How an Employer of Record in South Africa can Navigate Employment Laws

South Africa’s employment laws can be strict with high fines for those companies that fail to comply. An EOR can help you navigate these choppy seas.

Navigating employment law can be difficult at the best of times — even more so if you aren’t familiar with the country in question. South Africa’s employment laws run along the same lines as most other countries. Nevertheless, there are many nuances that some people might struggle to understand. An Employer of Record can provide expert help and advice while shielding you from legal liability if anything goes wrong.

The rise of foreign investment in South Africa

Overseas investment in South Africa is on the up thanks to a surge in the business process outsourcing (BPO) industry, increasing levels of globalization, and multi-national collaboration. South Africa represents an attractive option due to its mix of affordable labour, talented workforce, and increasingly robust economy.

Businesses are hiring people across all disciplines, from customer service to IT support, marketing, software development and much more. They are supplementing their existing teams with freelancers and employing dedicated staff within South Africa either to outsource domestic operations or to lay the foundations for an expansion into the lucrative South African market.

However, to do so, those companies will have to ask themselves one thing — how will they manage employment laws?

South Africa’s Employment Laws

Those companies working in South Africa will have to comply with all relevant labour laws including:

· Basic Conditions of Employment Act (BCEA): covering everything from working hours to annual leave and termination. The BCEA aims to ensure that at every stage the rights of employees are respected.

· Labour Relations Act (LRA): The LRA ensures workers have rights such as collective bargaining and are protected against acts such as unfair dismissal. The act also covers employment equity to ensure all companies avoid discrimination based on race, gender or disabilities.

· Employment Equity Act (EEA): The key law preventing discrimination against employees. An employer with more than 50 workers must submit an Employment Equity Plan to the Department of Employment and Labour. Failure to do so could result in action.

· Skills Development Act (SDA): Employers should contribute to a fund for the training and development of staff. The authorities want to promote skills development within the country and ensure that companies provide plenty of training opportunities for their workforce.

· Occupational Health and Safety (OHSA): All companies should provide a safe and secure working environment. Risk assessments should be carried out and any company with more than 20 employees should appoint a responsible health ad safety office.

· Unemployment Insurance Act: Both employees and employers are required to make contributions to the unemployment insurance fund.

· Protection of Personal Information Act (POPIA): Data protection laws are becoming more stringent around the world and South Africa is no different. All companies must ensure that any personal data they handle is fully protected and that they comply with all requirements regarding the storage and use of data. The Data Protection Act is similar to leading international regulations such as GDPR. Companies transferring data between South Africa and other countries will have the added complication of complying with data protection laws in all countries they operate.

Other regulations include the Broad-Based Black Employment Empowerment Act which rates companies based on how they promote black economic empowerment. South Africa also has a national minimum wage and laws in place to make sure any employees can receive fast compensation for workplace injuries.

Complying with the regulations can be complex. Those companies that fail to meet the guidelines can face considerable fines not to mention a fair bit of negative publicity.

In 2016 Woolworths was fined by the Department of Labour for failing to comply with South Africa’s Employment Equality Act. The company was found to have failed to address problems with employment equality within the workforce especially around racial and gender representation throughout the company.

According to the ruling, Woolworths was found to have inadequate plans in place to promote equal opportunities and diversity within its South African operation. The fine demonstrates the importance South Africa places on equity in employment and how easy it is for companies to fall afoul of the regulations.

Fines and penalties

The severity of the fines varies depending on the law in question, the severity of the offense, and whether the authorities believe the offense was intentional or not.

A quick breakdown of possible fines includes:

· Basic Conditions of Employment Act: A first-time offense attracts fines of up to R100,000. Repeat offenses can double the fine or even result in a custodial sentence of up to two years.

· Labour Relations Act: Breaking any aspect of the LRA could see fines of up to R500,000 or in some extreme cases prison sentences. Failure to comply with any action taken could result in court action.

· Health and safety: South African companies that break health and safety laws could be in line for fines of up to R20,000. Repeated offenses could result in criminal prosecution.

Employers who fail to meet the National Minimum wage can also be liable to fines of up to R100,000.

