EORs and PEOs both help you manage employees to support your operations in South Africa, but which one is best?
If your business plans to operate in South Africa, it pays to have some local support to ensure the details of that employment relationship are all met. To do that, companies often opt for employer or record (EOR) companies or a professional employer organization’. Each organization can take on the burden of managing employees in South Africa. Indeed, they are so similar in some respects that the terms are often used interchangeably. However, there are subtle differences.
What is a PEO?
A PEO provides HR services to other companies. It will be a shared employer taking on administrative responsibilities such as handling payroll and tax, employee benefits, payroll and administration, and legal compliance. In other words, they handle all the legal and administrative details leaving you as a business to concentrate on more important and profitable work.
The cost of PEO can vary depending on several factors including the number of employees in a company and the services you need. Some PEOs will charge by taking a percentage of your total payroll while others will charge a flat fee every month.
When deciding on a partner it’s worth running the calculations to work out which option will be more expensive. In addition, you should also check out for any hidden fees and make sure you understand what you’ll be paying at what point. As with everything in life, it’s worth shopping around to get a better deal.
There are several good reasons to partner with PEO.
• Saving time and money: You can save money by not hiring an internal HR team and time because you alleviate yourself of all the administrative duties involved with handling employment.
• Expertise: Having a company dedicated specifically to HR means you can leverage a fair amount of expertise and deepen your engagement with your employees.
• Better benefits: A PEO company can help you design a more effective employee benefits package to help you attract and retain top local talent.
• Local knowledge: If you’re a foreign company hiring staff in South Africa you’ll also benefit from the PEO’s company expertise in local employment law and trends. They can stop you from inadvertently breaking employment rules and can keep you abreast of all ongoing changes in regulations. That local knowledge can extend to helping you find the right people for your business at the right times. These companies will have good connections in the market and will be able to source people with the skills you need much more quickly than would otherwise be the case.
PEOs are often used by small and medium-sized businesses that lack the resources for an extensive HR department. For companies such as that HR is often a small and piecemeal department. PEOs provide all the benefits you’d get from a dedicated professional HR department at a fraction of the price.
The one downside of this operation is that you must have a legal entity in South Africa to use one. If not you might have to look at the alternative option – an employer of record.
What is an Employer of Record?
At first glance, an employer of record is more or less the same thing. As with PEO, this company will take on all the administrative and legal duties involved with managing staff. It will help you manage tax, payroll, employee benefits, vacation time, and much more.
It can help you quickly hire staff with the specific skillset you need with a much shorter notice than if you were working alone.
As with PEOs they will also make sure you abide by all regulations and that each staff member is treated by employment law.
What’s the difference between PEO and EOR
So far, so very similar, but there are important differences between the two.
Firstly, unlike a PEO you do not have to have a legal entity to use an Employer of Record. It’s a much more straightforward operation and is great if your company is moving into the South African market.
While a PEO will share employment with you, which means you will both share responsibilities. The EOR will be the legal employee of your worker which means liabilities and legal responsibilities will lie with the EOR. However, that only applies to the details such as payroll. You will be working directly with the employer.
An EOR will also handle all tax relating to the employee while a PEO will require you to handle all tax reporting under your ID number.
What’s the best PEO or EOR?
The answer to this question depends on your circumstances and what you want from the relationship. Both will take on the administrative responsibilities of employees and both will normally require you to have a minimum number of employees.
An EOR for example, may require minimums of between one and five. A PEO, on the other hand, will probably set a higher minimum of between five and ten. If you only have one or two employees in the country it might be worth checking that your chosen provider is willing to work on such a small scale.
The biggest issue will depend on what status your company has in South Africa. EORs typically come into their own for those who are new to the market and do not possess any legal entity in South Africa. Companies will often use an EOR in each of the countries they employ people in allowing them to work without registering in any of them.
PEOs on the other hand will give you all the benefits of having your own dedicated HR team with expert knowledge in that area.
Your choice will depend on several factors including:
• Budgets – how much you’re willing to pay.
• How many employees do you have in the country?
• Your future goals.
• How many responsibilities do you have that you want to outsource?
For example, if you’re looking to hire staff across multiple countries, it might be worth working with an EOR in each one. That way you benefit from all their local expertise without having to establish a legal entity in either one.
If you’re moving into a new country an EOR could be a good way to find your feet and decide whether you plan to expand your presence in the country.
For those committed to building a long-term presence with multiple employees, a PEO can be a great way to off-set much of the administrative complexity that will come with that.
Whatever you choose it’s important to shop around and make sure you have a partner who will be able to understand your needs and tailor their services accordingly. When you choose a PEO or an EOR, you’re putting a great deal of trust in their services. Managing HR or employment law may not sound exciting but getting these wrong can cause all sorts of problems. However, getting them right opens you up to the exciting benefits of harnessing South Africa’s rich, diverse, and innovative talent pool.
