What is an Employer of Record

An Employer of Record can help protect your company’s legal liability when hiring staff in South Africa.

The market for employer of record services in South Africa is growing as foreign companies look to seek out new talent acquisition strategies while controlling their operating costs. However, operating in a foreign country exposes your business to added complexities and compliance risks as you seek to work around unfamiliar regulations. An employer of record protects you from legal liability while also giving you access to trained HR specialists who understand the latest legal and reporting requirements.

How does an EOR work?

An EOR is a mechanism designed to help foreign companies take advantage of professionals within South Africa without the need to set up a legal subsidiary.

As the hiring company, you would seek out an EOR and pay a fee. The EOR could then help you recruit and onboard staff with the skills you need, and set up a working relationship in whichever way works best for you.

The EOR will be responsible for managing the legal logistics of the employment, including withholding tax, fulfilling reporting obligations, making sure all employment laws have been fully respected, and providing employees with access to all relevant benefits.

From a legal perspective, the EOR is the legal employer and has all the responsibilities and liabilities that any employer should have. This provides the clarity that the tax authorities need and protects you from liability for any compliance issues that arise as part of the employment.

This can be helpful for a foreign company with limited understanding of the legal and regulatory environment in South Africa. Employment laws differ significantly in South Africa, with higher protections for workers, more generous entitlements, and stronger provisions for ensuring equal opportunities and affirmative action.

The South African authorities also have their expectations for how information should be reported to them. Small errors could lead to penalties. Having HR and legal experts on your side can reduce your risk exposure to these compliance problems.

Why would you use an EOR?

An EOR can be used in many situations, such as:

• You want to outsource a key job function: South Africa’s reputation as an outsourcing hub is growing due to its combination of fluency in English, high-quality infrastructure, and relatively low labour costs. Hiring companies might typically use a BPO hub with specialisms in sectors such as customer service. However, an EOR gives you more control over the workers and greater flexibility around the types of roles you outsource. South Africa’s workforce makes it ideal for high-value jobs, which sees it expanding the types of functions that can be outsourced.
• Expanding your talent pool: Businesses need to become more agile with access to multiple professionals across many different disciplines on demand. However, these professionals can be expensive and in short supply in your domestic market. South Africa represents an excellent alternative for roles in finance, marketing, technology, the law, and elsewhere. Small and medium-sized enterprises can reach out to South Africa to find the talent they need more cost-effectively. An EOR enables your business to manage those overseas employees without having to set up a foreign subsidiary to employ them directly.
• Expanding into new markets:  Technology is opening up the global marketplace to smaller businesses that might not previously have ventured beyond their home marketplaces. However, any market expansion represents an enormous risk and a considerable expense. South Africa’s market has many similarities, but its differences have been big enough to catch out some of the largest companies in the world. Netflix, for example, has struggled when launching a South African streaming service due to the lack of locally appealing content. To give you the best chance of success, you need a team of local professionals with a full understanding of the market conditions, consumer profile, and existing competitors. Employing them directly means setting up a foreign subsidiary, which involves considerable front-loaded expenses. Most small businesses would not be able to afford the risk. An EOR enables you to build that critical local team without having to set up a legal entity within South Africa to employ them. From there, you can scale your requirements up or down as and when you need them.
• You need to hire quickly: An EOR’s great strength is its speed and simplicity. There’s no groundwork required, you can simply choose an EOR and get to work. The EOR may have existing employees who can be deployed to your company, or they may help you source and recruit professionals with the skills you need. Either way, the EOR’s strength is that it enables you to move quickly and flexibly, responding to market needs and your own strategic goals.

An EOR reduces costs and risks while opening up new opportunities. It’s the simplest and most cost-effective way for you to tap South Africa’s rapidly emerging and multi-talented workforce.

Hiring an EOR

South Africa’s EOR market is growing rapidly, with an increasing number of companies offering a greater range of services. Some will specialise in certain areas of business while others will offer varying levels of support and expertise. It’s worth taking time to understand each EOR’s offering, how they work, and what level of services they offer.

Leading companies may offer tiered services with a basic pricing model backed up by more advanced levels of support. Specialist HR software can also provide more control and granular insights into your South African team to help you further build and grow your operation.

Paying an EOR can be done in some of the following ways.

• Ongoing costs: Managing the costs of employees, including salaries, employer-side taxes, and all benefits.
• A service fee: A fixed monthly fee per employee. This might be between 10 and 20% of an employee’s salary. This is where the EOR makes its money.
• Additional fees: EORs might charge additional fees or offer more expensive tiers of service for added support, such as specialist software.

In general, therefore, you might be paying a premium on each employee’s salary. However, you save on the infrastructure of setting up an operation to employ them directly. Whether using EORs for the long or short term, therefore, they represent a great way to hire staff while controlling your costs.

For more information on EORs, feel free to download our free handy guide.