EOR, AOR or POE – What’s Best for Hiring South African Staff?

Managing South African-based employees can be tough. Fortunately, there are plenty of companies around who can help.

As businesses in the West seek to broaden their talent pools while reducing costs, demand for business process outsourcing is growing. South Africa – with its lower wages, deep talent pools and high levels of education represents a perfect option. However, getting set up and navigating the regulatory requirements of employment law can be difficult. Fines for noncompliance can be high and foreign companies can easily make mistakes. Before you start recruiting South African employees, therefore, you need to determine how your workforce will be managed.

Setting up in South Africa

Traditionally businesses that set out to hire employees in South Africa would have had to establish a specialist legal entity such as a subsidiary through which they could hire South African-based employees. The subsidiary would work alongside the main domestic company managing operations in South Africa.

This provides complete control over your in-country staff, but it comes at a price. Establishing a legal entity is expensive. You’ll have to recruit people, purchase equipment, and hire office space. As well as front-line staff delivering your product or service you’ll also need the whole gamut of supporting operations such as accounting and HR to manage operations and ensure compliance.

For this reason, foreign expansion has typically been seen as the reserve of large and wealthy corporations. The barriers for smaller businesses are simply too high.

However, digital technology is making the world smaller by the year. It’s opened up the world to small and medium-sized enterprises allowing them to access new markets and sell to more people around the world.

It has transformed prospects in talent sourcing. Previously a business would have had to recruit from its own country or, in most cases, from its region. They would be limited by the skills and experience in that area.

Technology – especially the rise of fast communications and remote working means businesses can potentially work with people anywhere in the world. Thanks to video conferencing and instant messaging, a freelancer in South Africa can now collaborate seamlessly with your team without any delay.

Teams in one country can work quickly and easily with teams in another. For example, some companies are installing video walls in their office so that staff in their domestic HR can virtually speak face-to-face with those in a city on the other side of the world.

Even so, whenever you hire workers in another country, you’ll still have to comply with its labour laws. All workers will have to be classified correctly, taxes paid, and reports delivered to the authorities.

To overcome these issues a range of third-party companies exist offering support and specialist HR expertise to help you fulfil your legal obligations and stay on the right side of the law. These include:

·       Agents of Record.

·       Employers of Record.

·       Professional Employers Organization.

Agents of Records (AOR)

If you regularly work with independent contractors, you may consider hiring an Agent of Record. An AOR there will manage your contractors making sure they are classified correctly and handling processes such as onboarding, payment, and talent sourcing. It reduces the workload and risks associated with hiring freelancers.

Each territory has its own rules about hiring contractors and how they should be classified. The more regularly you work with a contractor, the more blurred the line between independent contractors and full-time employees becomes. If the authorities feel your freelancers should be classified as full-time employees you could be liable to penalties and back payment of missing contributions.

If the authorities feel your contravention of these rules was intentional you could even end up facing criminal charges.

The AOR will advise you on how workers should be classified and will manage day-to-day operations such as:

·       Onboarding new contractors and establishing the working setup.

·       Compliance with local labour laws

·       Payment for contractors.

·       Communication with contractors.

AORs can handle payroll obligations making sure contractors are paid on time and in the most cost-effective way. They can help you avoid any payment delays which can harm the relationship with contractors.

Every independent legal jurisdiction around the world - countries, states, autonomous regions, territories, or provinces - has its own rules governing the classification of full- and part-time employees versus contractors. This makes navigating the nuances of these distinctions, for purposes of international compliance, something of a minefield. An AoR takes the responsibility for compliance out of your hands.

Ultimately an AOR is all about risk mitigation. It works well for companies that have diverse projects for which they may need to hire professionals on a contractual basis. They can help you build up a pool of contractors from which you can draw to work on specific projects as and when you need to.

Employer’s of Record (EOR).

If you hire full-time employees you may want to choose an Employer of Record South Africa. They are third parties that serve as the legal employers of your workers in South Africa. They will handle all administrative details of employment including:

·       Onboarding

·       Payroll benefits.

·       Managing employee benefits.

·       Compliance with labour laws.

·       Payment of corporate taxes.

The EOR can help at every stage of the employment process. They can sometimes help you with the recruitment and onboarding of staff that you have identified. They can then ensure that all documentation is processed and that the employee is registered correctly. During the employment they will manage all PAYE requirements ensuring that employees are classified correctly, taxes are paid on time, and that you have complied with all labour laws.

The EOR can also help with any disputes during the course of a working relationship and if employment is terminated make sure that you provide adequate notice and compensation when appropriate.

The main difference between an EOR and an AOR is that an EOR is more focused on a team of full-time employees. They will also be the legal employer of your workers within South Africa which means they have legal liability for the management of that employee. With an AOR, on the other hand, you will still have liability for managing all contractors.

They will take the administrative load off your shoulders while you manage the day-to-day work of your employees.

Professional Employers Organizations (PEO)

A PEO works in much the same way as an EOR and the two terms are often used interchangeably. However, the big difference is that while an EOR is the legal employer and takes on all legal responsibility, a PEO will share employment liability with you, the client.

Typically the PEO will take care of all the HR duties such as onboarding and managing payroll and taxes while you will handle the day-to-day relationship with the employee.

A PEO provides much more control over your South African-based workers while with an EOR you will have no formal legal relationship. That control can give you more say over the working relationship although it can leave you exposed to legal liabilities for any compliance problems.

As with an EOR, a PEO can often be used by foreign companies looking to hire South African staff, but it can also often be used by domestic companies looking to offload their HR functions.

Each of these has its nuances and features, but they all perform the same basic task – to help you manage your South African staff in the most cost-effective way possible.

Which one you choose will depend on your business type and what you want from your employees. As your involvement in South Africa increases, you may also want to change the way you work with these.

For example, in the earliest stages, you may be working with freelancers on an individual and ad-hoc basis. As you develop a pool of freelancers you may want to formalize that relationship through an AOR.

As you work with them more regularly it may become necessary from a practical and compliance perspective to employ them full time in which case it makes sense to hire a PEO or an EOR.

An EOR removes the need to establish a legal entity which makes it a good low-cost and light-touch option. It’s ideal if you’re starting to expand into the South African market but want to limit your exposure in case things don’t work out as planned.

As you become more established you might want to take on the full expense of a legal entity by setting up a subsidiary. This can help you manage your operations and grow your South African business.

What an EOR offers, though, is a valuable and cost-effective way to limit your risks, comply with the rules, and build yourself a team in South Africa.

To find out more about the differences between an EOR, AOR and PEO download a PDF of our free guide today.