Employer of Record or Setting Up an Entity: Comparing Costs

Bird eyeview of South Africa

Expanding into Africa can be a challenging undertaking for any business. From navigating the complex legal landscape to understanding local cultural norms, there are a lot of factors to consider. One of the most important considerations is how to handle employment and remuneration in a compliant manner. Many companies are faced with the choice of partnering with an Employer of Record (EOR) or setting up an entity in Africa. In this article, we’ll explore the difference in cost between these two options and why it’s critical to have a partner with a proper grasp of the law when expanding into Africa.

Employer of Record vs. Setting Up an Entity

Before we dive into the costs associated with each option, let’s first define what an Employer of Record (EOR) is. An EOR is a third-party company that acts as the official employer of a business’s staff in a given country. This means that the EOR is responsible for all employment-related matters, including payroll, benefits, and compliance with local labor laws. Essentially, an EOR takes care of all the administrative tasks associated with hiring and managing staff in a foreign country.

On the other hand, setting up an entity in Africa involves establishing a legal presence in the country. This could mean opening a branch office, a subsidiary, or a joint venture. Once the entity is established, the business would be responsible for all employment-related matters, including payroll, benefits, and compliance with local labor laws. While this option offers more control over the hiring process, it also comes with greater legal and financial obligations.

Costs Associated with Each Option

Now that we understand the difference between partnering with an EOR and setting up an entity, let’s explore the costs associated with each option. According to a study by PwC, setting up an entity in Africa can cost anywhere from $50,000 to $250,000, depending on the country and the type of entity. This includes costs such as legal fees, registration fees, and ongoing compliance costs.

On the other hand, partnering with an EOR typically involves a one-time setup fee and ongoing service fees. The setup fee can vary depending on the country and the EOR. Ongoing service fees are typically based on the number of employees.

Reputational Costs of Non-Compliance

While the financial costs of setting up an entity in Africa are significant, the reputational costs of non-compliance can be even more damaging. Companies that fail to comply with local labor laws can face fines, legal action, and damage to their brand reputation. For example, in South Africa, failure to comply with the Protection of Personal Information Act (POPIA) can result in fines of up to R10 million or 10 years in prison.

Companies need a reliable partner in Africa who can navigate the complex and ever-evolving compliance landscape on their behalf. Working with an Employer of Record is critical to ensure that businesses remain fully compliant and avoid any legal, financial or reputational issues that may arise due to non-compliance.

The Benefits of an EOR outweigh the cost

Expanding into Africa is a significant undertaking that requires careful consideration of all the options available. While setting up an entity in Africa offers more control over the hiring process, it also comes with greater legal and financial obligations. Partnering with an EOR, on the other hand, offers a cost-effective and efficient way to expand into Africa while ensuring compliance with local labor laws. Ultimately, companies must weigh the costs and benefits of each option to determine the best approach for their specific needs. However, one thing is clear: having a proper grasp of the law when expanding into Africa is critical to avoid legal, financial, and reputational issues.

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GRANT GERAGHTY - Africa HR Team

GRANT GERAGHTY

HEAD OF CLIENT RELATIONSHIP

Grant Geraghty is the longest-serving member of the Africa HR team. This resident subject matter expert and client champion is responsible for gaining a deep understanding of our clients’ unique HR needs in Africa and providing tailored solutions that align with their business objectives. Grant collaborates closely with our clients to ensure that their requirements are properly implemented, providing ongoing support and guidance throughout the process.

Grant brings a wealth of experience to his role, having served as Africa HR’s longest-serving employee. He holds a Bachelor of Commerce degree, with a major in Economics and Business Finance, from the University of Natal in South Africa. Additionally, he has completed a certification program in Payroll and Tax Administration from the University of Cape Town, further enhancing his expertise in HR operations and compliance.

His commitment to delivering exceptional service and his extensive knowledge of HR in Africa make him an invaluable member of the Africa HR team.

