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Employer of Record in South Africa

Employer of Record in South Africa

Skuad's South Africa EOR (Employer of Record) solution helps your business expand into South Africa without the need for an entity setup. Our unified and automated global HR platform enables you to expedite the onboarding of your remote team, manage their payroll, benefits, etc. compliantly. We help you streamline the global expansion process with the able assistance of our international network.

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South Africa at a Glance

  • Estimated Population: 59.6 million (2019)
  • Currency: South African Rand (ZAR)
  • Capital city: Pretoria
  • Official language: There are 11 official languages - Sepedi, Sesotho, Setswana, siSwati, Tshivenda, Xitsonga, Afrikaans, English, isiNdebele, isiXhosa and isiZulu.
  • GDP: $748 billion PPP (2021) Wikipedia

What You Must Know Before Employing Someone in South Africa

The department of labor in 1994 formed a ministerial legal task force to draft the new labor legislation. It was introduced as labor relations Act 66 in 1995 and came into effect on 11 November 1996.

Employment protection applies to all employees working in South Africa. It also covers individuals of other nationalities employed in South Africa. Often the legislation is supported by statutory codes of practice drawn up by the National Economic Development Labor Council (NEDLAC) and non-statutory codes of practice issued by the Commission for Conciliation, Mediation, and Arbitration (CCMA).

These codes of practice are often known to give guidelines in labor courts to ascertain whether an employer has breached statutory employment regulations. Unlike in other countries, collective agreements between trade unions and employers are legally enforceable.

In South Africa, a written contract is not mandatory for establishing an employment relationship. However, the Basic Conditions of Employment Act (BCEA) compels the employer to provide employment details before the employment to protect vulnerable employees against powerful employers.

The employer must ideally enter into a detailed contract with the employee stating the company's disciplinary codes and avoid providing the details in an ad-hoc or non-contextualized manner. Moreover, a comprehensive employment contract benefits both parties as it is legally binding.

Employment contracts are of two types:

  • Fixed-term contracts:: These contracts are for a specific duration and may extend for a specific period or until the completion of a particular task. The contract cannot be terminated without the agreement of both parties. The laws specify that full-time contracts must be renewed as non-renewal is treated as the dismissal of a contract in legal parlance.
  • Indefinite Period Contracts: The duration of the contract is not specified and it endures until the termination of the contract. Either the employer or the employee is entitled to give notice of termination emanating from a valid reason. It is also possible to terminate a contract where a fundamental breach of contract has taken place. Death on either side can also be the reason for the dissolution of the indefinite period contract.

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Entitlements Explanations
Statutory Working Hours
  • Not to exceed 45 hours for a 5-day week (9 hours per day)
Overtime Eligibility
  • 3 hours of overtime a day and 10 hours of overtime a week is permitted.
  • Overtime is paid 1.5 times the salary of the employee.
  • An agreement is necessary between the employee and the employer for overtime
Paid Public Holidays
  • New Year’s Day (January 1)
  • Human Rights Day (March 21)
  • Good Friday (April 10)
  • Family Day (April 13)
  • Freedom Day (April 27)
  • Worker’s Day (May 1)
  • National Women’s Day (August 9)
  • Heritage Day (September 24)
  • Day of Reconciliation (December 16
  • Christmas Day (December 25)
  • Day of Goodwill (December 26)

Public holidays that fall on a Sunday rolls over to the following Monday.

Paid Leave
  • Apart from the public holidays’ employees are also awarded 21 days of leave for a completed year of employment.
  • Paid leave cannot be accumulated from one year to the next.
Medical/ Sick Leave
  • Employees receive 1-day sick leave for every 26 days they have worked during the first 4-months of their employment
  • During each 36-month cycle, an employee is entitled to paid sick leave equal to the number of days they work in six weeks. Thereafter they receive 30 days of paid sick leave for every 36 months they have worked
  • An employee will only be granted sick leave for more than two days if the employee produces a medical certificate from a registered medical practitioner.
Maternity Leave
  • Female employees are eligible for 4-months of unpaid maternity leave before the child’s birth.
  • Maternity leave is paid leave. These benefits are paid under the Unemployment Insurance Act. A worker, contributing to UIF, is eligible for a maternity benefit of upto 38% to 60% of average earnings in the last six months, depending on the insured person's level of income. Maternity benefit is paid for a total of 17.32 weeks.
  • If a woman suffers miscarriage during the third trimester or bears a still-born child, she is entitled to a full maternity benefit of 17.32 weeks. However, she is entitled to these benefits only if she was in employment for at least 13 weeks before the date of application for maternity benefits.
Paternity Leave
  • All parents – including fathers, adopting parents, and surrogates – are entitled to 10 days of unpaid parental leave when their children are born.
  • Family Responsibility Leave
    • Employees who have worked for four months and longer and employees who have worked for at least 4 days a week for the same employer are entitled to fully paid family responsibility leave.
    • This is normally taken - by male employees in the event of a child’s birth, in case of a sick child or due to a death in the family
    Employee Protection
    • The constitution guarantees the right to equality and gives protection from unfair discrimination.
    • The Employment Equity Act has been created to ensure workplace equity.
    • Trade unions are allowed in the country for collective bargaining of employee rights. Unions are required to have a constitution that meets the requirement of law.

