Let’s start at the beginning, should a company be considering expansion beyond their country of origin, they may require some additional support from a legislative, tax and regulatory perspective. This is where the services of an Employer of Record (EOR) and Professional Employer Organization (PEO) become relevant. Both services focus on the same broad area, assisting companies as an outsourced HR function as they expand into new markets. However there are some subtle differences to be aware of when choosing a partner to assist global expansion. By the end of this article, you will hopefully get a deeper understanding of how each service can help your company expand into the African market.
Before we touch on the factors that make these services different, let us talk about why people often mistake them for one another.
While they offer the same core services, they mainly differ in the way they handle their service agreement with their clients, based on whether the client has an established, legal entity in the country of expansion.
This seems like a very simplistic distinction. However, the outcomes of this decision can have an impact on the legal operation of an organization, as well as the time and administration that is required to expand the business into any country, particularly an African country. For instance, the following considerations may assist organizations in making a more informed decision.
|Question to Ask||Employer of Record||Professional Employment Organisation|
|Is there a registered entity?||When you do not have a registered entity in country- it is best to partner with an EOR.||When you do have a registered entity in country- it is best to partner with a PEO.|
|Who is the legal employer?||The EOR becomes the legal employer of any talent you wish to hire.||The organization remains the legal employer of the employee|
|Who takes liability?||The EOR takes full liability for employees and will always ensure financial, local, and legal compliance.||The employer takes full liability for the employees, this includes financial, tax and legal compliance|
Choosing who to partner with mostly depends on your context, needs and the resources at your disposal.
Legal entity: If you already possess an established entity in the African country you are expanding to, a Professional Employer Organization may be a better fit for your company.
Employee contract: A PEO will manage all HR functions, but the hiring organization remains the legal employer of these employees. The PEO will offer support and guidance on how to remain compliant, however, the hiring organization retains responsibility for legal and financial compliance.
Return on Investment: PEOs are typically engaged if the primary need is to lessen HR departments’ workload around onboarding, payroll, tax deductions and benefits administration. Whilst the lack of shared liability increases the risks for the employer, it offers a more cost-effective option when there is an already existing entity in the target country.
Legal entity: Do you possess a registered entity in the African country you wish to expand to? If not, then an Employer of Record could provide you with an already established unit on the market.
Employee contract: An EOR will become the legal employer for any new candidates that will be joining your workforce. However, the hiring organization still owns any management decisions made regarding its employees.
Return on Investment: An EOR offers a holistic service for any entity that does not have a presence in the country of expansion. Partnering with an EOR ensures efficient management of various elements of an HR function, which is often very complex and difficult to navigate based on the different regulations in African regions. Further, the EOR takes full liability for the compliant facilitation of employee contracts and payroll.
Whether you require an Employer of Record or a Professional Employer Organization for your operations in Africa, you can trust Africa HR Solutions in providing you with tailor-made services to facilitate your expansion on the African continent. Here is what you can expect from us:
If you wish to learn more about what we have up our sleeves to help your company in it’s next big step, contact us and get a quote now!