Hiring Talent with an EOR in South Africa

Working with an employer of record is a good way to hire talent in South Africa without having to set up a legal entity.

With the costs of doing business rising in the UK, many companies will be tempted to source talent from overseas. In addition to reducing labour costs, this can be a great way to access people with skills that may not be available in your local area. South Africa’s multi-disciplined workforce is full of opportunities. Not only can they provide high-quality and professional work, but they are also much cheaper to hire than their UK-based counterparts. However, the costs of setting up a legal entity to manage that staff in South Africa can be prohibitively high. An employer of record can offer a faster, more affordable, and simpler way to manage your staff.

Saving money with an EOR

An employer of record (EOR) is a third-party company to which you can outsource your employer responsibilities. For legal purposes, the EOR will be the legal employer, which means it will be responsible for onboarding, managing payroll, withholding tax, providing employee benefits, and paying all employer-side taxes. Its status as a legal employer means it also has legal liability for all compliance tasks.

An EOR, therefore, makes doing business in South Africa cheaper, simpler, and safer from a compliance perspective. Using an EOR gives you access to locally based HR specialists with a full understanding of employment law and the latest regulatory developments. As such, it will help you save money in several ways.

1. Avoiding the need to hire a legal entity within South Africa: To employ someone directly in South Africa, you would normally need to set up some form of legal entity, such as a foreign subsidiary. You’d then need to employ HR specialists and accountants to manage all the employees. You’ll be responsible for all tax liabilities, and providing employee benefits in according with the rules. It front-loads all your costs before you see a single penny of a return. It’s an expensive and risky way to move to another country. If things don’t go as you hoped, that’s a lot of money down the drain.
2. Outsourcing HR function: Managing admin and legal duties takes time and effort that could be better directed at driving your business forward. An EOR can take all these duties on themselves, freeing you up to concentrate on more profitable activities. As well as saving money on the cost of hiring an in-house recruitment team, you also ensure that more of your time is focused on high-value activities that deliver a clear return to your business.
3. Avoiding regulatory risk: Employing people directly in a foreign country can be difficult. South Africa has its own set of employment laws that are constantly subject to change, which means the risk of non-compliance can be quite high. Offloading your responsibilities as an employer onto a third party allows you to take advantage of their dedicated expertise, thereby reducing the risks of non-compliance, but it also gives you legal protection in case anything should go wrong.

Hiring talent with EORs

To hire talent through an EOR, you first need to find one with the expertise and experience in your chosen field. Some EORs will cover multiple industries while others will specialize in certain areas such as call centres or hospitality. This gives them access to top talent in the field.

The level of talent sourcing support each EOR offers will vary, so it’s always worth understanding how they work before making a decision. Some will offer extensive support in finding employees to your specifications. They can then help you with the onboarding process and all the legal admin, leaving you to focus on the day-to-day activities.

Other EORs will already have trained professionals who can be assigned to your company. They can be trained to understand your business requirements and service offering. This is a quick and simple way to scale recruitment needs up or down as you need, and can be great for hiring people in the early days of expansion when you won’t be certain of your specific recruitment requirements. However, they may take time to develop the level of understanding of your business, its products, and your customers that you need to truly drive things forward.

Cost of EORs

Each EOR company will have its pricing policies. In general, though, they come in two tiers.

1. Passed on the costs of the employment, including the cost of managing PAYE, paying employer-side taxes, and providing each employee with their legally entitled benefits.
2. Service fees to the EOR can typically be between 10% and 15% of the employee’s salary. Fees may vary depending on the seniority of the employee in question.
3. Additional fees for extra services such as optional HR software to support your operations, or additional benefits. EORs will generally provide the standard levels of benefits required by law, but if you want to make yourself more attractive as an employer, you can always add more.

What to watch out for

There are some downsides commonly associated with EORs. The first is that you lack the direct level of control you’d have when employing directly. That can be true in some instances, but EORs increasingly offer a more personalised service, which gives you much more influence on the hiring and firing process. In practical terms, the relationship will be almost indistinguishable from conventional employment.

The second is the overall cost. The service fee for the EOR means you’ll always be paying a small premium on the cost of each employee. As such, having an EOR has often been seen as

an option for early expansion, with firms moving to direct employment models later in the process. However, it’s easy to forget all the associated costs that come from direct employment, such as the cost of hiring HR professionals and accountants to support employment.

The ability to remove the associated costs and complexity of hiring employees means that having an EOR can be a cost–effective way to hire employees for the long term. Companies today provide extensive support in sourcing people with the skills you need and a much more personalised service, which gives you more control over the working relationship.