Disguised employment: A common trap for foreign companies is the question of disguised employment. Failure to classify workers correctly could lead to considerable fines which escalate with repeat offences.

Beyond the financial cost of these fines are the reputational damage and negative publicity that come hand in hand with any penalty. Fines and contraventions are made public which means any slight misstep could have a lasting impact on a company’s image.

Meeting worker classification

If your employment strategy is in South Africa, the final point of disguised employment could be a major worry. In South Africa, there have been examples of companies trying to present de facto employees as contractors to avoid having to meet PAYE obligations.

The South African Code of Good Practice classifies disguised employment as fraud and exploitation. The exact level of the fines is not specified under the code of practice, but they will vary depending on the level of intent the authorities feel they have identified.

It is also worth remembering that this is an evolving landscape. Disguised employment has been front and centre of the national debate in recent times, with moves already in progress to crack down on noncompliant behaviour.

A high-profile example came in 2020 when Uber faced scrutiny for how it engaged with drivers. The company was accused of treating them as contractors when they were effectively employees to avoid paying taxes and providing employee benefits.

In 2020 the Commission for Conciliation, Mediation, and Arbitration ruled that Uber drivers should be treated as employees and given all the rights they should expect. c

A foreign company working in South Africa may be particularly vulnerable to these regulations. Firstly, employing South African workers is a moveable feast. It can start with hiring freelancers on short-term contracts — perhaps to test the waters for an overseas expansion or simply to supplement the skills of your existing team. However, as time progresses, the working relationship might evolve into something that closely resembles employment.

To determine the status of an employee the authorities will look out for red flags such as people who work exclusively with a company, are required to attend certain office hours, and work on an ongoing basis rather than on one-off projects.

Keeping an eye on this can be difficult, especially if you have a diverse workforce of people working under different arrangements.

Today’s workforce is much more spread out than usual. A company will typically work with people across all classifications including, full-time, part-time, remote employees, and contractors. Classifying them all can be challenging.

Worker classification with a PEO

To avoid any unintentional problems, you could turn to a Professional Employers Organisation (PEO). These companies will share employment liability which means the workers will be employed both by yourself and the PEO.

The PEO serves as the HR department and handles all administrative duties including the classification of workers. They will look at your workforce and divide each person into the appropriate category.

The PEO can also continue to evaluate your company position to make sure that classifications are changed as and when appropriate. So if you upgrade the amount of work being done by your favourite freelancer your advisor at the PEO can tell you when it’s time to change the classification.

You, for your part, take care of the day-to-day working relationship — in order words it will be exactly like handling any other employee with you handing out tasks, setting deadlines, and reviewing performance.

An employer of record

An Employer of Record South Africa offers a more comprehensive service for businesses looking to expand or manage teams in the region. While they operate similarly to a Professional Employer Organization (PEO) by handling HR, payroll, and compliance, they take it a step further by becoming the sole legal employer of your workforce. This allows companies to streamline operations, reduce risk, and ensure full compliance with South African labor laws without the need to establish a local entity.

Your South African workers will be employed directly by the EOR which means they handle everything from onboarding to classification, PAYE, withholding tax, and filing all documentation promptly.

They will pay the workers with you paying the EOR a fee based on the number of people employed and the level of services on offer.

An EOR can provide additional support in the recruitment process using their local knowledge and industry expertise to help you find qualified individuals. Specialist recruitment software also provides in-depth insights into the employment process helping you to optimize the costs of your operations.

As well as providing you with a fully comprehensive and expert support package an EOR also avoids the necessity of setting up a legal entity such as a subsidiary. This can be complex, time-consuming, and expensive. It requires a high level of commitment to the market and is genuinely best applied for those companies that have plenty of resources and intend to make a long-term commitment.

Best of all as the legal employer, the EOR has responsibility for any compliance problems which means you’re protected in every event.

With an EOR you can get set up and started quickly. All you have to do is choose your package, set the level of support you want, and agree on payment terms. From then on it’s just a case of working with the EOR to manage your workforce and set your strategy going forward.