What is an international Professional Employer OrganisatioAn international PEO can help you manage foreign staff in South Africa and other countries.
As digital technology transforms the outlook of businesses of sizes, companies in the West are increasingly looking to widen their talent pool by looking overseas. Countries such as South Africa with low labour costs and a highly educated workforce represent an attractive opportunity. However, labor laws in South Africa are tight and any business looking to employ South Africans will have to ensure they have complied with all their obligations. An international PEO can help them do just that.
What does an international PEO do?
PEO stands FOR Professional Employer’s Organization. Whether you’re looking to employ a handful of staff or set up a growing foreign operation, these companies can work with you to handle the legal, regulatory and administrative details of hiring staff.
Essentially, an international PEO can serve as your HR department in that country taking care of critical tasks such as:
1. Onboarding and contracts
A PEO can help you source and recruit top talent in the country. Local experts can help you find professionals with the skills you need across a range of disciplines from telecommunications staff to software developers or IT support. Once you’ve identified the talent, they can handle the entire onboarding process managing inductions and contracts to make the process as seamless as possible.
2. Payroll, tax and benefits
Dealing with payroll, tax and benefits can be a major administrative headache, especially if you’re working in an unfamiliar country. A PEO will make sure all take is withheld and paid to the authorities on time. They will ensure staff receive competitive benefits that meet minimum obligations and will establish you as an attractive destination for the best talent around.
3. Compliance
One of the biggest fears for foreign companies working in South Africa is handling compliance obligations. Each country has its own set of labor laws which will be subject to constant change. Without embedded HR experts in a host country, it’s easy to unwittingly make costly compliance mistakes. South Africa, in particular, has some stringent employment laws, especially around worker rights and issues of disguised employment. Any company found guilty of not meeting its legal obligations can expect to face heavy fines.
Working with a PEO should be straightforward. They will handle the day-to-day details of the employment, while you engage directly with your worker as normal. It frees your team up allowing you to focus on the working relationship and your key strategic objectives.
Payment can be handled in several ways – either a percentage of the overall payroll or a flat fee per employee. A payroll-based fee might be best when your employment needs are stable with few variables being thrown into the mix. It means you can easily predict your payroll costs for the coming year.
Per-employee contracts can be more useful when there are more variables such as commission. For example, in seasonal work, commission-based costs may spike dramatically from one month to another. However, the cost per employee will remain the same.
PEO vs EOR: Are they the same?
Using an international PEO is not the only option. Another common option is an employer of record (EOR). Both options work similarly and you’ll often see the two mixed up. However, they have several key differences, such as the status of the employee, costs, and how they engage. Other options might include hiring contractors or setting up a legal entity in the form of a foreign subsidiary.
Each of these options has its pros and cons. Your choice will depend on your strategic goals, the nature of your workforce, and what you want from the working relationship.
1. EOR vs Independent contractors
Independent contractors are often the first port of call for a business looking to take its first steps in a country. They work on an ad-hoc basis and will submit invoices for each job done. They will handle their tax and will not be entitled to any benefits which makes them a convenient, and cost-effective way to get work done. With video and instant messaging technology encouraging greater use of remote work, many companies are looking to places such as South Africa to access skilled freelancers that they might not be able to find in their home territories. However, as your business grows and you start to work with contractors more regularly, you might want to consider moving towards a full-time employment contract.
2. EOR vs PEO
When dealing with full-time salaried employees, an EOR or PEO can be a
cost-effective way to meet all your administrative and legal obligations. Both types of companies can take on the admin and legal duties of handling your staff. However, the big difference is that an EOR will assume full legal liability for your foreign-based staff, while a PEO involves joint employment between you and the PEO. That can cause some issues of shared control or liabilities. PEOs often also have a minimum number of employees and are often used by companies that already have a legal entity in the country.
An EOR on the other hand assumes full legal liability for all employees which can protect you from any regulatory exposure. They will be less likely to have minimum employee levels and will take responsibility for paying staff directly and ensuring the tax authorities get their due. All you have to do is pay the EOR. It’s a flexible and cost-effective way to handle your employees.
3. EOR vs Local entity
The traditional approach to hiring foreign-based staff has always been to set up a local legal entity in the form of a subsidiary. This gives you a local presence but can be expensive. You’ll need to go through all the legal and administrative hurdles of setting up a subsidiary and hiring staff including an HR team to handle all employment obligations. Options such as an EOR or PEO sprung up as a more cost-effective way for smaller businesses to make their first moves in the country and manage their staff.
When should I use PEO services?
Whether or not you use PEO or one of those other options, depends on the type of staff you’re hiring, your own business needs, and the terms of the PEO.
• Starting up: They are often used by companies that are just starting up or dipping their toe into a new market. A PEO can manage your employment needs in that country
• Outsourcing: If you want to save labor costs, outsourcing key operations can be a good option. A PEO can handle payment and compliance for all your foreign-based staff.
• Switching from contractors to employees: If you’re working with staff on a more regular basis you may need to switch to full employment. Authorities have become increasingly quick to clamp down on instances of disguised employment in which people are effectively working full-time but being paid on a freelance basis. When work becomes more regular switching to a salary rather than paying per job can also be cheaper.
First things first, you need to make sure you match the terms and conditions of PEO such as a minimum number of employees, and that there will not be any problems making certain payments.
When choosing between EOR, PEO, legal entities, or another option, you should understand your likely costs and legal obligations to choose the best option to help you achieve all your goals.
Start hiring in South Africa
Countries such as South Africa have become increasingly popular outsourcing for a range of disciplines. While companies in the West initially began outsourcing operations such as telecoms to low-cost destinations such as India, language barriers caused complaints from customers. Without such a language barrier and with labor costs still lower than in the West locations such as South Africa became increasingly attractive options.
Although labor costs might be slightly higher in South Africa than in other low-cost destinations, once lucrative government incentives are taken into account it still represents a major discount on the West and, in some instances, can be even more cost-effective than countries such as India.
Like all countries, though, it has its own set of labor laws. To make sure you avoid compliance risks and handle everything in the most cost-efficient way an international PEO or EOR can help you get the maximum value from your foreign-based staff.
To find out more about PEOs download our free guide today.