KEVINA TAKOORDYAL Africa HR Team

KEVINA TAKOORDYAL

HEAD OF OPERATIONS

Kevina Takoordyal has a BA Hons Business Management from the University of Glamorgan, UK, with MBA in leadership and Innovation, MBA General, PMP Certified, and Agile Scrum Master. She currently works as the Head of Operations at Africa HR Solutions Ltd with more than 20 years of proven leadership capabilities in Operations, Business Development, People Management, Process Optimization, and Project Management in the Financial Services, BPO, Banking Industry, and Heath Care Industry. In Senior leadership roles with an international footprint across Europe working and extensive Pan- African experience from a compliance, finance, and operations angle, Kevina comes across with a panoply of cross-functional skills. Kevina also serves on a few Boards, Non-Independent Executive at MioD and for NGOs on a voluntary basis, a coach and mentor to aspiring female leaders across Africa and Mauritius.

Kevina is a firm believer in Servant Leadership with a strong focus and commitment to uplifting others, with the ability to deliver through a highly engaged – diverse team, and works towards consistently synergistic value creation. While being a focused and adaptive thinker and Kevina is actively participating in panel discussions on Innovation, CX, Digital transformation.

Kevina serves as Project Assessor for the National Youth upskilling program. She has been recognized as Global Talent in a few companies, Ceridian, and International SOS Ltd whereby she has been awarded a few scholarships and had the opportunity to be mentored by Senior Vice President in the US. Award Winner in various fields and at a national level and recognized including Super Achiever Leader Award in Africa in 2016, Awarded Africa Women Leader 2018.

VILOSHNA PACKIRY POULLE​

VILOSHNA PACKIRY POULLE

Head of Finance & Business Support

Viloshna is an experienced finance professional with 18 years of expertise in strategic financial planning, financial analysis, cash flow management, systems and controls implementation, financial reporting, and continuous process improvements. She currently serves as Head of Finance & Business Support, where she has successfully automated and leveraged the financial reporting system capabilities to ensure efficient company operations.

Viloshna’s background includes senior roles in a multinational pharmaceutical company and a large listed Mauritian conglomerate. Her meticulous attention to detail and strategic thinking have streamlined financial processes, making her a valuable addition to any finance team. Viloshna is a qualified finance professional with an FCCA qualification and an MBA, bringing valuable expertise to any organization.

In her current role, Viloshna leads the company’s Treasury and Payments function, including the fulfillment of the company’s cross-border payments into Africa. With her strong educational background and extensive experience, Viloshna consistently demonstrates her ability to optimize financial operations, minimize risks, and improve profitability. Her expertise in financial reporting and process improvements make her a valuable asset to any organization.

MARK DU PREEZ​

MARK DU PREEZ

Head of Legal & Compliance

A qualified lawyer who joined Africa HR Solutions in July 2020, Mark Du Preez has experience working in private practice for a reputable law firm in South Africa. He also played commercially focused roles at a leading private bank, wealth management company, and outsourcing firm in South Africa and Mauritius.

Mark has played a pivotal role in Africa HR Solution’s risk mitigation strategy, which positively impacted P&L performance over the years.

He currently leads the Partnerships function of the company including relationships and oversight with in-country partners (ICPs) across Africa.

Alex Daruty - Africa HR Team

ALEX DARUTY

Head of Commercial

Alex has more than 15 years of experience in the global, strategic development of both enterprise and consumer brands in categories including technology, transport, enterprise software, entertainment, and travel.

With experience in roles on both agency and corporate side, he has worked across international brands and has led the development and execution of multi-discipline campaigns across EMEA, NORAM and Asia Pacific.

His focus is on driving meaningful business impact through brand differentiation and building high-functioning, digitally oriented, and analytically driven capabilities. He is motivated by working with, and developing dynamic people, teams, and organizations.

He leads, manages, develops and mentors the Key Account Management department, including line management responsibility for the team of Key Account Managers and Key Account Administrator who represent the Company as the primary communication link between all relevant stakeholders, including clients, third party in-country partners and internal functions.

Originally from Mauritius, he holds bachelor’s degrees in International Business, Finance and Management from the University of Nevada, Reno.