The ripple effects of EORs on local economies, companies, and employees
- Last updated: October 16, 2024
Because we live in a global economy and our world today is so deeply interconnected, every choice we make has a ripple effect on the world around us.
Choosing an EOR to expand to a country in Africa has its own reverberations on the people and systems that frame our lives. Unbeknown to many, EORs have far-reaching societal, individual, financial, cultural, and economic impacts which are well worth looking into.
Beyond immediate functional and time gains for companies, EORs can impact individual employees, entire industries, and even local economies in Africa on a considerable scale.
EORs: a positive force for growth in Africa
Employers of Record are fully legal entities empowered by the local law to help companies expand to the African continent. As such, EORs are recognised by these states as a power for good and an enabler of business across the continent. After all, EORs allow companies to test new markets in an African country without incurring the significant financial and time costs of entity registration – a deterrent for many. Where before a company might not have given Africa a chance, EORs open the doors of opportunity for companies looking to expand – and for African countries looking to welcome such growth.
All in all, any effects EORs have is overwhelmingly positive, which is partly why EOR structures are prominent across Africa.
The ripple effects of EORs on local African economies:
Did you know? The work EORs do is so significant that it has the power to impact a country’s local economy. It’s true – EOR activity can affect local African economies in all these different ways:
1. Brain drain mitigated and reversed
Brain drain is a major issue that African countries have been facing for decades now. Once they have gained professional skills, many African countries’ talented locals go in search of greener pastures and greater opportunities in other countries, leaving their homelands struggling with a lack of qualified professionals. Healthcare professionals, academics, teachers, engineers, IT professionals and more are missing from African societies, leading to poorer socio-economic development. In Nigeria for instance, at least 75,000 nurses and midwives had emigrated to other countries between 2017 and 2023, depriving local health services of much-needed skilled labour.
EORs have the capacity to mitigate and even reverse this mass exodus. This is because EORs enable foreign companies to expand to African countries, presenting local workers with the opportunities they normally seek abroad in their own countries. For example, software engineers wishing to pursue growth in their chosen field might not need to immigrate anymore if an EOR partnered with an international company offering them these same opportunities.
2. Salaries and all payroll taxes paid in-country
EORs are structured in such a way that all salary and payroll taxes are paid in-country. What does this mean? Simply that the value created by a company operating through an EOR stays within the country of expansion. As such, African countries reap the financial benefits of EOR partnerships, allowing for greater revenue and economic growth.
3. High value job creation boosts consumer spending
The jobs created by a company operating through an EOR are typically sought-after for being high value. They tend to pay significantly better-than-average salaries, offer international-standard employee benefits, and present more opportunities for growth and learning. When local employees earn more, they naturally tend to spend more – and increased consumer spending benefits local economies immensely.
4. Transfer of skills, knowledge and technology from global companies stimulates local innovation
African EORs act as bridges between international companies with international know-how and African countries looking to upskill. EORs provide a secure and convenient platform for international companies to share skills and knowledge with African workers, training them and sharing the latest technologies and techniques with them. This exposure to new skills and technology not only creates a dynamic relationship between employers and employees – but it also changes the local scene and helps to fuel innovation in the industry.
5. Foundation for sustainable increase in FDI
Simply put, EORs can significantly boost Foreign Direct Investment (FDI) by simplifying the process of compliance with complex local regulations. EORs like Africa HR Solutions also provide local expertise, reducing operational risks and enabling quicker market entry without the need to establish a legal entity. They facilitate access to local talent pools, ensuring fair and competitive compensation, which helps attract and retain skilled workers.
EORs also support sustainable development by promoting fair labour practices. Their effective understanding and management of local employment issues build investor trust, creating a stable environment for foreign businesses.
The ripple effects of EORs on companies
Naturally, EORs also impact the companies they partner with, sometimes in overt ways, other times in slightly more understated ones.
1. Accelerated speed to market
When companies expand to Africa using traditional entity registration methods, they are typically looking at a few months or even years of waiting, on top of costly registration procedures and requirements (such as needing to have a physical address in the country). This wait can simply be too long in the business world, especially in industries reliant on technology, like fintech. During the wait for a local entity to be registered, companies may lose their competitive advantage. EORs cut this waiting time down, with market entry taking a few weeks instead of months.
EORs are also extremely helpful for companies looking to test new markets without the massive investment that entity registration requires. Because EORs also take on all the administrative burdens associated with expansion in an African country, companies are free to focus their resources on what they are the best at: business development.
2. Compliance with local labour laws
Companies often underestimate the impact of non-compliance with the law. Not only can non-compliance result in hefty fines, but it can also lead to costly and time-intensive legal troubles. Whether a company receives a fine or is being sued in court, their professional reputation is certain to take some damage. While money can be recovered, reputational damage is much harder to shake off.
EORs take on the burden of compliance for companies, eliminating these risks.
