EOR Basics
Hiring an international PEO is a cost-effective and flexible way to manage your workforce in South Africa.
Today’s workforce is increasingly international and multidimensional. Even small and medium-sized enterprises are sourcing talent from beyond their borders in countries such as South Africa. A combination of low labour costs, deep reserves of talent, and excellent supporting infrastructure enables them to reduce costs while maintaining the quality of services. For some, it’s a chance to outsource entire operations such as call centres. For others, it’s a way to access talent that might not be available in their local area. Either way, managing that workforce can be time-consuming, complex, and given the regulatory challenges involved, not without its risks.
Hiring an international PEO is a good way to mitigate those risks while streamlining business operations within the country.
What is an international PEO?
A professional employers’ organisation is a way to outsource the job function of your HR team to a third party based in another country. It’s a shared employment model in which you and the PEO will both be the employers of the workforce in the country. It’s designed to help you access the specialist expertise and equipment of the international PEO and ensure the legal and administrative tasks of keeping your team in order are taken care of.
The big problem for businesses which hire staff in foreign countries is ensuring legal compliance. Whenever you employ someone in a foreign country, you’ll encounter a host of legal and reporting obligations that you’ll need to fulfil.
South Africa has its own set of employment laws, together with tax and reporting expectations. While many of these will be broadly familiar to businesses in the West, there are significant differences that you’ll need to be aware of.
South Africa, for example, has stronger protections for employee rights than many businesses in the West, as well as more robust expectations around equal opportunities in the workplace. Without a full understanding of the regulatory framework, international businesses can easily make mistakes.
What does an international PEO do?
In simple terms, an international PEO will become your HR department for all your workers in South Africa. It will assume responsibility for details such as:
- Onboarding and contracts: The PEO can help you source talent and put them through the full onboarding process, including any work-specific training and the signing of contracts.
- Payroll, tax and benefits: The PEO will manage payroll, withholding taxes and ensure all reporting is filed according to the expectations of the authorities.
- Compliance: With a locally based team of HR professionals and a deep understanding of the latest regulatory developments, an international PEO is best placed to ensure compliance with all relevant regulations.
Essentially, having a PEO working with you is like having your HR team. You benefit from the legal expertise and latest HR technology to help manage all aspects of your workforce.
PEO vs EOR: Are they the same?
PEOs are often likened to other structures, such as an Employer of Record (EOR). Looking at some articles, the terms are often used interchangeably, but while they do perform many of the same roles, they differ in several aspects, most notably being employer status.
An EOR serves as the full legal employer for all your workers in South Africa. That means it handles payment, onboarding, disciplinary processes, benefits, tax filing and contract terminations as well as having full legal liability for the employees. In other words, if there are any compliance problems for any reason, the EOR will be accountable, not you as the hiring business.
From your perspective, the working relationship can proceed in the same way as with any other employee. However, you will not have to take on the cost and administrative requirements of setting up a legal entity within South Africa.
An AOR has a shared employment model in which you and the AOR are both registered as the employers. This means you will need a legal entity in the country.
Employer responsibilities are shared between you and the PEO, with you managing the day-to-day relationship, such as assigning tasks and the PEO handling all the HR administration, such as processing payroll, employee benefits and compliance with local employment laws.
This has benefits because it reduces the chances of unintentional compliance problems and helps you tap the expertise of the PEO to keep everything in order. Outsourcing low-value admin work such as this also reduces the burden on your company and allows you to focus on your key strategic objectives, such as growing your business and building your presence in South Africa.
However, this co-employment model can create uncertainties about employer status and, particularly, who is responsible for what aspect of the employment. It’s an uncertainty that can irritate regulators who like clarity about who is paying tax and who is held accountable for what.
When should I use PEO services?
International PEO services are often lumped in with employer of record services. However, the co-employment model means they are, in truth, extremely different. A PEO is best used by companies that already have an established presence in a country with a legal entity, such as a foreign subsidiary. EORs take on full employment responsibility, which means they are well-suited for new entrants who need to hire quickly and scale flexibly.
Using a PEO can provide a lot of control over the selection of employees and the day-to-day management, but setting it up takes time and requires a great deal of clarity about who is responsible for what aspects of the employment. The main benefit is the ability to effectively outsource the HR function, leaving you to focus on the high-value tasks of expanding your business operations.
Start hiring in South Africa.
Whether you use an international PEO, EOR, or any other structure, South Africa represents an excellent choice for your talent sourcing strategies. The country’s workforce is young, diverse and hungry. South Africa’s economy is growing, and it has invested heavily in its education system. It’s churning out more graduates than ever, but with good quality jobs in short supply, unemployment remains higher than in the West. It’s a workforce big on potential but lacking opportunity.
Overseas hiring companies offer a chance to bring jobs into the South African economy. They represent an excellent growth opportunity, which is why South Africa’s government has been so keen to encourage their uptake. It’s a win/win proposition for everyone involved. For the government, bringing jobs into their economy from overseas is a chance to give young workers access to the high-paying jobs that will prevent them from moving abroad. For the businesses, it’s a chance to connect with outstanding talent at a much-reduced price.
Forming partnerships with an international PEO is a great way to manage your growing workforce while keeping your eyes firmly on your strategic objectives. For more information about working with an international PEO, why not download our handy PDF guide?
