The EOR market in South Africa is growing and evolving rapidly. Here’s why an EOR can be the perfect partner for your foreign adventure.
The business world is changing. Technology is breaking down barriers, opening up global markets even to those companies that previously lacked the scale and capacity to venture beyond their borders. However, while attention often focuses on the role of technology, it’s easy to miss the vital role played by South Africa’s fast-emerging Employer of Record (EOR) market.
EORs – market growth and opportunity
An Employer of Record (EOR ) provides support to companies looking to outsource workers and job functions to South Africa. They serve as the legal employees of those workers and handle everything from onboarding, managing PAYE and filing reports with the tax authorities. They also take on full legal liability for the employee during their time with the company, which makes them a highly safe and convenient way to recruit staff. As the hiring company, you are shielded from any errors that might occur.
The market for EORs has grown rapidly in recent years, driven by growing internationalisation, faster technology, increased international expansion, and a desire among hiring companies to find a higher quality alternative to conventional outsourcing destinations such as India or the Philippines. These countries continue to offer rock-bottom labour costs but have also antagonised customers and caused problems with cybersecurity.
South Africa has spotted a gap in the market and moved to address concerns with a clear commitment to quality, reliability and security. With English being spoken fluently across South Africa, it is much better provisioned to ensure high standards in customer-facing industries.
By maintaining clear communication with customers, South African employees can boost customer satisfaction levels, enhance customer engagement and increase revenue per interaction.
Having a fluent English speaker opens up all sorts of chances to offer greater levels of personalisation and supplementary services that will benefit both the customer and your bottom line.
What sectors are covered by EORs?
Good levels of English proficiency is obviously a bonus in customer service, but South Africa’s rich and diverse workforce is proving itself across all industries and job functions from marketing to technology, financial and legal services.
In each of these sectors, EORs can add value. Although they have predominantly been used to support customer service operations, they can be used anywhere. The basic role of an EOR
is to handle HR and payroll functions, which means there is no limit to where this can be used.
EORs are being used by companies of all sizes, from the likes of Amazon to small and medium-sized businesses. They are covering all sorts of sectors from IT to hospitality, health services, financial institutions and marketing and creative industries.
They can work across full-time employees and more casual contractors, ensuring everyone involved is classified correctly.
Essentially, the key question will be less about the type of industry and more about the function of an EOR. They can be used for both short-term assistance and long-term planning.
For example, here are a few scenarios in which an EOR could be used:
• Early days of a foreign expansion: Expanding into South Africa is exciting for all sorts of reasons. It’s the second biggest market in Africa and is often seen as a gateway into the continent. However, all expansions come with a high risk of failure and if you have to set up a foreign subsidiary, that failure will come on the back of some hefty up-front investment. An EOR removes the need to set up a subsidiary, which protects you and your company.
• Business process outsourcing: To capitalise on South Africa’s cheaper labour laws, companies are shifting entire functions of their business into the country. EORs support operations such as IT support, call centres, and financial management, with specialist staff recruited for the purpose. It’s a good way to streamline costs by shifting an entire department to the country without having to set up a subsidiary.
• Expanding talent pool: EORs can support a multi-disciplinary team of various professionals offering cost-efficient alternatives to domestic talent. South Africa’s labour market is producing an increasingly diverse range of professionals across all industries. With living costs being substantially lower than in Europe, they can be sourced at a premium, offering the prospect of affordable professionals without any impact on quality levels.
As the world of business becomes increasingly globalised and companies begin to work with professionals from many different countries, the range of EORs is expanding. They are covering much more than just traditional sectors, such as customer service and providing cost-effective solutions across all business sectors. Businesses can use EORs to manage a diverse team of people, complementing their domestic team with skills that might have been hard to source at home.
EORs are also being used for longer-term operations. While previously they might have been seen as a stopgap to provide coverage until a company moved onto more permanent arrangements, now they can be part of a long-term strategic alliance.
Although some provisions are made surrounding temporary employment and so-called
employer broker services, as long as contracts are clear about the role of an EOR and the relationship with the client company, there is no reason why this partnership can’t continue as long as you want it.
How are EORs paid?
The big question to ask in that case is how much it will cost. Detractors of EORs are quick to point out that labour costs per employee will be higher. You will pay a fee to the EOR, which will then pay the salary of the employee. For the EOR to make a profit, that fee will be higher than the wages being paid out.
However, those additional costs should be set against the lack of upfront expenses involved in setting up a company. This includes running offices, purchasing equipment and paying bills such as rent and energy costs.
On top of that, an EOR saves a huge amount of time by taking on all the administrative tasks of your HR department as well as the legal liabilities. It takes care of the so-called nickel and dime jobs (those which are essential but don’t drive revenue), allowing you to focus on more profitable tasks such as expanding your business, finding new customers and opening new markets.
Once all these are taken into account, an EOR represents a highly cost-effective option – one that can continue to save money in the long term.
What are the alternatives to EORs?
An EOR is not the only option for your South African employees. Others include:
• BPO companies: For outsourcing services, traditional BPO companies have their own staff that can be assigned to your company. They are similar to EORs in some ways, but they offer little control over the professionals assigned to your company.
• Professional Employers Organisation: PEOs offer a shared employment model in which they essentially perform the role of your HR department. They offer full control over the recruitment strategy and will manage the administrative duties, such as onboarding, managing payrolls, employee benefits, and contracts, leaving you to manage the workloads. However, they require a legal entity, which means they’re better suited to companies that already have a legal entity in South Africa.
• Agents of Record (AORs): With companies spending more time working with freelancers, AORs help make sure all contractors are managed and classified effectively. They can help you avoid compliance issues with the tax authorities and can handle the logistical load of managing South African-based professionals. They’re a good option if you regularly work with freelancers.
• Foreign subsidiary: Last but not least, there’s the option of setting up your own legal entity. This gives you plenty of control but comes at a price. Costs are front-loaded, so
you’ll need to be able to afford the initial investment and the risk that comes with it.
Which of these you choose will, of course, depend on your own company’s situation. It all depends on what you need as a business, your plans going forward and the make-up of your South African-based team.
