EOR Basics
An employer of record can be the most cost-effective, efficient, and fastest way to hire employees in South Africa.
Hiring employees in South Africa can be a highly affordable way to optimise your workforce, reduce costs, and open up new market opportunities. However, working in a foreign country can be extremely complex, involving multiple regulatory and operational risks. Working with an employer of record can be a good way to reduce your exposure to risks, minimise your costs, while maximising your talent acquisition potential. In this article, we’ll look at the growing potential of EORs, how they compare against alternatives, and how they are changing for the future.
About EORs
An EOR is a third-party employment specialist that can play an integral role in helping businesses expand into new markets. They provide advice about an unfamiliar employment landscape, practical support recruiting new people, and legal protection for all your employer responsibilities.
The EOR will serve as the legal employer for all your South African-based staff. That means they handle all the legal and administrative duties of managing your workforce, including recruitment, onboarding, disciplinary processes, and contract termination. The EOR has sole legal status as the employer in South Africa, which means they make all the filings with the tax authorities and assume legal liability.
From your perspective as the employer, the EOR protects you from legal liability while also taking on the administrative burden of handling your South African-based employees.
How businesses are using EORs
Companies in the UK, Europe, and the US are turning to EORs for several reasons:
- Business Process Outsourcing: South Africa’s labour costs are as low as 50% of those in the UK, which makes it a highly cost-effective way to source new talent. South Africa’s location, together with the fact that workers routinely have excellent spoken English skills, is making it a more attractive alternative to traditional BPO hubs such as India, China, or the Philippines.
- Talent acquisition: Small and medium-sized businesses are looking overseas to compete for top talent at a more affordable price. South Africa has a highly qualified workforce, which is hungry for opportunities, making it a great match for any business looking to expand its talent pool.
- Business expansion: South Africa’s growing market is a lucrative target for Western businesses. It’s the second biggest in Africa and has many similarities to Western economies, making it a good gateway market for the rest of Africa. An EOR can be useful, especially in the early days, by removing the need to set up a foreign subsidiary and reducing the early risks of moving into South Africa.
- Broadening talent pools: A more international workplace sees businesses looking to add overseas teams to their domestic talent. They are hiring both full-time and freelance workers across a range of sectors. South Africa’s increasingly diverse workforce can supplement domestic teams, with collaboration becoming easier than ever thanks to the rise of video conferencing, cloud computing, and instant messaging.
Hiring with an EOR
Finding employees with an EOR is quick, simple, and relatively affordable. As a hiring business, you will first find an EOR with expertise in your sector. Some industries, such as catering, will have specific reporting requirements, which means it’s important to have an EOR that has a full understanding. An EOR may typically have a range of sectors in which it specializes or offers generic business support suitable for a wide range of different industries.
The EOR can often provide specific recruitment support to find the right employees for you. Their local expertise and market knowledge are useful in finding skilled individuals and connecting them to your business.
From there, the EOR will handle the administrative and legal requirements of the working relationship, including:
- Onboarding.
- Background checks.
- Managing PAYE.
- Paying wages and employer-side taxes.
- Filing all paperwork.
- Providing employee benefits.
- Ensuring compliance with labour laws.
Throughout the employment process, there will be a clear differentiation between your responsibilities as a hiring company and the EOR’s. You will handle the day-to-day working processes, including assigning tasks, while the EOR will manage everything else.
Payment will be managed by arrangement with the EOR, but it will normally involve the EOR paying all wages and taxes before passing those costs on to the hiring company. It will also charge a service fee of between 10% and 15% of the wages, with further fees being available for additional services such as recruitment support and HR software. Some EORs now offer flexible tiered services with more advanced and complex services available at a higher fee. This can be useful when managing complex working arrangements, including senior professionals across different work functions.
Alternatives to EORs
There are other options for hiring employees in South Africa, including:
Direct employment: You can hire employees directly. This gives you complete control over your recruitment, but you will have to set up a foreign subsidiary or some form of legal entity in the country. This can be expensive and require you to hire support staff such as administrators, financial experts, and other professionals to support your team.
Professional Employers Organisation: A PEO is often confused with an EOR, as the two organisations work in much the same way. However, a PEO shares the status of employer with the hiring company, which can create confusion about who has liability for tax obligations. You’ll need a legal entity in the country, and you’ll have to maintain full transparency in the working relationship with the tax authorities. This option is best for those companies that already have an established presence in South Africa.
Agents of Record (AOR): An AOR works in much the same way as an EOR but is mostly designed for freelancers. The AOR handles onboarding, screening, and payment of invoices, and can manage the classification of workers. This helps maintain compliance with labour laws and can be useful for those companies hiring multiple freelancers in South Africa. However, there is no employment model to concern yourself with, as the freelancers will handle their taxes directly. As workforces become more complex, you may find yourself hiring freelance and full-time employees. Some businesses will therefore offer both AOR and EOR services so you can move people from one to another as the employment relationship evolves.
When to use EORs
For some people, EORs have often been used to manage early-stage expansion when a business has no legal entity. This can be a way to investigate market conditions and determine whether this is the right option for you. As things move on and workforce requirements expand, they may decide to fully move into the sector.
However, EORs can offer excellent value for money, and with the leading providers becoming more advanced in the level of services on offer, there’s no reason they can’t offer this great value for the long term.
If you want more information about EOR services and how they can help your company access the South African market, feel free to download our free PDF guide.
