With an Employer of Record, you can easily manage a multidisciplinary team of professionals in South Africa.
The outsourcing market in South Africa has never been stronger. Businesses from around the world are tapping the labour market to find professionals of all kinds. However, as with any country, navigating the different legal and administrative requirements can be challenging. That’s why the most important ingredient of any outsourcing strategy will be an Employer of Record company.
What does an EOR do?
Employers of Record are often billed as a way to outsource your HR function. They will take on all the heavy lifting that would normally be done by your HR team, including onboarding new staff, handling worker classification, managing PAYE, withholding tax and making sure that the company complies with all aspects of employment law.
These companies have added benefits because they employ HR experts and will also be equipped with the latest recruitment software and technologies, enabling you to crank up all HR admin duties to meet best-in-class standards.
On top of that, though, an EOR is the legal employer of your South African staff. In other words, as well as handling the employment details, they will also pay them directly out of their own budget.
This means that any foreign company can hire people through an EOR without the need to set up a legal entity within South Africa or deal directly with the tax authorities. Crucially, it also means that the EOR will have legal liability for all employees. That means if there are any issues, such as in how a worker is classified, it will be the EOR that is held accountable.
An EOR, therefore, comes with several key benefits:
• It’s cheaper, at least in the short term: Working with an EOR avoids the need to set up a legal entity such as a foreign subsidiary. This is a massive undertaking and involves a high degree of front-loaded costs. It heightens the risk of any foreign expansion, making it prohibitive to all but the largest corporations.
• It’s safer: South Africa’s labour laws are relatively liberal and include high levels of employee protection. Strict provisions are also in place around how tax should be paid and worker classification. As a foreign company, it can be difficult to keep abreast of all regulatory details. Unintentional non-compliance is a serious risk, and fines can be high. EORs have legal liability, which shields you from any regulatory risks.
• It’s easier: Without the need to manage all the HR admin, your time is freed up to concentrate on the working relationship and your core business strategy.
What is the day-to-day relationship like?
Exactly how the relationship works varies from one EOR provider to another. Some will work differently in terms of the level of support they provide in the recruitment and sourcing process, as well as the level of ongoing flexibility.
In some ways, you will be more constrained than if you employed people directly. As the legal employer, the EOR will have their own contracts, which come with a standard set of employee benefits and perks. While these will meet the minimum standards as required by labour laws, they may be slightly lacking if you want to offer extra tailored benefits to incentivise employees.
Providers also vary in how much support they provide during the recruitment process. Leading providers offer full support and help you source and recruit people with the specific skills you need to get the work done.
When choosing the provider, it’s worth getting a detailed understanding to find out the level of support on offer and how the working relationship might proceed on a daily basis.
Payment will usually come through a fee based on the number of employees and the level of support on offer. This will normally be by arrangement and will be negotiated when the contract is signed.
What sectors can it cover?
The most common sectors covered tend to be in areas such as customer service and IT support. High levels of English competencies and a good time zone match mean many companies have focused on South Africa as the perfect outsourcing destination for their call centres.
However, EORs can be used in all sorts of industries and can cover multidisciplinary teams. Indeed, as technology becomes more agile, companies are broadening the range of sectors in which they work with EORs.
For example, South Africa’s cheaper labour costs have encouraged many companies to actively seek out freelancers for a range of services within South Africa. At first, these professionals might be engaged directly with jobs being completed and invoices raised, but as freelance teams grow, it can be worth formalising the working relationship through an EOR. This avoids any unintentional issues with worker classifications and heads off accusations of disguised employment.
Are EORs for the long term?
As the market evolves, more and more companies are maintaining long-term relationships with EORs. In the past, these companies may have been seen as stepping stones – an option for companies with no legal entities in South Africa as a way to gain a foothold in the market.
The name of the game would be that, as the company expands and business grows within South Africa, the time will come when it’s worth setting up a dedicated legal entity such as a subsidiary. Employees can then be moved directly to that subsidiary, giving the company full control over the employee.
However, EORs are proving their worth for longer engagements thanks largely to the way this sector has evolved in recent times.
The leading providers have adapted to offer much more personalisation in the selection of employees. A common concern with EORs is that, because the workers aren’t employed directly, they might suffer from a degree of disconnect. As a hiring business, you might have lacked control over the type of people that would be hired and the skills they offered.
However, EOR companies have become much more responsive, with some services offering full recruitment support. This gives you much more control over the process and allows you to control which professionals are hired and that they match the skills requirements of your team.
The EOR’s local experience and sector-specific expertise can come into play by enabling more targeted talent sourcing. With their help, you can have much more of a say in the people you bring into the company.
New technology has also helped enormously. Faster communications, such as video conferencing, make it easy to collaborate face-to-face with people, almost as if they were in the room with you.
Moving into the future, therefore, EORs will have an increasingly important role in the outsourcing industry. They provide a valuable pipeline that helps foreign companies invest in the South African economy. In doing so, they can support outsourcing operations across multiple sectors and incorporate highly agile multi-disciplinary teams.
Whatever your sector and whatever stage your company is at, an EOR can be an outstanding option for your overseas teams.
