EOR Basics
EORs are playing a vital role in the South African economy by facilitating foreign investment and creating jobs.
South Africa’s economy has a problem. Despite considerable improvements to its infrastructure and education, it has struggled to provide an increasingly ambitious and talented workforce with the jobs they deserve. Unemployment rates are stuck in double digits, leaving its workforce forced to look overseas for opportunities. As it tries to close this gap, the business process outsourcing industry is achieving an increasing performance. It’s one of the fastest-growing sectors in the economy and has created tens of thousands of jobs. As businesses from around the world look to access South Africa’s talent, the BPO sector could help determine where the economy goes next. Key to that success has been the role of Employers of Record (EOR).
EORs and outsourcing
The BPO sector employs an estimated 249,000 people, but that’s predicted to more than double over the next five years as international companies turn their attention to South Africa. To them, South Africa is both an attractive market opportunity and a place to attract good quality talent at an affordable price.
Wages in South Africa are around 50% the level in the UK and other Western economies. While that’s higher than in some other popular outsourcing destinations, South Africa has earned itself a reputation for providing high-quality talent, with excellent language skills, backed by world-class technological infrastructure.
Education levels are on the up with more graduates entering the workforce than ever before. Talented individuals can be found across all sectors, but the sectors, especially finance and IT. For businesses struggling to find people with the talent they need, South Africa represents an exciting option where they can quickly bring in skills to supplement their existing teams.
The rise of video conferencing technology, instant messaging, and cloud computing all mean companies can collaborate with South African-based employees as easily as if they were still in the UK. South Africa’s time zone is only a couple of hours different from the UK, which means work can be commissioned and completed on the same working day.
EORs provide a fast and effective bridge to access that talent. Previously, any company employing people in South Africa would have had to set up a legal entity in the country and ensure all relevant administration was completed, such as payroll, employer-side taxes, and much more. However, an EOR serves as the direct employer of the workers, which means there is no need to set up that entity.
The EOR handles everything from the contracts to PAYE, providing benefits, managing annual leave entitlements, and contract termination. As a business, you can concentrate on the working relationship.
Because the EOR has full legal liability as the employer, there is no need to set up a legal entity. The EOR pays the employees and handles their tax affairs while you pay the EOR an agreed fee.
The level of that fee will depend on your agreement with the EOR. It will normally include passed-on costs of the employment, plus any associated taxes, together with a fee which might be a flat fee, per employee, or a percentage of the payroll.
Benefits of an EOR
Working with an EOR will have several big benefits:
- Speed: In an agile marketplace, you can move quickly to adapt to new market opportunities. Without the need to set up a legal entity, you can quickly scale your workforce needs up or down as needed.
- Cost: South Africa’s more favourable labour costs can help you access talent at a considerable discount to your home market without sacrificing quality.
- Legal protection: Working with an EOR protects you from any legal liability for employment-related issues. This can be critical for foreign companies working in an unfamiliar regulatory environment.
- Convenience: An EOR handles all the administrative details of the employment relationship, leaving you to focus on the day-to-day working operations. It reduces the time you spend on low-value administrative tasks and increases your focus on key strategic operations that can drive your business forward.
International businesses are using EORs for a growing number of situations. They can be a way to facilitate rapid and low-risk market entry. Expanding into any new market can be challenging and uncertain. Setting up a foreign subsidiary is expensive and requires a significant up-front investment. All costs are front-loaded, which means you’ll be staking a great deal on the uncertain outcome of the business relationship. An EOR allows you to make that move without any of the risks that come with it.
EORs are also supporting conventional outsourcing operations with businesses looking to switch their focus from traditional outsourcing locations such as India. An EOR provides a cost-effective legal structure through which you can handle all your employees.
The search for new talent is becoming increasingly mission-critical. With some professionals, such as software developers, being in high demand, businesses can struggle to find people with the skills they need in their local markets. An EOR provides a fast way to access South Africa’s rich pool of talent and a clear mechanism with which to manage ongoing collaborations.
The evolving EOR market
As the world of the workplace becomes increasingly international, the EOR sector is evolving rapidly. The last ten years have seen the EOR sector grow rapidly to accommodate new demand. As it has grown, the services have evolved with EORs offering more flexibility and control over the working relationship. Today, EORs can provide support in sourcing and recruiting new people, and can also offer next-generation technology and employment software.
EORs are also adapting their service offering to work across multiple different sectors and contract types. Some will also offer agent of record services, in which they provide support for both freelancers and full-time employees. The move adapts to the increasingly flexible nature of work in which companies are increasingly working with a hybrid team of people on different types of contracts and in different countries.
Looking into the future, these changes are likely to accelerate. Technology has broken down boundaries and forced companies to rethink their approach to work. Today, it is common for most businesses to work with hybrid teams, providing a wide range of skills and based in many different locations. EORs in South Africa give hiring companies the chance to benefit from the talent and opportunities of South Africa’s market, while also giving South Africa’s government an important tool to facilitate future growth.
