EOR Basics
If you’re working with professionals in South Africa, an EOR or an AOR can help you keep everything in order and avoid any compliance risks.
If you’ve investigated talent sourcing options in South Africa, it can feel as if you’re being bombarded with a host of similar-looking acronyms. From EORs to AORs, BPOs and PEOs, there seem to be all sorts of intermediary organisations offering to support you and your employment strategies. To help you understand the differences between them, this blog looks at two of these – EORs and AORs – to help you understand what they offer and when each one should be used.
What is an EOR?
An employer of record (EOR) is a third-party organisation that acts as the legal employer for all your South African-based staff. It handles the admin of employment, such as onboarding, recruiting, paying salaries, paying employer-side taxes, and ensuring sure the employment respects all labour laws and that all employees receive minimum benefits.
It’s a lot like outsourcing an HR department with a specific expertise and market knowledge of South Africa and its regulatory environment. Because it’s a legal employer, there is no need for you to set up a legal entity within South Africa to employ people directly, which saves you time, money, and effort.
What is an AOR?
An agent of record (AOR) does many of the same things, but it tends to be more focused on freelance workers and contractors. It is not a legal employer in the same way as an EOR, but simply serves as an intermediary between you and all South African-based freelancers, managing details such as:
- Contractor onboarding
- Worker classification
- Background checks for paying invoices.
- Contract management.
An AOR can be useful if you have a growing pool of freelancers in South Africa with whom you work on an ad hoc but ongoing basis.
For example, you might decide you hire a freelancer in South Africa to access skills that are either not available or prohibitively expensive in your domestic market. Initially, you can work with the freelancer directly, by organising a contract and paying them through their chosen payment method (such as bank transfer, money transfer site, or something else).
As things progress, you may start to hire other freelancers or build a more ongoing relationship with contractors, which sees you regularly working with them on ad hoc projects.
At this point, an Agent of Record (AOR) can become a useful way to manage those freelancers. This is a simple arrangement that sees you hire an AOR to manage onboarding, checking, and invoice payments of all your freelancers.
An AOR can also maintain clarity over worker classification. The more you work with a contractor, the more the relationship can start to resemble employment. Ta authorities are keen to clamp down on practices that they feel look like disguised employment in which a company attempts to frame a defector employee as a freelancer to avoid PAYE obligations.
If a freelancer is working with you every day or three days a week, in your office and with set hours, the authorities may decide that he or she should be classified as a full-time employee. Fines can be high, with criminal prosecution being available in those instances in which breaches are repeated or considered to be intentional.
An AOR offers specialist expertise that can help you to determine worker classification and avoid any suggestion that you’re moving into the territory of full-time employment.
When to use EORs and AORs
The key difference, therefore, will be when you use them. An EOR is a great way to manage full-time employees, while an AOR is a way to manage a team of freelancers.
Both, though, can be used in a way to hire people quickly and efficiently as and when you need them. You can easily engage with both AORs and EORs to scale operations up or down as you need them. It gives you a chance to avoid ambiguity over the working arrangement, manage growing teams while keeping your eyes on the strategic objectives of your company.
The cost of AORs and EORs
Both EORs and AORs involve additional costs over and above the wages and invoices of the contractors.
An EOR will pass on the employment costs of each individual, namely the wages coupled with employer-side taxes and the cost of providing employee benefits. In addition, it will have a service fee, which will typically be a portion of the overall monthly salary. This could be between 10 and 20%.
An AOR will charge a flat fee for each freelancer you work with. This might be anything from $20 to $100 per contractor, depending on the level of expertise each contractor has. More advanced high quality professional roles, for example, might attract a slightly higher fee than more basic functions.
Some may levy fees as a percentage of the final invoice, as well as one-off costs for onboarding and set up. This might be anything from $20 to more than a hundred for more complex compliance requirements.
Ongoing compliance costs can also be levied, which help keep you on the right side of the law. This can be an invaluable service that reduces your exposure to punitive fees from non-compliance.
Both EORs and AORs may also have additional fees for further services such as background checks, money conversions, or offering benefits. An EOR will generally offer the minimum benefits required by the law as standard, but if you want to be more generous, you may be able to offer a more comprehensive benefits package depending on the arrangement you have with the AOR.
Can EORs work with freelancers?
Some employers of record can also help you manage freelancers with a hybrid solution, which sees the organisation function as an EOR for your full-time employees and an AOR for your freelancers. These might involve different fee structures or services depending on whether your employee is full-time or a freelancer.
This can be useful for hybrid teams which include professionals on a variety of contract bases, or fluid teams we working relationships are evolving. For example, if you decide to take a long-term freelancer on as a full-time employee, you can simply shift the way they are managed within the same organisation.
Alternatively, you may decide to hire both an EOR and an AOR to adjust the way you manage your freelancers depending on need.
As work becomes more complicated, managing your domestic and overseas talent can become more demanding. Both EORs and AORs have an important role in making sure you can access the rich talent available in South Africa without encountering any compliance risks.
To find out more about AORs versus EORs, why not download a PDF guide for free?
