EOR Basics
If you’re looking to hire staff in South Africa, you need a trusted partner to manage your overseas team. Three of the most common are EORs, PEOs and AORs.
Demand for overseas recruitment is growing as UK businesses seek to access new talent and reduce their HR costs. South Africa, with its combination of low labour costs, convenient time zone and highly talented workforce, is proving to be a lucrative source for new talent. Businesses of all sizes are reaching out to South Africa to supplement their existing team, reduce costs and access people with the skills they need to compete in an increasingly intense market.
Managing those overseas employees, though, takes time and effort, which is why the market for third–party support organisations is thriving. In this article, we’ll look at three of the most common structures for handling South African–based workers: Employers of Record, Agents of Record and Professional Employers Organisations. We’ll look at how each of these works, how much they cost, how they are treated under South African regulations and how to decide which of these options is best for your business.
Employer of Record
Employers of record are third–party entities that take on the legal role of the employer for all official tax purposes. It is responsible for managing payroll, paying taxes, providing employee benefits and complying with all relevant labour laws. As the hiring company, you will manage the working relationship in much the same way as you would a conventional employee. That means you assign tasks, set daily schedules and projects. EORs can also provide support in talent sourcing, giving you a much greater say over the people you work with and their experience profiles.
Compared to standard BPO companies, they provide much more choice and flexibility over the people the client company work with. BPO firms focus on pre-packaged solutions covering single job functions. With EORs, you can have a dynamic multidisciplinary team of professionals in all sorts of areas working as an extension of your domestic office. They can collaborate with your home-based employees and become core members of your team.
Common use cases include:
•Businesses looking to source top talent at a more affordable rate. Finding people with the skills you need at a rate you can afford can be difficult. Looking to South Africa can help you find high-quality professionals who are available, ready to work and more affordable than domestic counterparts.
•UK businesses looking to expand into South Africa and needing a locally based support team. Setting up a subsidiary to manage these employees would be expensive, time-consuming and risky. All costs would be front-loaded, with revenue being highly uncertain and only available further down the line.
•A more flexible approach to business process outsourcing, giving you more control over the hiring and selection of employees.
•Handling temporary remote teams to oversee a certain project, such as a trial entry into a market, while reducing legal costs and risks.
EORs can also assist with worker classification by moving contractors from freelance contracts to full–time at the appropriate moment. This avoids any compliance questions over the correct classification of your workforce.
Working with an EOR in this way comes with several key benefits:
•Cost: Because the EOR is the legal employer for tax purposes, you can avoid the costs and work involved in setting up a legal entity within South Africa. Doing so would, in most cases, circumvent any cost savings achieved through lower wages.
•Speed: EORs are a good way to hire new staff quickly to get projects moving forward as soon as possible.
•Legal protection: EORs assume full legal liability for the employees, which protects you from any compliance risks.
•Flexibility: Working with an EOR allows you to scale your employment levels according to need. For example, if you’re expanding into a new market, you can cut back employees if business is slow, and scale up as your demands increase.
Employers of record, therefore, provide a low-cost, low-risk way for your business to hire staff in South Africa. It breaks down the barriers to working with international professionals and helps to optimise your labour costs.
Professional Employers Organisation
PEOs work in much the same way as EORs, and they are often referred to in the same way. However, they are subtly different. Rather than taking on the role of employer, they use a shared employment model with the PEO taking on HR responsibilities, and you managing the working schedules.
Ultimately, though, legal liability for the employees rests with you, as does paying wages and all relevant taxes. This means you need to register a legal entity within South Africa.
A PEO, therefore, is only really suitable for companies that already have a legal presence within South Africa. They tend to be used by businesses looking to offload the administrative burden of the HR function. PEOs offer the benefit of their specialist HR experience and technology, freeing you up to concentrate on the strategic direction of your business.
Agent of Record
An AOR is primarily used for managing teams of freelancers and independent contractors. They handle administrative details such as checking backgrounds, onboarding, and paying invoices for each project.
They are commonly used by businesses with growing teams of freelancers. For example, a UK business might start by engaging with a single freelancer from South Africa. This can normally be done directly with invoices being paid on a per–project basis. The business then might decide to work with the freelancer on more future projects or start working with others. Before long, you may have a portfolio of freelancers available who can be available to work on projects as and when you need them. Managing them directly can become difficult, which is why it makes sense to hire an AOR to do this for you. As well as managing the administrative side, AORs can also provide expert opinions on when the time will be right to move towards a full employment model to avoid any worker classification problems.
EORs can also provide optional AOR functions, managing both freelancers and employees at the same time. This can help you manage complex workforces, including different functions and contract types.
The key point of difference between all these three options is that EORs enable you to hire quickly and conveniently without setting up a legal entity. It’s fast, safe and affordable to access the employment market of South Africa and build your multi-national, multi-disciplinary team. Whether you’re planning to expand into South Africa, outsource job functions or simply save money on labour costs, EORs play an important role in connecting foreign businesses with South Africa’s labour force.
