EOR Basics
Hiring staff in South Africa can be an expensive and complicated business, which is why you may benefit by working with an Employer of Record.
Today’s employment workspace is more globalised than it ever has been. Businesses are reaching out overseas to find people with the skills and talent they need. Countries such as South Africa, which have an increasingly talented and educated workforce but are struggling to provide enough employment opportunities, represent an ideal option for businesses looking to supplement their domestic teams. Equally, the growing South African economy is a great market for companies looking to expand into new territories.
Whatever your strategic objectives, though, you’ll need to manage that foreign workforce, which is where an Employer of Record (EOR) comes in. They are increasingly being used by companies to support overseas operations. If you’re thinking of using one, this series of FAQs might help you understand how they work and when you should use them.
What is an EOR?
An EOR is a third party with a specialisation in HR and legal compliance that can serve as the legal employer for people working on your behalf in South Africa. What this means in practice is that you’ll manage the day-to-day working relationship, such as allocating work, while they will manage the admin and legal side, such as paying them, managing PAYE, and making sure the tax authorities are paid on time.
The important thing to remember is that from a legal perspective, the EOR is the official employer.
What are the benefits of an EOR?
As a hiring company, an EOR is a safe, affordable, faster, and simpler way to hire overseas staff. It’s a great option, especially if you are new to the South African market and do not yet have an established legal presence, such as a foreign subsidiary. The EOR’s status as the legal employer means you don’t have to establish a legal entity such as a foreign subsidiary in the country.
As such, it is cheaper, at least in the early stages, in that you don’t need the expense and financial risk that comes from setting up a new entity, such as hiring support staff. All you have to do is pay the EOR, which then pays the staff and manages every aspect of their employment.
That simplicity means it’s much quicker to hire new workers. There’s no need to start laying the groundwork, an EOR can provide you with near-instant access to the employees you need. From there, you can scale your operations up and down as needed.
How much does an EOR cost?
The exact cost of an EOR will vary depending on the company, the details of your contract, the number of people employed, and the level of support options available.
In most cases, you will pay a fee to the EOR, who will then directly pay the employees. That fee may vary depending on the number of people you employ, the level of their pay, and any support services such as specialist software or support with recruitment.
That fee will have to cover the wages of each employee and the costs of administration, as well as providing a profit margin for the EOR. From a purely individual employee basis, therefore, you’ll be paying a little more than if you were employing them directly. However, using an EOR means you don’t have to spend money on a subsidiary or any admin, legal, or accounting staff to support your employees. It’s all handled by the EOR. For small and medium-sized businesses, therefore, especially those with no legal presence in the country and EOR can be a more cost-effective approach.
What type of employees can I hire with an EOR?
EORs can cover any type of employee you like, from customer service operations to high-value professions such as legal, financial, or marketing support. You might choose to hire employees across a single job function, such as customer support, or many different disciplines.
Regardless of the job role, the EOR performs the same duties – it serves as the legal employer and manages all HR related duties.
Do I control recruitment?
The level of control varies from one EOR to another. In some cases, the EOR will have its employees who it can make available to your company. This might work with customer service operations in which the EOR will train its existing employees to handle operations such as your call centre.
Others will provide more proactive support in sourcing and recruiting people with the skills you need. Their market knowledge can be extremely useful in helping you to find people with the skills you’ll need to bolster your ongoing efforts.
As a legal employer, though, the EOR will govern the employment package, such as annual leave and benefits. It will conform to the industry minimums, but if you want to offer a more attractive offer to attract better workers, you may have to discuss this with the EOR directly.
Are there any legal concerns with EORs?
Businesses can run into complications when engaging through third parties that could be considered employment brokers. The authorities in South Africa want to see which company is responsible for all employer obligations. Some employee brokerage arrangements use shared employment models, which can lead to uncertainties about where legal responsibility lies.
An EOR should be unequivocal. It has full liability for each employee under South African law. When drawing up the contract, it pays to make sure this is set out clearly and unambiguously to avoid any possible legal disputes.
Are EORs for the long term?
EORs are often looked at as short-term measures with companies using them when entering the South African market before shifting to a more regular direct working relationship. That can often work, but there’s no reason why companies can’t use EORs for the long term. Indeed, many foreign companies with legal entities within South Africa do exactly that. It helps them outsource the HR requirements to a specialist and also covers short-term fluctuations in employment responsibilities.
Can EORs work for freelancers?
Yes. Although EORs are generally thought of as being for full-time employees, there is no reason they can’t be used to manage payments to freelancers or contractors. An added advantage of this is that the EOR can provide advice and guidance on the classification of all your freelancers to avoid any unintentional compliance errors.
Choosing your EOR
There are many EORs to choose from in South Africa. Some have specialisms in certain industries, while others can cover multi-disciplinary teams. When choosing an EOR, think about what your goals and objectives are as a company and choose one that represents a close and viable match.
For more information about EORs and how they work, why not download our free PDF guide?
