Are you looking at hiring employees in South Africa? If so, here’s everything you need to know.
South Africa is one of the fastest-growing business process outsourcing destinations in the world. Low labor costs, excellent infrastructure, and a diverse highly qualified workforce make for the perfect ingredients for businesses of all sizes. If you and your business plan to be among the many making their way out there here’s everything you need to know about hiring, paying, and managing your employees.
Why South Africa
South Africa has an enormous amount going for it. The workforce is diverse, young, and highly educated. Professionals can be found across a wide range of disciplines which means there are opportunities across all job roles and sectors. The cost of living in South Africa is lower. Although it is rising with an upward pressure on wages cities such as Cape Town, Durban, and Johannesburg are still among the cheapest places to live in the world.
Foreign companies, therefore, can benefit from a highly skilled and dedicated workforce that comes at a relative price premium compared to their domestic markets. Faster communications also mean they have access to a wider range of talent which enables them to reach out to professionals and contractors with skills that might not be available within their location.
South Africa’s highly professional talent base is being mined by companies all around the world as they seek to expand outsourcing into areas that were previously out of reach. It is no longer just a low-cost enterprise – it’s an option that can truly broaden the horizons of companies and open up a wealth of new opportunities.
Those opportunities are supported by an incredibly welcoming regulatory environment. Business process outsourcing has become the country’s top export. It generates thousands of new jobs every year and has promoted a huge influx of capital into the economy, something that South Africa’s growth-friendly government is keen to encourage.
The economy is growing making South Africa an attractive and thriving market in its own right. Growing disposable incomes and a familiar culture means there is a ready market for many Western products and services. However, the real value lies in South Africa’s status as the gateway to Africa. Succeed here and other equally lucrative markets across the continent can open up.
Whatever your company’s outsourcing goals, therefore, South Africa represents an extremely attractive proposition. There is a good supply of talent, good communications and IT infrastructure and supportive government policies. It should come as no surprise, therefore, that South Africa is fast becoming one of the most popular outsourcing destinations in the world. It offers a truly multidimensional proposition in which companies no longer have to choose between price and quality.
Hiring employees in South Africa
Companies looking to outsource to South Africa can benefit from a host of tax breaks and other incentives including grants for those companies that create new jobs for South Africans. Taking these grants into consideration, the final price paid for South African workers can help it compete with almost any destination out there.
The basics
Before you start hiring in South Africa it pays to understand a few basics about the country and the workforce.
• Currency: The main currency is ZAR – the current exchange rate is 1ZAR to £0.044
• Language: South Africa has 11 main languages including Xhoza, Zulu, Africaans and English. However, English is commonly spoken with most people in South Africa being highly proficient.
• Holidays: There are 14 public holidays in South Africa and workers are entitled to 21 days of paid annual leave.
• Maternity leave: Workers are entitled to up to four months of maternity leave which should start at least four weeks before giving birth.
Many South African employees have non-compete agreements which means they may not be able to work for a competing company for periods of between six and 12 months. When looking to hire staff from competing companies it’s worth understanding the contents of any such agreements.
Setting up your business
Outsourcing to Africa can be done in several ways.
Using an outsourcing company: Many companies provide outsourcing services such as call centers to clients in the UK. These companies have their own trained staff, but they will not be controlled by you and will not have dedicated knowledge of your product.
Set up a legal entity: The standard approach to hiring South African staff has been to set up a legal entity in the country – such as a foreign branch or a subsidiary. You will be directly employing staff and will have to set up a supporting infrastructure to manage their employment including details such as managing PAYE, employment rights, and ensuring everyone is classified correctly. This can cost money and without local knowledge can open you up to several compliance risks.
Employer of Record: Rather than the time, effort, and money of setting up a subsidiary, you can engage the services of an employer of record (EOR). They serve as the legal employer of staff in South Africa and handle all the administrative, financial, and legal details of your
employees. You benefit from local knowledge and understanding of employment law to eliminate exposure to compliance risks. As the legal employer of your South African workforce, they will also assume any liability for compliance issues which means they take on all the work and the risk.
Professional Employers Association (PEA): A Professional Employer’s Association works in much the same way as an EOR, and they are often described in the same way. However, unlike an EOR PEO will be a joint employee along with you. That means they will take on the administrative duties of handling employment while you manage the day-to-day relationship. They have the same advantages in terms of taking on the workload of managing staff but do not remove legal liability. It’s a lot like having access to your in-country HR department with specialist local knowledge of the market.
You can work with an EOR in several ways. A standard approach is to pay a flat fee per employee for which the EOR will perform duties such as:
• Pre-employment screening including referencing, identity, and qualification checks. This will generally incur a one-off fee.
• Onboarding including drawing up contracts, managing inductions, and setting up Payroll.
• Dealing with any disciplinary procedures and grievance processes. They will also manage the termination of employment when necessary.
Some may also offer remote employee software for a small additional fee. They may also offer customized services including help with recruitment and sourcing staff. These arrangements can be customized to a fee based on your personal use.
Contractors and freelancers
An alternative to full-time staff is to hire freelancers and contractors. The freelance market is booming in South Africa with professionals available in all disciplines. Freelancers can be engaged on a contract-by-contract basis. They will generally perform a set piece of work and set payment terms on a case-by-case basis. Payment can be arranged by several methods including bank transfer, international payment platforms, mobile payments, or money orders, depending on the freelancer’s preferences.
Faster communications make it easier to work with freelancers from around the world including in South Africa, while faster payment methods also reduce barriers to payment and broaden your talent pool.
For more regular work many employ a contractor. They may perform work for you over a prolonged period but might not be restricted exclusively to your company. They may work remotely or on-site at your business premises.
However, the more regular your working relationship becomes with a contractor, the more important it is to monitor how the employment is classified. South Africa is cracking down on practices of disguised employment in which companies try to classify defacto employees as contractors to avoid all the expenses that come with full-time employment.
An Agent of Record can help you to manage that relationship and ensure contractors are classified correctly. It manages details such as onboarding, contract development, background checks, and screening. It’s a great option for those who regularly work with contractors and want to make sure that they get the relationship right.
If you want to hire employees in South Africa, then, there are many different options. Which one is right for you will depend on your type of business, strategy, and what stage of the process you’re at.
