An employer of record helps you access the immense talent in South Africa without worrying about the admin.
UK companies are looking overseas to streamline their costs and overcome domestic talent shortages. Employer of Record companies are crucial in helping them break down barriers and hire people quickly and affordably.
Skills in the UK
Recent data suggests that more than half of UK small businesses are looking to hire foreign talent to plug a skills gap left by a lack of domestic talent. A combination of factors, including a sluggish economy, high employment costs, tighter restrictions on immigration and an ageing population, means it’s increasingly difficult for some companies to find the talent they need through traditional sources. Some UK employers have suggested they will be more than doubling overseas recruitment over the next couple of years, with some expecting foreign staff to account for up to 85% of their total recruitment needs.
For many, it’s a simple question of cost. Recent rises in the minimum wages and national insurance contributions, coupled with a highly competitive market has pushed up the cost of employing staff. Lower labour costs overseas represent a highly attractive diversion.
Of equal importance is the growing need for an increasingly diverse set of skills. The rise of digital transformation has heightened the onus on companies to bring in a wider range of skills, be it on a full-time or adhoc basis. Technology is unavoidable for all businesses, which means they need to access people with the skills they need to bring their digital infrastructure up to speed. In a world in which their competitors are upgrading, and investors are increasingly scrutinising the digital capacities of prospective investments, lagging is not an option.
International hiring begins in the freelance market, where a free flow of skills and knowledge is creating a dynamic marketplace of ideas. If you’re a freelance content editor, for example, you can potentially sell your services all over the world. Global jobs boards routinely connect businesses and freelancers across borders.
For more regular work, though, businesses are looking to hire permanent remote teams. These teams may be intended to work alongside their domestic staff, bringing in skills the team previously lacked. Alternatively, remote teams are essential in helping businesses expand into new markets.
South Africa is particularly attractive. It’s one of the largest economies in its own right with a thriving consumer base that represents an attractive proposition for the world’s biggest brands. The market is also, on the face of it, relatively familiar to Western brands, making it a great staging post for further expansion into Africa. Make it here, and a continent’s worth of opportunities may lie ahead.
Whatever the reason, though, international borders remain a problem. Data and ideas may be
flowing freely, but regulations and jurisdictions remain in place. Any company hiring staff in South Africa will have to manage a lot of admin and ensure compliance with all local regulations.
Traditionally, this would mean setting up a legal entity with all the costs that brings. You’d need to establish a company, set up premises, hire staff, including administrative and financial teams to support front-line staff. Costs will be front-loaded, with any revenue only coming further down the line. In a world in which even the biggest brands have seen overseas expansions go down in flames, it’s quite a risky proposition.
What is an EOR?
An employer of record represents a faster, simpler, safer and more cost-effective alternative. It’s a form of intermediary which takes on the role of employer and HR team to ensure compliance and shield you, the hiring company, from legal liability. It pays salaries and is responsible for making all tax returns and complying with labour laws. As the hiring company, you will pay fees to the EOR, which cover its costs together with an extra fee of between 10 and 20% of the overall salary. From a practical perspective, the EOR handles all the HR functions while you focus on the day-to-day working relationship in much the same way as you would any other employee.
When hiring an EOR, it’s important to make sure that the relationship is fully clarified in the contract and any ambiguities are resolved to ensure you don’t become liable as the legal employer yourself.
The benefits come in speed and cost savings. There’s no need to spend time and money setting up a legal entity within South Africa. You can scale operations up and down as needed, and move quickly to adapt to any opportunities as threat. For expansion operations in which prospects are often far from certain that can be incredibly valuable. It protects you from financial risks and legal exposure and provides you with the full benefit of the EOR’s dedicated HR expertise.
It’s less expensive than setting up a legal entity and offers more control than using a traditional business process outsourcing company. These avoid the need to set up a legal entity, but they still involve using employees who will be assigned to your company. They will not be working entirely with you and may only have a basic understanding of your business, product, and customer base. That limited connection will be reflected in the quality of service on offer.
Other options include a professional employers organisation (PEO), which shares many similarities with an EOR. However, these use a shared employer model, which means you’ll still have a legal entity. They will remove the burden of HR operations, but they are best used by companies that already have a presence in the company.
Using an EOR is not without its costs. On top of salaries, you’ll also be paying a fee to the EOR. On a per-employee basis, therefore, you will be paying a premium. That leads some people to suggest that, over the long term, it may be worth moving on from an EOR model and
employing directly. However, direct employment also has its additional costs in maintaining a legal subsidiary, premises and support staff. EORs are also evolving to offer more comprehensive services, including recruitment support and specialist HR software. They also offer services to accommodate hybrid teams of freelance contractors and full-time employees. They can handle admin duties for both and provide advice on the correct classification of all professionals.
EORs, therefore, can be a key partner in any outsourcing operation, both for the short and long term. They help you move quickly and provide a flexible, valuable and affordable way to manage remote overseas teams.