An Employer of record can be an ideal partner in helping you access the South African market. Here’s how to choose one.

Businesses in the UK, Europe, and the USA are turning to South Africa to hire staff. For some, it’s a chance to expand their talent pool. For others, it’s an opportunity to outsource certain operations or grow into the lucrative African market. Whatever the reasons, engaging the services of an Employer of Record can be a great way to manage South African staff seamlessly and cost-effectively.

Why expand to South Africa

South Africa is an attractive location for many reasons.

Its labor market is much more affordable than in Western economies. Economic development has helped push wages up a little over the last decade, but the cost of living in major South African cities is still far below that of the West. Professionals in South Africa can generally be sourced at a much lower price than elsewhere.

Lower cost doesn’t mean you have to sacrifice quality. South Africa’s workforce is young, diverse and highly educated with skills and qualifications to match any other major economy.

That has helped them to excel particularly in areas such as customer service in which the ability to speak English fluently, with an easily understood accent, has helped them outperform rival outsourcing locations in terms of customer satisfaction levels.

South Africa’s growing economy and position also make it an incredibly attractive market. Its culture is a fusion of European and African. It bears plenty of similarities to markets in the West but also served as a gateway to the even more lucrative markets across Africa.

However, expanding to the country does not come without its risks. South Africa’s labor regulations are relatively progressive with protections for employees, and clear reporting obligations. Penalties for non-compliance whether intentional or not can be high. Understanding the intricacies of the rules and keeping up with changes can be impossible for foreign companies.  

Fortunately, the growing outsourcing market has also sparked an increase in local companies looking to help foreign businesses manage their workforces in South Africa. If you’re recruiting full-time employees the most relevant of these will probably be Employers of Record. 

The role of an EOR

An EOR provides support to any company in hiring and managing their locally based workforce. They serve as the legal employer of all South African staff which avoids the cost of setting up a legal entity in the country.

As the legal employer, the EOR has responsibility and liability for meeting all compliance requirements for your workers. That means managing onboarding, withholding tax, paying taxes, managing employee benefits, and making sure you’re in line with all labor laws.

In other words, the EOR will do everything you’d expect from an HR team without the need to recruit additional staff and maintain a presence. In terms of the day-to-day working relationship – that runs as normal with employees working directly with you.

They will be paid by the EOR and you will pay a fee based on the number of employees you have.

An EOR, therefore, can help in several ways:

-          It’s cheaper with no need to set up a foreign subsidiary.

-          The EOR offers specialist knowledge in HR including all relevant employment laws. This helps to avoid any costly mistakes that can put you in the firing line of the regulators.

-          Legal liability rests with the EOR which means you are protected if anything goes wrong.

-          It helps you to offload responsibility for your HR admin onto a specialist team freeing you up to focus on more profitable strategic decision-making and growing your operation in South Africa. 

EORs are part of a growing support network that facilitates foreign investment in South Africa. It’s something the government has been keen to support. It helps attract capital overseas and generates much-needed employment.

Offering people the chance of well-paying professional jobs in South Africa also helps to keep South Africa’s talent back home.

Among the other alternative structures are:

·       Setting up an overseas subsidiary: Traditionally when expanding to a new country the conventional approach was to set up a foreign subsidiary and employ staff directly. This provides complete control but is extremely expensive and burdensome.

·       An Agent of Record: If you have a pool of contractors, an AOR can help you ensure they are managed correctly. An AOR manages the onboarding, payment, and classification of your freelancers. This approach is ideal for companies that have regular projects to be completed by South African contractors. However, when moving to full-time employment an EOR will be more appropriate.

·       Professional Employers Organization: A PEO works in much the same way as an EOR. Indeed they are often referred to in the same way. However, rather than being the legal employer of your workers, they will share employment. The PEO is responsible for admin and managing the employment while you handle the day-to-day operation. Although they can be used to support foreign companies, they are more commonly used by domestic companies looking to offload their HR function.

Key things to look out for

As with anything, EORs come in all shapes and sizes. The working relationship may vary as will the price. Some will provide more comprehensive services than others.

Some will offer limited control over your employees. You’ll have to work with their team who will be assigned to your company. Others will simply allow you to recruit staff and they will handle the legalities.

Costs vary. In general, you will pay a fee based on the number of employees you have. There may also be additional costs of extra services such as software or additional support. Many companies have tiered pricing options depending on the level of involvement needed.

For example, a standard fee may be appropriate for those companies who already have staff ready to go while a custom option might be useful for companies who need help with recruitment. This allows you to take advantage of the EOR’s specialist expertise and greater understanding of the recruitment landscape.

When engaging with an EOR, therefore, it pays to understand the full scope of their offering – from the expected prices to the level of service you can get. When you choose a good partner, though, the EOR relationship can become extremely profitable.

To find out more about hiring an EOR, and how to manage the relationship download a free guide as a PDF today.