EOR Basics
If you’re hiring staff in South Africa, you need to understand when the time is right to move from contractor to EOR.
South Africa’s increasingly diverse and talented workforce is an increasingly lucrative option for businesses of all kinds. For many, the initial experience of South African professionals will be working with people on a contractual or freelance basis. However, as worker relationships evolve, businesses can encounter compliance complexities, at which point it may be worth moving to a full-time employment relationship with the support and assistance of an employer of record (EOR).
Hiring contractors in South Africa
South Africa’s workforce can be described as being rich in potential but relatively lacking in opportunity. The country has invested heavily in its education system in recent years, with the result that the number of graduates making it out of university is on the rise.
This has come at the same time as consistent growth in the economy. However, the country is still developing and struggles to provide enough employment opportunities for this young generation of upwardly mobile professionals. Unemployment rates among people between the ages of 18 and 35 can be as high as 40%, with many graduates having to make do with lower-quality jobs than their qualifications deserve. It can be frustrating for these employees and represents a growing problem for South Africa.
Without the ability to offer high-quality jobs, young professionals inevitably look to take their talent overseas. As with many developing economies struggle with a brain drain, which sees its brightest and best people abandoning the country.
While that’s not the best news for South Africa as a country, it does spell opportunity for businesses in Europe and the UK, which suffer from their challenges in accessing top talent.
The business world is becoming increasingly tech-driven and complex. Businesses need to access talented individuals with skills in a range of disciplines, but this often requires levels of resources that smaller businesses can’t match.
South Africa, with its ambitious, hungry workforce, looking for work is a perfect opportunity. It’s a chance to not only find people with the skills you need, but also to do so in a much more cost-effective way. Video technology means you can now collaborate with people in real time, face to face, in much the same way as you would when working with any freelancer in your home country.
Where to find contractors
Online platforms such as Peopleperhour, Upwork, and Fiverr connect businesses and freelancers around the world. International borders do little to stop the flow of work, with instant messaging and cloud computing allowing for real-time collaboration and international money transfers now being made quickly and easily within the same day.
As a hiring business, therefore, your initial contact with a freelancer might be direct with your providing the commission, drawing up contracts, and arranging payments on a one-off basis.
When actively targeting South Africa as a source of freelancers, though, it can be helpful to seek out advice from a local company. Agents of Record (AOR), for example, often offer talent sourcing and acquisition as an additional service. For a fee, you can tell them what you are looking for, and they can go out and find people with the skills you need.
From there, they can handle the relationship with the freelancer, including screening, vetting, and background checks to make sure they have the professional qualifications and experience they claim. Once work starts, they can also manage the administration, including making sure they get paid and making sure they are classified correctly.
From contractor to employee
Things tend to get more complicated when the relationship with your freelancers becomes more regular. This can be natural. If you trust a contractor, it stands to reason that you may want to use them again for other projects. However, the more you use them, the more they might start to look like permanent employees from the perspective of the tax authorities.
If the authorities feel you are failing to register defacto employees correctly, they may issue warnings, fines, and even, in extreme cases, criminal prosecution. It pays to know where to draw the line to ensure all freelancers and contractors are classified correctly.
Generally speaking, a freelancer will be someone who:
- Works independently and pays their taxes.
- Chooses their hours and work schedules.
- Has full control over what work assignments they take on.
- Is hired on a project-by-project basis, with invoices being raised once each project is completed.
An employee is someone who:
- Has set working hours.
- Has no control over their work schedules.
- Will often work within your office or have set working terms.
- Is retained on a monthly payment rather than per project.
Working with a contractor comes with many benefits. It’s more flexible and gives you access to specific professionals on an as-needed basis without having to employ them permanently.
However, as time goes by, you may feel the need to progress towards full employment.
In general, this will be cheaper in hourly terms, and you’ll have control over when work is set and completed. You won’t be competing with other clients for your worker’s time. Within the specified working time, they will be obliged to work with you on your projects.
AOR versus EOR
As the relationship changes between you and your worker, so too might the way you manage it. AORs are great for managing freelancers, but when the work becomes full-time, you may need to move to an employer of record (EOR).
An EOR serves as the direct employer of your workers in South Africa, which means you don’t need to set up a legal entity to employ them directly. It’s a fast and cost-effective way to scale up from using contractors to having your full-time team working in South Africa.
Some EORs also offer AOR services, which means they can work across hybrid teams. Freelancers, contractors, and employees will all be treated differently, depending on their status, by the EOR. This can be helpful as the EOR can then notify you if a freelancer’s classification is at risk of changing, which means you can either decide to move them from freelance contracts to full-time employment without changing companies.
As the workplace becomes more complicated, businesses are regularly working with hybrid teams of freelancers and employees. Building your South African team will be no different. Working with a high-quality business partner can help you to ensure you avoid simple pitfalls that can cause problems with classification.
To find out more about choosing between contractors and EORs, feel free to download our handy guide today.
