If you're looking to expand into a new market an employer of record can provide all the support you need.

Technology has been shrinking the world for centuries. Today the rise of digital technology has opened the door for businesses of all sizes to expand into new markets. Barriers are breaking down. Connections are being formed. Even small businesses can now open up foreign branches at a much lower cost than ever before.

Even so, expanding into new markets can be tough. Each country has its characteristics, nuances, regulations and customer profiles. What works in one country might not work well in another. Some of the biggest brands in the world have seen successful business models fall flat when translated into a new market.

That's why it can be worthwhile to hire a local partner such as an Employer of Record (EOR). They can provide the support, expertise and knowledge to help you minimize the risk and maximize the opportunities of an overseas expansion. In this article, we'll look at why choosing a good EOR could be the best decision you ever make.

What is an Employer of Record?

An EOR provides support to companies looking to outsourcing South African staff. They serve as the legal employer for all locally based workers and will handle all the administrative tasks of managing employment, from talent acquisition to onboarding, providing payment, processing PAYE, and making sure all labor laws are satisfied. As the legal employer of that person, the EOR will be legally responsible for meeting all regulatory requirements. That means that if any rules are broken, they will be legally accountable.

As an outsourcing company, you will still retain control of the day-to-day relationship with the workers, such as handling workloads and assessing performance levels.

The EOR will effectively serve as your HR department for all operations in the country. You will pay them a fee based on the number of employees they provide and they will pay wages directly.

An EOR can take many forms. They may be business process outsourcing firms offering services such as call center functions. They will often have their own staff whom they assign to new clients, or they may recruit staff on your behalf.

They can be great options when outsourcing who functions but can also be the first stage in an overseas expansion helping you to build a domestic team, source contractors and build your strategy.

An affordable option

The biggest and most obvious advantage of an EOR is cost and convenience. Traditionally, businesses would need a legal entity in the country to start an expansion. This would be costly and would involve securing business premises, purchasing equipment and hiring a locally based team. It would likely have to include all functions including support staff to manage your locally based employees.

It was an expensive and high-risk way of doing business, especially given the high risk of a new expansion. Without any guarantee of success businesses were expected to make a major financial commitment to a new territory. The scale of this commitment meant only businesses of a certain size could accommodate the risk.

With an Employer of Record (EOR) there is no need to set up a legal entity. All you have to do is hire the EOR, tell them what employees you need, and they will handle the rest. It's a light-touch solution that allows access to a market with minimal financial exposure.

Administrative support

One of the key barriers to a successful overseas expansion can be the amount of time spent on low-value – but essential – tasks such as administration. Hiring full-time workers can be a major undertaking and the task of making sure all the Is are dotted and Ts crossed can distract you from the major challenge of building your brand in this new territory.

With an EOR you don't need to care about anything other than the day-to-day working relationship. The staff at the EOR will handle all the admin leaving you and your new employees to focus on the high-value tasks of building your business. It helps you ensure that a greater proportion of your focus is on growth and business development.

Local expertise

Local knowledge is essential to any successful market expansion. Each market has its own peculiarities and the chances are you'll need to adapt your product or your strategy to match.

History is full of stories of successful brands that haven't worked in new countries. Just ask Tesco whose efforts to crack the US market ended resoundingly in failure. In the UK it was one of the biggest names in the supermarket sector but in the US it sunk without a trace.

Its failure was down to many factors but the biggest was a failure to understand American consumers, and the market conditions as well as a host of basic strategic errors.

Tesco went in with its Fresh and Easy brand which it hoped would be convenient one-stop stores. However, they weren't what US consumers wanted. The market was competitive, which meant customers had a huge amount of choice. Compared to other stores, Tesco's offerings were limited.

Without any established name recognition in the country, it struggled to make an impact.

The local expertise of an EOR can help you adapt your product or service to the new market. It can help you source and recruit people with local marketing expertise in your sector and give them all the support they need to build an effective domestic marketing strategy.

Local knowledge is also vital in handling regulatory issues. South Africa's regulatory landscape is ever-changing and can be complicated. Laws and penalties can be strict and it can be easy to unintentionally break the rules.

For example, labor laws can be strict especially around worker classification. The authorities are particularly keen to crack down on any business practicing what they see as disguised employment – namely treating de facto employees as contractors to avoid PAYE obligations.

When you're entering a new market the boundaries between the two can become blurred. In the early stages, you might engage the services of a contractor. As work picks up the relationship may become more regular. At some point, they may become indistinguishable in practical terms from any of your other employees.

An EOR will be able to help with worker classification by advising you when the boundary has been reached and breached. They help you avoid unintentional noncompliance and help you keep abreast of any changes in the domestic regulatory environment. Because they retain all legal liability for your employees, they will be accountable for any regulatory issues that do occur.

Hiring EORs in South Africa

You can work with EORs in all sorts of countries. In South Africa, though, they benefit from high levels of sophistication, technological capability, governance and oversight. The South African government has been keen to encourage the business process outsourcing sector. It has become the country's biggest export and has supplied thousands of jobs over the past few years. It is an essential pillar in the country's economic strategy.

To that end, they have worked hard to create a positive business environment. Foreign companies can benefit from an environment in which companies maintain the highest international standards in governance, accountability and data security. Employer of record South Africa offer a secure and reliable option that complies with all global financial and data protection regulations.

An EOR is not the only option. Businesses can also choose other entities such as:

  • An Agent of Record (AOR): They work similarly to EORs but tend to be better suited for handling contractors. They handle details such as worker classifications and all administrative support and are great if you're having to deal with large numbers of contractors.
  • Professional Employer's Organization (PEO): Unlike an EOR employment will be shared between you as the outsourcing company and the PEO. They handle the administration of the employment while you handle the day-to-day working relationship. In essence, a PEO can take on the role of your domestic HR department without the expense and fuss of setting one up.
  • Working with freelancers: In the early stages of an expansion, you may simply work in an ad-hoc manner with contractors and freelancers. This can be a very casual relationship as contractors handle all their taxes. You'll simply have to worry about paying them. This can be done in several ways and will normally depend on negotiation with the contractor. As the working relationship grows and you take on more contractors, you may want to formalize things through an EOR.
  • Setting up a subsidiary: The most expensive option involves setting up a legal entity with a South African subsidiary. This is a major undertaking involving a sizable financial and administrative commitment. It is often the chosen approach of large companies with plenty of resources and an established presence. However, even the largest companies are catching on to the advantages of hiring an EOR.

Depending on the type of market expansion you may choose one or several of these options. In some cases, you may progress from one to the other as your involvement in the South African market becomes deeper.

An EOR, though, represents an easy, safe and affordable way to manage an overseas expansion. Given the highly competitive nature of the South African market and the uncertainty surrounding the success of your strategies an EOR gives you the best chance of success while limiting your risk exposure.

For more information about managing overseas expansion and how EORs can help you, download our handy guide today.