EOR Basics
If you’re working with overseas freelancers, you need to know when the right time is to move to full employment.
Today’s workplace is global. Even small businesses will typically work with a hybrid team incorporating people of all disciplines and in many different locations. Projects have become more collaborative and at any one time may require input from people in several different countries with a wide range of different skills. Managing overseas teams of freelancers over the long term can be complicated, which means businesses need to put structures in place to make sure they are working within the law.
Freelancers in South Africa
South Africa represents fertile recruitment territory for all sorts of reasons. The workforce is young, diverse, highly educated, with multiple skills across the professional spectrum. A growth-oriented government has invested heavily in education over the past decade, with the result that more graduates are entering the workforce than ever before.
However, this new generation of ambitious professionals can struggle to find employment opportunities in their domestic market, which forces them to look overseas.
What we have, therefore, is a match of skills and needs. Professionals in South Africa need work, and businesses in the UK need talent. As a result, the number of professionals in South Africa working on a freelance or full-time basis for foreign companies has reached unprecedented levels.
For hiring companies, South Africa represents a great source of freelancers. They have the skills they need, can communicate in the same language, and, for companies in the UK, Europe, or the Middle East, can be available during the working day. With all companies becoming increasingly used to video conferencing technology, it is now possible to work and collaborate with overseas teams with little or no friction.
Evolving working relationships
Working with freelance contractors in South Africa can be relatively simple – at least in the early days. Collaboration and payment can work directly with people communicating online and sending invoices once work is completed. Payment can be completed via international bank transfers, with money usually arriving within one or two days.
However, as time goes by, working relationships may evolve. Work becomes more regular with companies keeping a pool of freelancers on hand to be available for projects as and when they are needed. Managing this pool of freelancers can be complicated and create problems around compliance and worker classification.
Working with an Agent of Record
As your freelance needs grow, it can be worthwhile working with an Agent of Record (AOR).
An AOR handles the working relationship with freelancers, such as screening, background checks, onboarding, and paying invoices, leaving you to focus on the day-to-day work. You’ll pay the AOR by arrangement, which will normally involve either a set fee or a percentage of each invoice.
An AOR can also help you ensure the freelance working relationship stays on the right side of employment law. Like many countries, South Africa is working hard to eliminate practices of disguised employment in which companies seek to present defector employees as freelancers to avoid PAYE costs and responsibilities.
As the working relationship becomes more regular, the freelancer can start to look more and more like a regular employee, which can spark the interest of the authorities. Any company found in breach of these rules can face considerable fines, with repeated or intentional breaches potentially leading to criminal prosecution. At some point, you will want to move them into full-time employment. When that time comes, you can benefit from working with an employer of record.
Moving to an EOR
An EOR works in much the same way as an AOR. However, it takes on full legal responsibility as the employer of the worker. That means the worker is paid for the EOR, and all paperwork relating to the employment is paid by the EOR. However, it is you who directs the employees day to day work with the assignment of tasks and workflows.
It takes things on a step from an AOR, making sure you comply with all worker classification laws without the upheaval of setting up a legal entity within South Africa or the compliance risks of taking on legal liability for the employment relationship. The EOR provides the benefit of a complete setup, which allows you to quickly adjust your employment needs as and when you like.
Other options
Alternatives to an EOR include:
- Professional Employers Organisation: A PEO works in much the same way as an EOR, but uses a shared employment model. In other words, employer status is shared between you and the AOR. This can create some complexity with compliance, as the authorities like to have a clear indication of which party is the employer and is therefore responsible for PAYE. To use a PEO, you will need a legal entity, and you will be responsible for payment and settling of all PAYE requirements.
- Direct employment: The old-fashioned approach would be to set up a foreign subsidiary in South Africa and employ people directly. This can involve costs, and you’ll have full legal liability for the employment relationship. If you’re just moving into the market or only want to employ one or two people, this can be a costly and potentially high-risk way to do business.
An EOR is the fastest, safest, and least risky way to work. You get the benefit of specialist market expertise from the EOR, which can advise you on the best way to ensure compliance and keep you abreast of any changes to the regulatory framework.
If you have both freelancers and full-time employees on your books in South Africa, some companies will offer combined EOR and AOR services. A company can serve as an AOR for all your contractors, but take on the status of the employer for those you take on full-time. This is a fast and convenient way to move from one option to the other, with the company offering you the benefit of its expert insight into when the time is right to shift from freelance to full-time contracts.
