Cost & Salary Insights
Thanks to the latest digital technologies and superfast bank transfers, paying employees in South Africa has never been faster, easier, or cheaper.
Outsourcing in South Africa is a way to access fresh talent, optimise staffing costs, and open up new market opportunities. Once you’ve assembled your team, you need to decide on the best way to pay them. The costs and logistics of this will vary depending on the working relationship you have with them, the various associated costs involved, and any intermediary organisations you’re working with.
Hiring in South Africa
The rise of remote working has seen the workforce go global. Businesses routinely work with many different business professionals, including freelance and full-time contractors, in locations around the world.
Technology makes this simpler than ever, but complexities can arise when it comes to payment. Transfer fees, exchange rates, and differences in regulations can all have an impact on how you move money from one border to another. Which option you go for will do much to determine the overall cost of your operations.
Paying contractors and freelancers
One of the first ways companies hire workers in South Africa is on a freelance or contractual basis. Digital technology means freelancers can collaborate remotely with their domestic team in real time. South Africa’s time zone is only a couple of hours different from the UK’s, which means working hours match up pretty well.
Work will be on a case-by-case basis, as will payment. Freelancers will complete projects at the end of which they will submit an invoice.
This can be done in the following ways:
• International bank transfers: Simple transfers can now be made much more easily across countries. In some cases, though, they may take a few days to reach the recipient’s bank account, which can cause some frustration. You may have to pay additional fees, and costs will also be affected by exchange rate fluctuations, so it pays to have a clear idea of these before you start.
• Online money transfer platforms: Digital technology facilitated the rise of challenger banks with small, agile fintech startups offering faster and cheaper ways to move money. Platforms offer varying fees and transfer times, which can be anything from instant to a day or two. PayPal, for example, is available in most countries and is quick and easy to use. However, fees can be higher than newer platforms such as Wise.
• Money orders: For some in South Africa, money transfer orders may still be preferred. These can be slow and expensive and involve physically sending money from one player to another through a provider such as Western Union. People will physically go to the location and pick up money.
• Freelance provider platforms: Sites such as Upwork of Fiverr connect freelancers and clients around the world. Work is generally contained virtually exclusively within the platform, which means work is commissioned, sent in, reviewed, and payment made all within the platform. These sites can be open to freelancers in any country, which makes it a good way to broaden your search for contractors and can process payments across all countries. However, both you, as the hiring company, and the freelancer will often have to pay a fee to the platform.
• Cryptocurrencies: In some cases, freelancers accept cryptocurrencies. These can be transferred quickly and at low cost, but their high volatility means they remain very much a fringe option.
Which of these options you choose will generally be by arrangement between you and the freelancer. It’s a direct way of working, especially as the freelancer is responsible for sorting out his or her taxes.
As the working relationship grows, though, and becomes more regular, you may run into some worker classification issues as they start to look more and more like full-time employees. In some cases, it may be worth seeking out the support of an agent of record (AOR) to handle your freelancer and make sure each of these is treated in the right way. An AOR will add costs to the process through their fees, but they save the expense and risk of any compliance problems.
Paying full-time employees
As your working presence in South Africa grows, you may start to build a team of full-time employees. You may be working with them either directly through a subsidiary or through an intermediary such as a Business Process Outsourcing (BPO) provider or an Employer of Record (EOR). Either way, they will need to be paid.
If you set up a subsidiary, you will be the legal employer, which means you will have to handle the payment of wages and all payroll duties, such as withholding taxes and making sure everyone has access to the requisite level of employee benefits and annual leave provisions.
To do this, you will need a support staff in the form of HR departments, accountants, or legal experts to make sure you stay on the right side of South African law. It’s expensive and can divert your attention from your key strategic goals in the country.
The lighter touch approach is to use a BPO, EOR, or a Professional Employers Organisation.
With PEO, you will share employment status with the PEO, managing all of the administration. On top of your wage expenses, therefore, you’ll have to pay fees to the PEO.
However, this does avoid the expense and work involved in setting up a full HR team. The PEO handles the admin, and you concentrate on the working relationship.
An EOR, on the other hand, has full legal responsibility as the employer, which means you don’t need to set up a legal entity in the country, and you won’t have legal liability for the employees. It’s a cheaper and safer way to pay for employees that does not expose you to any legal risks.
The EOR will pay the salaries of your employees, which means your costs will come through the EOR fees. These will be enough to cover ages and admin costs as well as providing a profit to the EOR. However, it does save on the costs of a legal entity and any other direct employees.
EORs offer varying service levels depending on the contract. They can help with recruitment and talent acquisition, and they can offer specialist HR software to help you keep track of your team.
For foreign companies looking to navigate the complexities of South African HR law, this can be a safe and convenient way to make sure everyone gets paid and the regulations are all fully satisfied.
