An Employer of Record is a vital partner to help you navigate the complex legal requirements of hiring staff in South Africa.
South Africa’s labour market represents a tempting option for businesses in the UK. Not only is there a healthy reserve of highly talented professionals to work with, but they come at a substantial discount compared to their counterparts in the West. Broadly speaking, the South African government has been as welcoming as possible for foreign companies looking to outsource operations. However, the nuances of South African labour law can easily catch out any company that does not possess a full understanding of the legal landscape. That’s where an Employer of Record (EOR) comes in.
What are EORs?
Employers of Record have become an essential pillar of the business process outsourcing (BPO) industry. They work with foreign companies looking to hire South African staff and aim to reduce the logistical, practical and financial hurdles standing in the way of expansion.
An EOR will serve as the legal employer for all South African-based staff, which firstly means they handle all the legal and administrative details of employment, and secondly, that they assume full legal liability. In other words, if any mistakes are made, the EOR will be held accountable, not you.
Paying EORs and staff
From a legal perspective, the EOR is the recognised employer. That means all workers are employed by the EOR and made available to you as a hiring company. You will manage the day-to-day working relationship, while the EOR ensures the employment remains compliant with all legal specifications.
In terms of payment, the EOR must pay the worker’s salary directly. There has to be a clear delineation that clearly states who is paying whom.
As the hiring company, you will then be responsible for paying the EOR a fee. This will be based on the number of people you’re hiring and the level of services on offer.
Some EORs, for example, will offer tiered services, much as you might receive with a software provider, with basic plans offering access to employees, and more expensive plans providing options such as specialist recruitment software or more flexible support with sourcing and recruiting staff.
South African employment law
Labour laws in South Africa are relatively liberal and include high levels of protection for workers. Unions are strong with collective bargaining rights. Any company looking to hire people in South Africa will have to ensure it complies with the rules.
In South Africa, labour laws are governed by the Labour Relations Act (LRA), Basic Conditions of Employment Act (BCEA) and the Employment Equity Act (EEA). These cover working conditions, including any disciplinary processes, dispute resolutions and maximum working hours.
One significant difference between South Africa and Western economies tends to be a focus on employment equity. This comes in part from the country’s history and a desire to foster economic empowerment within black and underrepresented communities. This strategy includes provisions such as affirmative action, which will be more ambitious than in places such as the UK, where there is a commitment to equality, but no clear statement for affirmative action.
South Africa also has strict provisions around worker classification. In recent times, there has been a growing emphasis on evasion practices such as disguised employment. As labour markets become more agile and diverse, companies have increasingly mixed full-time employees with more casual freelancers.
Finding the boundaries between the two can be complicated, and some businesses will be tempted to try, where possible, to classify employees as freelancers. This makes sense from a financial and logistical perspective, as there is no need to manage PAYE or pay employer contributions. However, if the authorities believe your company has misclassified employees, they may take action with hefty fines. In cases of intentional or repeat offences, these may include criminal prosecution.
The good news is that responsibility for compliance rests with the EOR, who assumes all legal responsibilities and liabilities under South African law. That means you, as the hiring company, will be fully protected.
Temporary Employment Services (TES)
One area in which you’ll have to pay close attention comes in the question of temporary employment services, or labour brokerage, and Section 198 of the LRA. According to this, any worker who earns below a certain level and is employed using TES for more than three months could be deemed an employee of the client company rather than just the intermediary. This shared employment status could have significant implications for the EOR and you as the client company if you work on a long-term basis.
That doesn’t mean you can use an EOR long term, but if an EOR’s form of operation is similar to the TES, they will have to make sure they don’t fall into this category. If that were to happen, the client company could then have some employer obligations, exposing it to added costs and liabilities.
The key issue here will be the strength of the EOR contract. This must be transparent and include clear, unambiguous definitions of the employment relationship and the EOR’s roles. It should ensure that any engagement lasting beyond three months will be fully justified and legally compliant.
Sector-specific compliance
Legal compliance is not a uniform landscape. Different sectors such as construction, the law, hospitality or agriculture often come with their own set of regulations, which will often require a further set of specialisms.
If you do have a specific industry in mind, you should make sure that your chosen EOR contains people with dedicated experience in that field and a full understanding of the latest rules.
These laws can often vary depending on new technologies or regulatory initiatives. Staying up to date with the latest and forthcoming changes is crucial in enabling your business to adapt.
When choosing an EOR, make sure their expertise extends to the specific industry you’re looking to work in and that you are clear about how they should be classified according to all labour regulations. All this should be worked out at the earliest stage possible, with clear delineation of an EOR’s working relationship and the status of all employees.
