%), but apparently it seems a challenge for these stakeholders to cooperate. Only 53% of the companies indicated that they have all relevant information readily available and 60% has an efficient process to monitor and report on the WKR budget. 14 Oil & Gas people survey The Netherlands

15 6.2 Arrangement with the Dutch tax authorities 27% of the participants indicated to have an arrangement in place with the Dutch tax authorities for processing the Dutch payroll tax administration. The most common arrangement for Oil & Gas companies to have in place is the so-called thirteenth payroll run for inbound expatriate employees. Such an arrangement allows the company to simulate the income tax situation in the payroll administration. This brings various advantages; not only the filing of the Dutch income tax returns for the expatriate employees can be avoided, but also various other more significant (tax) savings can be realised. Although only a bit more than one out of four participants agreed on an arrangement, when taking into account the company profile, most of the companies for which an arrangement would make sense also have this in place. For the companies who do not have an arrangement, a very important cost saving opportunity still lies ahead. Does your company have a certain arrangement ( ruling ) with the Dutch tax authorities for processing the Dutch payroll tax administration? Figure 13: Arrangement with the Dutch tax authorities Oil & Gas people survey The Netherlands 15

16 7. International mobility 7.1 Global employment organisations Managing a global workforce can be costly to companies and may require a level of administration, while placing an unnecessary burden on resources. This is caused by the multitude of complexities and issues that come along with a diverse, mobile workforce. For example, global mobility inevitably causes legal challenges, such as mandatory applicable law, interrelationships of contracts, and applicability of working conditions and employment terms. A Global Employment Organisation (GEO) is a separate corporate entity that exists for the sole purpose of providing employment related services to the international mobile employee population. Our survey shows that a GEO is not only for the major Oil & Gas companies; most of the Oil & Gas companies with at least 500 FTE have a GEO. The GEOs are located in various locations, mostly within Europe. 7.2 Coordinating (expat) tax compliance matters While all companies undertake HR cost reduction measures now or within 18 months, 40% of respondents find cost effectiveness the biggest challenge when coordinating (expat) tax compliance matters. A vast majority of respondents indicated that they face double income tax and/or social security tax payments in host and home countries for their international mobile employees. Also tax reimbursement collections and unforeseen tax expenses during the expatriation were mentioned as issues. Furthermore, (international) program coordination is considered as one of the key challenges. Especially the disconnection between the foreign offices inside the organisation and finding out who is on a short-term assignment or is an incidental assignee. The most mentioned technological challenge is keeping track of employees and data. of organisations with at least 500 FTE use a global employment organisation Cost effectiveness Program coordination Technology 40% 33% 33% Figure 14: Key challenges regarding tax compliance matters The above implies that there are still various gaps between the internal mobility policy and the related processes that should be bridged. When more sound mobility processes and infrastructure are in place, double taxation cost and other unforeseen tax and mobility program costs can be limited. Clear mobility processes and a robust internal infrastructure also help to improve the communication between the different offices within the organisation. 16 Oil & Gas people survey The Netherlands

17 7.3 Tax reimbursement policies Most respondents have where applicable tax reimbursement policies in place for their long term assignees, short term assignees and rotators. The tax reimbursement policies that apply however strongly vary. The tax equalization approach is in general the leading tax reimbursement policy for international mobile employees and various recent studies 6, 7 indicate that this applies to the Oil & Gas sector as well, especially concerning the long term assignees. Survey respondents however have a variety of tax reimbursement policies in place, of which tax protection is predominant for long-term assignments and the host country approach is mostly used for rotators. This is remarkable as these approaches are considered expensive as the concerning employee does not contribute to the overall tax costs, by paying a hypothetical tax to the employer which would be the case under a tax equalization approach. Under tax protection the assignee can keep the tax advantages due to the assignment and is compensated for any tax disadvantages. The host country approach is most expensive as the actual tax due in the host country is paid by the company and any home country taxes are the responsibility of the assignee (and any home country tax deductions for the avoidance of double taxation that can be claimed do not have to be paid back to the employer). Yes No Compliance Cost effectiveness Market competitiveness Promote mobility Employee satisfaction Figure 16: Reasons to change or consider changing tax reimbursement policies 47% 40% 40% 20% 20% The mobility landscape changes constantly and more so within the current Oil & Gas market. Surviving the economic downturn seems most important for both the companies as well as their employees. Although specific talent needs remain, in general there is a lower pressure on retaining the current talent pool. Reviewing the mobility policies should always be one of the topics on the HR agenda, however, especially now seems like a good momentum for implementing more drastic changes. 20% of organisations indicated to update their tax reimbursement policies in 2016 or in the following years. This is no complete surprise, but this figure is still rather low. Our US Oil and Gas people strategy survey published earlier this year indicates that 30% of US Oil & Gas companies have plans to change their tax reimbursement policies in 2016 or On our question asking what the organisation s business reasons are to change or consider changing the current tax reimbursement policies, survey respondents mostly selected compliance (47%). Cost effectiveness and market competitiveness are tied in second with both scoring 40%. Figure 15: Planning to change tax reimbursement policies 6 EY US oil and gas people strategy survey, January EY Tomorrow s workforce: data driving mobility, Global Mobility Effectiveness Survey, 2016 Oil & Gas people survey The Netherlands 17

