Employers of Record and Agents of Record can both help foreign companies employ staff in South Africa, but which is best?
It’s easy to forget how much the employment landscape has changed in the last ten years. The number of freelancers has grown and so too has the number of part-time, gig workers and flexible employees. Each of these will be treated differently under South African law. If you misclassify your workers or fail to carry out your legal obligations you could end up paying a hefty penalty.
To avoid that, several organizations can provide support in managing working relationships. Two of those are Employers of Record (EORs) and Agents of Record (AOR).
The short answer is that one will be best for dealing with contractors while the other will be ideal when dealing with employees. However, at a deeper level, the question of EOR vs AOR will depend on your company’s structure and how you prefer to work
What is an Employer of Record?
An EOR is designed to manage the administrative and legal obligations surrounding your employees in South Africa. The EOR will become the official employer of that person and will handle everything from payroll to tax, compliance with employment law, employee benefits, and much more.
However, in all other respects, you will deal with your employees directly as normal. You’ll set taxes, assess performance, and manage their roles within the team. The good news from your perspective is that the EOR will handle all the paperwork and make sure you’re complying with relevant regulations.
It’s a perfect option for a company which is moving into the South African market with just a few employees or one that is looking to benefit from the relatively cheap labor market in South Africa by outsourcing some operations.
There is no need to have any legal entity within South Africa or even any legal knowledge. You can simply engage their services and they will take care of everything. The local knowledge of the EOR will help you avoid any unintentional compliance issues and ensure you’re up to date with any changes to employment laws.
Furthermore, the local expertise and market knowledge of the EOR can make it much easier to source local talent.
As the South African government seeks to encourage foreign investment into the country, EORs are becoming increasingly important. One way in which they can be used, for example, could be for a company looking to outsource certain operations such as a call center.
There is no legal requirement to have an established legal entity within the country so an EOR can be used to handle all employees in the call center.
Equally, an EOR could be the start of an expansion into South Africa. Countries around the world see South Africa as an exciting opportunity. It’s often seen as a gateway to Africa. Get the South African market right and you can continue to grow across the continent.
For companies without any presence in the country, an EOR could be a good way to manage employees early on before deciding to permanently establish a local subsidiary.
What is an Agent of Record
An AOR, meanwhile, is ideal for working with freelancers and contractors. As remote work becomes more common the line between employees and independent contractors is blurring, which can make it difficult to find the right classification.
Contractors and freelancers will provide a service to a company but will retain independence and control over how they work and when. They will not have the same employment or benefits rights and will not be treated in the same way for tax purposes.
With people looking for more flexibility in their work, many companies are engaging contractors and freelancers on a long-term basis. Although they remain freelancers, they can often work with them in the same way as if they were part of the company.
The difference between an employee and a contractor may not always be immediately obvious, especially when dealing with unfamiliar employment laws in a foreign country.
An Agent of Record’s job will be to ensure contractors are classified correctly under the law and to handle all back-office requirements relating to that contractor. This includes ensuring the smooth running of an engagement and making sure they are paid on time. They handle all the admin and details of the engagement reducing the administrative load on your team and the risk of miscalculation.
What does an AOR do?
An AOR’s responsibilities will include:
• Worker classification: The AOR can provide expert guidance on the latest developments in employment laws and how workers are classified. They will make sure you are engaging with an independent contractor rather than accidentally hiring a remote employee who should be treated differently. They can advise you on relevant classification and make sure you adjust your approaches in line with any regulatory changes.
• Contracts: When drawing up contracts they will handle all legal details and additional documents such as non-disclosure agreements, confidentiality agreements and other legal issues. They will go through all paperwork and make sure all contracts are managed correctly.
• Getting started: When onboarding contractors you’ll need to sign certain documents and gather information such as their bank details, tax reference numbers, and so on. An AOR will take on the work and liability of this on your behalf. They may also perform background checks and verify all references to make sure your contractors have the qualifications they claim.
• Intermediaries: Throughout the progress of the contract, agents of records can serve as an intermediary between the company and the contractor. This can help foster a long-term engagement. While some contractors will be there for just one job, you may want to continue working with others for a long time to come. However, long-term engagements can start to resemble employment. An AOR will work with your contractor, ensure compliance, and make sure you don’t inadvertently stray into the territory of full employment.
• Invoices and payments: When managing multiple contractors, managing payments can become complicated. One of the biggest challenges for contractors is getting paid on time, and if you’re late with invoices or regularly get payments wrong, they will be reluctant to work with you again in the future. An AOR’s experience can be invaluable. Not only can they help you manage all payments in a fully compliant manner, but they will handle all the complexity of processing payments and other relevant details. This frees you and the contractor to focus on your working activities.
In short, an AOR can provide broadly the same service for your contractors as an EOR does for your full-time employees.
EOR Vs AOR
The question of EOR vs AOR will depend on how you engage workers in South Africa. Each organization does similar, but importantly different things.
An AOR is for independent contractors while an EOR will cover full-time and part-time employees.
EORs will help you manage full-time employment and will assume responsibility and liabilities for fulfilling all employment regulations. AORs meanwhile will also have liabilities for your contractors. They will manage onboarding and the ongoing relationship to make sure you aren’t inadvertently misclassifying them.
AORs are perfect for companies that engage with a high number of contractors or have fluctuating work requirements. For example, if you will need to engage with freelancers for ad-hoc requirements from time to time, an AOR can ensure you have a ready supply of talent on tap when you need it.
EORs are perfect when your employment needs are more stable or if you’re looking to investigate moving to South Africa. They can provide all the administrative and legal support required to work with employees in South Africa and make sure you fulfill all your legal obligations.
Whatever option you choose it’s important to select a company which will understand your requirements and work with you to provide a holistic solution based on your own needs and requirements. Although managing employees and contractors in South Africa can be complicated, the expert help of an EOR and AOR can prove incredibly valuable.
