EOR Basics
If you’re hiring in South Africa, an employer of record can make the process a whole lot faster, simpler, and safer.
An Employer of Record (EOR) represents a low-risk, low-cost way to hire employees in overseas countries, such as South Africa. With businesses looking overseas to find fresh talent, companies across Europe, America, and Asia are turning their attention to the gateway to Africa. A growing economy, low labour costs, and a talented, diverse workforce offer a host of exciting opportunities. In this article, we’ll look at when to use an EOR and how you can make the most out of them.
What is an EOR?
An employer of record is a third–party organisation that employs people on behalf of another company – usually referred to as the client company or hiring company. In South Africa, they are often used by foreign companies looking to hire South African professionals.
The EOR assumes a legal status as an employer for the staff and will pay their wages. As the legal employer, it will have full legal liability for all employees, which removes the need to set up a legal entity within South Africa, such as an overseas subsidiary.
The employees will generally work from the EOR’s office but will be able to communicate directly with the hiring company.
Alternatives to EORs
In addition to EORs, there are also several other options for managing South African-based employees.
- BPO companies: The standard approach for business process outsourcing is to use BPO firms. These are generally focused on certain job roles, such as customer service or call centres, and have a pool of employees that can be made available. You’ll have little or no control over who they hire, but it can be a low-risk and cost-effective approach.
- Foreign subsidiary: A direct employment approach involves setting up a legal entity within South Africa and employing them directly. This gives you complete control over the employment relationship and allows you to shape the team as you see fit. However, it comes with the costs and risks of setting up a new company.
- Professional Employers Organisation: A PEO works in much the same way as an EOR, but with a shared rather than sole employment model. The PEO takes responsibility for managing employee administration, PAYE and filing taxes while you, as the hiring company, controls the day to day working relationships. Ultimately, though, legal responsibility for the employees will rest with you.
- Agent of Record: An AOR is primarily designed for freelancers and contractors. It handles everything from screening to onboarding, worker classification, and the payment of invoices.
When to use an EOR
An EOR can be useful in just about any situation that involves hiring South African employees. They are often used as a low-cost option in the early days of an expansion, allowing you to test the markets without the upfront cost of setting up a subsidiary.
They can also allow you to access South Africa’s highly qualified but underutilized workforce. South Africa’s education system is improving and churning out higher numbers of graduates than ever before. However, with unemployment rates still in double digits, finding employment for these people can be difficult. For hiring companies, this means there is a ready supply of professionals in sectors such as technology, design, or finance, that might be difficult to source back at home.
The cost of an EOR
An EOR will generally charge either a percentage of the salary or a flat fee per employee. This might be anything between 10% and 20% depending on the seniority of the role or the level of service offered.
Passed on costs will include the full wage of the employee plus all other costs related to the employment, such as employer-side taxes and the cost of providing benefits.
Additional fees can be applied for extra services such as specialist HR software, advanced digital platforms such as AI, or to cover the provision of additional employee benefits.
Compared to hiring people directly, therefore, the cost per employee will be a little bit higher. However, you will save on the need to set up a legal entity in the country, regulatory risks, and the need to hire administrative staff to support your employees. In addition, removing the need to focus on administrative tasks means you will be able to spend a higher proportion of your day on more profitable operations that drive your company forward.
Legal considerations for an EOR
An EOR could be regarded as representing a form of brokered employment in which a person is hired and employed by one company but is working for another. The Temporary Employment Services Act (TES) scrutinizes working arrangements in which a worker is employed by one company but is carrying out work for, and under the supervision of, another. An arrangement might be deemed to be brokered if the hiring company has full control over the working environment of the employee or if the employee is working at the hiring company’s premises. When hiring an EOR, the classification of the worker must be delineated to ensure any queries from the authorities can be fully satisfied.
The key for the authorities is that the EOR relationship maintains a clear definition of where responsibilities lie. Shared employment models can create confusion, which often attracts more scrutiny. With an EOR, full employment liability should rest with the EOR itself. When working with an overseas company with no legal entity or premises within the country, this should be relatively easy to demonstrate.
How the market is changing
With more businesses in the West hiring employees in South Africa, for a wider variety of reasons, how EORs work is also changing. They are responding to a desire for greater control and personalization by offering support in the hiring process, and the latest digital technology, including AI, cloud computing, and big data analytics, to provide more insights into the work of employees.
This provides a hiring opportunity with a host of new opportunities. Rather than just saving money on basic job functions such as call centre operatives, they can seek to access a wide range of skills from software development to website design, marketing, legal support, financial management, and much more. Fast communications allow for real-time collaboration with domestically based teams, and with South Africa only being a couple of hours away from Europe, collaboration can happen within the same working day.
South Africa has become an economy built on foreign investment. Its thriving BPO sector is bringing jobs from around the world into the economy, providing a young, talented workforce with the jobs they need. Employers of Record play an important role in that growth, giving hiring companies an easier and more cost–effective way to manage overseas employees. Whether you’re looking for new talent or a low-risk way to advance into the market, an EOR can be a great option for you.