18 8. Contacts For more information regarding the report you can contact: People Advisory Services Mobility Jelle Romeijn Senior Manager Mobile: jelle.romeijn@nl.ey.com People Advisory Services Employment Tax Marcel de Vreede Senior Manager Mobile: marcel.de.vreede@nl.ey.com People Advisory Services HR Advisory Jolanda Hidding Manager Mobile: jolanda.hidding@nl.ey.com HVG Employment Law Emilie Boot Manager Mobile: emilie.boot@hvglaw.nl People Advisory Services HR Advisory Rick Daams Consultant Mobile: rick.daams@nl.ey.com 18 Oil & Gas people survey The Netherlands

19 9. About our services 9.1 EY People Advisory Services The world continues to change as a result of developments in globalisation, demographics, technology and regulation. These disruptive forces require organisations to change rapidly and they need their people to be agile and adaptable to that change. At the same time it s getting harder to source, manage, motivate and retain talent while controlling costs. By focusing on how they manage and engage their people, leading organisations are not only managing these global disruptions, but in fact are improving margins and running more efficiently. Looking at people as part of an integrated business strategy, organisations are able to gain a competitive people advantage. Our People Advisory Services is an end-to-end offering dedicated to solving big, complex people, organisational and compliance issues. Backed by a global ecosystem of consultants and industry professionals, we specialise in Performance, Talent, Systems, Reward, Mobility and Analytics all with a shared sense of purpose and values. The diversity of our talent, global connectivity and collaborative philosophy means we are inspired to ask better questions to help organisations design better outcomes, deliver long-lasting results and achieve a competitive advantage. 9.2 HVG Legal Services HVG is a fully integrated bumper-to-bumper solution provider across the legal life cycle of enterprises. The combination of legal expertise, industry specific knowledge and our enterprising spirit distinguishes us in the market. We provide services on e.g. the following subject matters: corporate and commercial law, mergers and acquisitions (including divestitures), labour and employment law, financial services, intellectual property law and ICT law. Our labour and employment law team specifically advises on e.g. fire & hire, health & safety, reward, HR-strategy, co-determination law, restructurings, collective bargaining agreements, compliance and (global) mobility. We understand our clients need to stay ahead of the curve. With our global Oil & Gas experience we can anticipate trends, identify implications and translate our observations into well-informed points of view that support the goals of our clients in a meaningful and actionable way. We co-develop leading edge solutions with our clients leveraging our current proven innovation studios. HVG is a proud member of the EY Law Network, which brings together more than lawyers advising in more than 74 jurisdictions across the globe. This network enables our lawyers to work alongside other EY professionals to reach beyond geographical boundaries. We can support you with the best team of internationally experienced lawyers and local counsels available, well-established in their jurisdictions and with an in-depth understanding of their local cultural and business environments. Oil & Gas people survey The Netherlands 19

20 EY Assurance Tax Transactions Advisory About EY EY is a global leader in assurance, tax, transaction and advisory services. The insights and quality services we deliver help build trust and confidence in the capital markets and in economies the world over. We develop outstanding leaders who team to deliver on our promises to all of our stakeholders. In so doing, we play a critical role in building a better working world for our people, for our clients and for our communities. EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate Legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. For more information about our organization, please visit ey.com EYGM Limited. All Rights Reserved. ED None This material has been prepared for general informational purposes only and is not intended to be relied upon as accounting, tax or other professional advice. Please refer to your advisors for specific advice. ey.com/nl