COVID-19: The uninvited guest at the (financial services) table

By Paul Ndirangu & Simon Githinji - Learn more about the authors

Introduction

COVID-19 has brought about social, economic and political challenges that have not been experienced in our lifetime. Different sectors of our economy have been impacted to varying degrees, and the financial sector has not been spared. With the shilling hitting historic lows against the US dollar, loan default losses reaching an all-time high, and the business environment facing unprecedented uncertainty, major banks and insurance companies have registered a dip in revenue and profits due to the effects of COVID-19.

Companies have reacted differently, some going for restructuring options, scaling down operations, or adopting new ways of working for their workforce. Regardless of the nature of business, the situation calls for swift response from all organisations to position their businesses for growth and sustainability in the long term.

The pandemic has also caused governments to respond by introducing a raft of measures including legislative amendments to contain the effects of the crisis on global economies. The measures have included various tax reforms that have had a direct impact on businesses. As a result, the ever-dynamic tax landscape has not fallen short of changes, and businesses must strive to stay abreast of these changes to avoid further financial burden as a result of non-compliance.

Amidst these developments is the ever growing need to keep employees assured, productively engaged and feeling safe in the current environment. This article explores the challenges and opportunities brought about by the COVID-19 pandemic for the financial services sector and its clients.

Expectations on employers in the changing work environment Inevitably, the financial sector has also had to adopt measures to safeguard their workforce and businesses. For example, some sector players have resulted in having their front office staff work on a rotational basis while the back office staff work from home where possible, in order to comply with the Ministry of Health guidelines on social distancing and to prevent the spread of COVID-19.

Every employer has a statutory duty to ensure that the work environment is safe for employees, and having an unconducive workplace could hamper employee productivity, affect loyalty or lead to legal issues under the Occupational Safety and Health Act.

To facilitate flexible remote working, many employers have extended support to employees by providing laptops, internet, airtime and private transport among other benefits. Companies have also invested in infrastructure and technologies to support flexibility and remote working. Some of the support provided may give rise to tax implications that are worth considering at every stage.

When the dust settles: The mobile workforce In the days leading up to the pandemic, workforce mobility was a key pillar in most companies' strategies. Ensuring skilled resources are available, retaining top talent, improving succession planning, and ensuring employees grow in their careers was, and remains the focus of many employers.

In the wake of COVID-19, we have witnessed companies recalling their international employees to work remotely from the safety of their home territories as the situation is being monitored. Some companies have also had scenarios where some of their workforce was trapped in foreign territories due to travel bans that were instituted by most countries during the pandemic. Luckily, some governments passed timely legislation to recognise these situations and offer support to the affected individuals, and to ensure that those who triggered tax residency and other implications under the unexpected circumstances were cushioned from unfavourable financial implications.

However, some jurisdictions did not measure up and continued to operate their laws as usual. This has resulted in some employees triggering tax, immigration and permanent establishment issues for themselves and their companies. Companies with operating models involving mobile employees ought to seek professional guidance to understand and take advantage of available mechanisms to mitigate any negative impacts on their mobile workforce, and ensure compliance in every jurisdiction where their businesses operate.

"When the reality of COVID-19 dawned, many organisations switched to survival mode, laying off staff, sending staff on unpaid leave, and reducing salaries to cut costs. As time has gone by, rays of hope have begun to shine, and businesses are resuming operations, albeit cautiously."

The commission agent of the future The pandemic has changed marketing as we knew it and marketers now must innovate and adapt to the new normal. Before COVID-19, marketing and sales agents would set up physical meetings with potential clients in offices, restaurants, and other public places. The face-to-face meetings enabled effective communication hence it played an important role in helping agents win new clients.

The pandemic now threatens to take away up to 55% of the agents’ selling tools including non-verbal cues that inspire trust, since it is no longer safe to hold in-person meetings. Agents will now have to perfect their art of communication to make up for the absence of body language. Furthermore, tough economic times mean that agents must work harder than ever to convince and sell to potential clients.

With the use of telephone and video calling platforms such as WhatsApp, Zoom, Skype and Google Meet dominating the arena of communication, the traditional art of sales and marketing could undergo a permanent transformation and the industry must brace for the future.

Restructuring contracts? Beware of the pitfalls When the reality of COVID-19 dawned, many organisations switched to survival mode, laying off staff, sending staff on unpaid leave, and reducing salaries to cut costs. As time has gone by, rays of hope have begun to shine, and businesses are resuming operations, albeit cautiously. The current outlook is signalling that recovery might not happen as soon as hoped, and many companies have seen the need for fewer staff to handle key functions as the business thrives.

This has necessitated the need to renegotiate existing contracts with employees or enter new employment terms. In some cases, companies have converted employment contracts into consultancy arrangements. Whilst these actions are not only justified in the current environment but are also acceptable and more preferred compared to the more drastic measures, employers must ensure that this is conducted within the permit of the law. More specifically, the provisions of the Kenya Employment Act and the Income Tax Act must be observed.

The distinction between employees and independent contractors has been prone to controversy in the past and remains a grey area. The matter has also been the subject of numerous litigations between employees and employers, at the contracting stages as well as during separations. This issue ought therefore to be navigated with caution and your tax and labour law advisors should walk the journey with you to avoid the common pitfalls.

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