3. Streamlining payroll, benefits and cross-border payments across multiple countries
Multiple-country operations are challenging to say the least. But when companies need to coordinate with multiple HR partners to process payroll, employee benefits and cross-border payments accurately and on time, matters get significantly more complicated and the possibility of making errors grows.
EORs like Africa HR Solutions support companies through 46+ African countries, offering them a single point of contact through which they can streamline payroll, employee benefits and more.
4. Cost-effective solution
Compared to entity registration and its associated costs, EORs are cost relatively less and do not require as significant a sum of money to get started. Besides, any costs associated with EORs is likely to get absorbed rather quickly when one considers that operational costs in Africa are often lower than in other regions of the world.
5. Sustainable access to globally distributed, remote workforce
EORs ensures sustainable access to a remote workforce through:
1. Payroll and Tax Management
EORs like Africa HR Solutions help businesses attract top talent by managing payroll in multiple currencies, taxes, and benefits in compliance with local legislation. EORs can also negotiate better rates for medical and life insurance cover, enabling companies to offer competitive and equitable compensation packages to attract top talent.
2. Local Market Knowledge
Since local African EORs have in-depth knowledge of the regional employment market, it makes it easier for businesses to find and hire competent applicants.
6. Levelling the playing field in the global war for talent
As talent becomes more and more sought-after, EORs increasingly prove themselves to be allies for companies looking to onboard top candidates. For instance, EORs allow companies to scale their workforce up or down quickly in response to business needs, all without the administrative burden of managing local employment contracts directly.
Once again, EORs’ cost-effectiveness comes in handy. Because EORs can often negotiate better rates for services and benefits, the companies they partner with can offer attractive employment packages to potential employees.
7. Greater protection for intellectual property
EORs, being fully legal structures and being tasked with compliance, can help companies protect their Intellectual Property while in an African country. EORs do this through the following:
Understanding Legal Frameworks
EORs ensure that employment contracts include clear IP protection clauses that comply with local laws while also aligning with international standards.
Monitoring and Enforcement of IP protection
EORs can monitor compliance with IP protection policies and take swift action if there are breaches, using their local legal expertise to intervene when needed.
8. Ability to consolidate workforce planning during M&A process
During cross-border M&As, especially in the case of a carve-out deal – which happens when a parent firm sells a minority stake in a subsidiary to outside investors as part of the partial divestment of a business unit – many buying companies do not yet have a legal entity in the country they are expanding to. Unfortunately for these Organisations, it takes months and even years in some cases for legal entities to be registered.
Entity registration requires time as well as the fulfilment of several criteria, namely: opening a bank account, with all the paperwork this entails, having a physical address to serve as an office in the country, and even at times, earning the seal of approval of numerous government agencies.
This is where EORs come in. On behalf of the purchasing firm, EORs can hire M&A staff and handle compliance, payroll, tax, and benefits duties. Without having to worry about meeting and missing tight deadlines, the buying company can begin the legal process for the establishment of a new, local entity.
9. Access to ancillary services on the ground
Some EORs offer ancillary services on top of traditional EOR services. At Africa HR Solutions, we provide an extensive list of additional services that many other EORs do not. Among other things, we provide health and life insurance, cross-border payments, work permits and immigration services, independent contractor solutions, car rentals, employee meet and greets…and a lot more.
The ripple effects of EORs on employees
EORs can make companies more attractive to top talent in several ways.
1. Access to global jobs
Workers in African countries get the opportunity to work in international roles and companies they would not otherwise have had access to in their own countries.
2. Career development and growth prospects
Because they often get access to global jobs, workers employed through an EOR tend to have better professional growth prospects. This means that they are given opportunities to learn and grow their skills, and eventually take on more responsibility. The exposure to a global work culture further improves their professional skills.
3. Higher earnings and access to world-class employee benefits
Local African workers employed through an EOR may be better remunerated than their counter parts. On top of this, they may receive world-class employee benefits, in alignment with a company’s global employee benefits policy. This can mean generous health and life insurance covers, leave allowances that go above and beyond statutory requirements, and performance bonuses among other benefits.
4. Full employee rights, including statutory entitlements and legal protections
EORs are always striving to be fully compliant with the law. Naturally, it follows that they would pay special attention to respecting workers’ rights. This implies adhering to the minimum requirements of a country’s labour law, making the correct contributions on their behalf, calculating their leave as required, and creating a safe environment for them to work and grow in, among other things.
Workers who are employed through an EOR will have their needs met and their rights respected consistently and will not fear for unjust or unlawful treatment.
Why Africa HR Solutions is your #1 partner in Africa
Africa HR Solutions is an African EOR serving over 46 African countries. So who best to help you navigate the complex regulatory landscapes of each African country than an EOR deeply rooted in Africa? With a track record spanning over 14 years, and with a portfolio of 400+ NGOs, Fortune 500s and FTSE 100s, Africa HR Solutions has made its mark in Africa by continuously going above and beyond for our clients.
Our secret is that we care: we are not merely EOR providers. We are partners.
To learn more about how our partnership benefits you and your company, please reach out to us.
