Employer of Record Services in South Africa promise to open up the jobs market in South Africa. Here’s how.
South Africa is positioning itself as the talent source of the world. A combination of excellent infrastructure, a highly skilled workforce and relatively low cost of labour makes it an attractive proposition for Western companies struggling against a backdrop of skills shortages and financial pressures. Structures such as Employer of Record Services play an important role in breaking down the barriers to hiring staff in South Africa and helping businesses find people with the skills they need.
Why hire in South Africa
BPO outsourcing: South Africa’s BPO sector is thriving. Businesses are looking for value for money with a focus on quality as well as costs.
Businesses are hiring in South Africa for several reasons, but we can broadly break them down into the following categories.
•Reducing costs
•Talent acquisition
•Overseas expansion
The main goal, as always, is to cut costs. The salary gap between South Africa and the UK varies from job to job and region to region, with more skilled professions tending to be more expensive. In general, though, you can expect a 50% to 70% discount on domestic wage levels. That might be higher than in the ultra-low-cost BPO sectors, but South Africa’s reputation for quality, together with a host of government incentives, adds up to an overall proposition that offers excellent value for money.
South Africa’s workforce is highly talented and available. The education system has improved massively in the last few years, with more graduates than ever making their way onto the job market. That market, however, is fragile. Unemployment remains over 30% in South Africa, which means that hiring companies will have plenty of people to choose from. Talented professionals are available and ready to work, especially for overseas companies which can generally offer more attractive opportunities than their South African counterparts.
The third main reason to hire is to plan an overseas expansion. South Africa is one of the most vibrant markets in the entire African continent, and is often viewed as a gateway to Africa. Some of the biggest brands in the West have already forged a successful foothold in the sector. However, to be successful, you need a team on the ground that understands the local market and the opportunities. They help you identify the gap in the market and develop a marketing strategy designed to thrive within South Africa.
EORs and how they work
For all of these reasons, companies of all sizes are now recruiting in South Africa. To hire full-time employees, though, you generally need to have a legal entity within the country. Traditional BPO companies can provide outsourced services, but the workers are typically only assigned to your company and will struggle to provide the same personalised value you’d expect from a full-time employee.
Legal entities, of course, are expensive. It’s not just the cost of the professionals to consider, but also support staff such as HR professionals, legal, financial and admin support. For all but the biggest companies, setting up a foreign subsidiary will be a significant risk.
An Employer of Record aims to mitigate the risk. An EOR serves as the legal employer for tax purposes, which means it pays the wages and handles all the legal and administrative side of the employment relationship, including legal liability.
In a practical sense, though, the relationship will be much the same as any other employee. You’ll handle the assignment of tasks and control the employee’s day-to-day work schedules. Some EORs can also offer support in sourcing and selecting your new employees.
EORs are paid via an arranged fee. This covers wages and employment costs, including all relevant taxes, as well as an additional percentage of each employee’s cost. This is generally set at around 10 to 20% of the overall salary, depending on the type of work being done. More skilled professionals may tend to attract a higher fee. Some EORs may also charge further fees for additional services such as recruitment support or specialist HR software.
If you have hybrid recruitment needs, with both employees and freelancers, an EOR may also be able to help with both. It serves as the employer for your full-time staff and handles all the admin of your freelancers, including monitoring the correct classification of all workers.
Regulations surrounding EORs
South Africa’s regulatory environment is generally very favourable to the EOR sector. It sees them as being crucial in facilitating inward investment flows into the country. Government support and incentive schemes may also be available, which can further improve the return on your investment.
However, there are legal issues to consider, particularly regarding the employer status. The tax authorities will want to see a clear distinction on which entity will have overall legal responsibility for the employees in all circumstances. Unless these roles are clearly defined in your contract with the EOR, you may find yourself becoming legally liable for the employment.
Choosing an EOR
Generally speaking, an EOR will be useful if you do not have a legal entity in the country, want to employ a diverse team of full-time professionals and would like more control over the people you hire than you’d expect with a traditional BPO firm. When choosing one to work with, it pays to make sure you have a full understanding of the contract terms and what
it will offer. Some EORs will specialise in one industry or have a particularly strong presence in one city or another. If you’d rather recruit from Cape Town than Durban, for example, that might affect your choice of EOR provider.
You should also consider how long-term you want the relationship to be. If you’ll be hiring employees to do work within South Africa, rather than in your might want to consider transitioning to a direct employment model by setting up a legal entity. In this instance, an EOR can help you find your feet in this industry before moving forward alone.
