
Employer of Record companies have long helped companies outsource in India, but the proposition is very different in South Africa.
It’s a case of the old champion versus the rising star. India has dominated the
business process outsourcing market for years, but now there’s a new kid on the block offering an intoxicating combination of skilled workers and low labour costs.
South Africa represents something different for outsourcing – a way to control costs, while also improving the quality of your service offering.
These two countries are very different in terms of their economies, consumer
markets, labour laws and work culture. Although both countries make extensive use of employer of record companies, the way they work and are applied can be very different.
About EORs
An employer of record (EOR) is a third party that can serve as the legal employer of
outsourced staff in a destination country. It takes on administrative duties such as:
Managing payroll.
- Paying employer-side taxes.
- Providing employee benefits.
- Ensuring compliance with all labour laws.
- Onboarding staff.
- Managing disciplinary processes and contract terminations.
In other words, all the things you’d expect an average HR team to do, but with the added kicker that the EOR has full legal liability for your staff in South Africa. If there are any law breaches, it is the EOR, not you, who will be held accountable.
The key task for an EOR is to ensure legal compliance with the laws. These can be very different in South Africa compared to India.
South Africa has strong protections for employees with laws such as:
- The Basic Conditions of Employment Act
- Labour Relations Act
- Employment Equity Act
Employees have strong protections in cases of disputes. The termination process can be long and drawn out and require full justification. Claims of wrongful dismissal can be common and may often lead to CCMA claims. Most industries have strong unions, which means you have to be mindful of employee rights and protections.
South Africa also has a much stronger commitment to equal opportunities in the workplace, with measures on affirmative action which might not be found elsewhere.
India’s rules are more complex and can be inconsistent, although there have been moves in recent years towards simplification. Labour reform remains ongoing and compliance can be difficult due to overlapping state and cultural laws. India has a strong culture and religious background, which translates into how people expect to be treated in the workplace. Fixed-term contracts are becoming increasingly common, and while it is possible to terminate contracts, the process is very culturally sensitive.
The cost of hiring
Much of the cost of employing people comes from the payroll processes. These are relatively moderate in South Africa, but somewhat higher than in India. However, both countries incur additional costs through the uncertainty of handling payroll in different countries. Every country has its own set of regulations and expectations about filing and reporting. These are continuously changing, which can create problems for non-domestic companies.
A higher payroll cost heightens the ROI argument about offloading the administrative responsibility for payroll, but it’s the regulatory risk which EORs pay their way. They protect you from any unwitting compliance problems by firstly handing on the process to specialist HR professionals and secondly taking on legal liability. Tax authorities everywhere want clarity about where responsibility lies.
Some third-party employment arrangements create ambiguity, which can create confusion on all sides. Tax authorities have become stricter regarding any programs which might look to be employment brokerage schemes.
An employer of record company overcomes that ambiguity by setting out clear boundaries, with the EOR having the full legal liability of an employer. That differs from other options, such as Professional Employers Organisations, which tend to operate on a shared employment model. These can become complicated in designating areas of responsibility. While a PEO, like an EOR, will take on the workload of an HR team, ultimate responsibility rests with you, as the hiring company.
What job roles use an EOR
India’s outsourcing model has always been focused on customer-centric, with large Business Process Outsourcing (BPO) hubs providing call centre services to clients around the world. While India has established a niche for this, it can be limited with hiring businesses typically restricting themselves to simple BPO relationships in which businesses contact outsourcing hubs for certain aspects of the business. The call centre staff of the BPO will be less directly engaged as workers of the hiring company and will instead operate more as service providers with only a limited understanding of the company’s operations.
An EOR relationship is a whole lot more involved, with employees working directly with the hiring company and becoming a de facto part of the overall operation. It’s only the legal status which sets them apart.
EORs can therefore be used to handle much more complex business operations and job functions, which is why they are often much better suited to South Africa’s more diverse work market.
Although customer service remains a mainstay of South Africa’s outsourcing offering, a highly talented and diverse workforce is also offering skills across all sectors.
These working relationships often require more senior professionals and a greater depth of collaborative partnerships. Outsourced employees, for example, will often have to collaborate with domestic employees through video calls and instant messaging.
When outsourcing to South Africa, therefore, businesses are often more likely to be working with much more diverse teams with business skills stretching across multiple professionals. It’s a more complex dynamic and requires a closer and more comprehensive service from the EOR.
Compared to India, therefore, Employers of Record have to deal with complex
regulations and working relationships. They may cover multiple job roles and, in many cases, many different contract types, including freelancers and full-time employees. Establishing the right worker relationships and classifications while maintaining a high-quality level of collaborative service is essential for all businesses involved.
In both countries, though, EORs serve a critical role. They open up outsourcing, talent acquisition and foreign expansion opportunities to businesses of all sizes. It’s a flexible and affordable way to manage multi-disciplinary and multi-national business operations.
Which one is best for you will depend on your strategic objectives. India has
traditionally been the go-to option for those companies looking to minimise costs, even if it reduces the quality of service delivery. South Africa offers a multi-dimensional offering with high-quality levels of professionalism and cutting-edge infrastructure.
For more information, feel free to download a free PDF guide.