    Contractors Vs Full-time Employees

    The South African law makes a clear distinction between an employee and an independent contractor. According to the rule of law, an employee is under an employee-employer relationship and offers subordinated services to the employer. While an independent contractor delivers a set of services within a specific duration. There is no subordination in the relationship, and the independent contractor is only answerable to the contracted service deliverables.

    The key points of differences between employees and independent contractors are:

    • Payment/remuneration: Employees get regular or periodic payment based on the number of hours worked, whereas independent contractors get paid under the pre-agreed deliverables based on the submission of an invoice.
    • Tools of Trade: Employees use the tools of the trade provided by the employer, whereas independent contractors often use their tools of the trade.
    • Expenses: Employees get reimbursed for expenses such as conveyance incurred during the work. On the other hand, independent contractors are likely to bear their expenses themselves.
    • Benefits: Employees have the advantage of paid leaves, allowances, contributions to provident funds, etc. Whereas contractors are only entitled to the remuneration agreed upon in the contract for the pre-agreed deliverables.

    Hiring in South Africa

    Hiring in South Africa is particularly challenging given the strict employment laws of the country that are also applicable to any foreign company setting up a subsidiary here.

    Hiring in South Africa starts with an employment contract which can be both oral and written. The contract should clearly define compensation, benefits, and termination criteria. In addition, the employer needs to give in writing specific details about the start date, place of work, designation, responsibilities, working hours, compensation, and leave. All employees should receive their remuneration in South African Rand - the national currency. Most employees receive an employment contract of indefinite duration as the law prohibits using fixed-term contracts for permanent tasks.

    Most South Africans depend on personal networks and recommendations to find a job. Nonetheless, with the growth of the internet, more people have gravitated towards job websites in search of a job. Some of the popular job sites include – jobs.co.za, findajobinafrica.com, employsa, bestjobs, and career junction.

    Another way of finding employment is through recruitment agencies listed on all yellow pages and online directories. In addition, trade unions and industry associations often help youth & the unemployed in getting jobs through referrals. Such jobs do not get advertised and depend on the strength of one’s personal network in landing the job.

    In South Africa, one of the oldest ways of finding employment remains relevant even today – newspaper classifieds. Some of the prominent newspapers such as Mail, Guardian South Africa, and the Times South Africa publish area-specific open positions in their classifieds.

    Recruiting employees on short notice in South Africa is a daunting task. However, partnering with an employer of record (EOR) can be a pragmatic move for a company seeking to expand business here. This would certainly open up possibilities and free up resources that would otherwise have been invested in managing HR-related functions. The EOR will take care of the compliance regulations, HR, and the hiring process. They can expedite the hiring process through virtual onboarding, and e-signing of documents with candidates. Talk to the Skuad team to know more.

    Probation & Termination

    It is common for employers to engage employees for a probationary period. The law does not specify a definite period and leaves it at the discretion of the employer to define the period of probation. However, the labor code does insist on a “reasonable time period” given the circumstances of the job and the time it takes to determine an employee's suitability.

    The code also specifies offering appropriate remedial treatment and providing a reasonable period of improvement before the final termination of probationary employees. If things still fail to work out between the employer and the employee, then as per the law – the employer can dismiss the employee.

    As per South African law, an employee can be terminated under the following circumstances:

    • Upon expiration of the period of employment
    • On completion of the designated task
    • By process of giving notice by either party
    • In event of a contractual breach by either party
    • By mutual agreement
    • By death
    • By insolvency of the employer
    • Inability of either party to engage in performing assigned duties.

    An employee can approach the legal council within 30 days from the day of termination to prove unfair dismissal. If found guilty, the employer is obligated to pay the compensation provided the employee has spent at least 12 months with the employer.

    An employer can also unilaterally terminate an employee under the following circumstances:

    • Misconduct on the part of the employee
    • Poor work performance or incapacity
    • Operational requirements of the employer

    Unilateral termination often results in unfair dismissals. Under such circumstances, the employee can approach the High Court of South Africa. However, the exercise of these rights is rare.

    Skuad can draft well-articulated labor contracts within the legal framework established by South African authorities. Learn more about our customized solutions.

    EOR Solution

    Given the range of regulations in South Africa relating to both the hiring of personnel and the setting up of a company, it is important to have a partner to simplify legal and compliance-related matters for you. Skuad has a significant grasp of South Africa’s local laws and regulations. If you are looking to expand your business to South Africa, connect with Skuad experts now.

    Outsourcing Employment Through an EOR in South Africa

    An EOR helps save on valuable resources that can get invested into functions as tax management, payroll management, hiring, and other related aspects looked after by the HR department. Skuad specializes in creating tailor-made contracts in compliance with local South African laws. Our expertise extends to practices like amending contracts and expediting the hiring with novel approaches like e-signing of documents.

    Types of Visas in South Africa

    Visa Category Explanation Duration
    South Africa Visit Visa
    • This visa allows a person to stay more than the exemption period.
    • It is used by individuals for tourism or business purposes.
    A maximum period of 90 days
    South Africa Business Visa
    • This visa allows individuals to enter South Africa for work or investment
    • To invest or start a business, it is necessary to complete the BI-1738 form.

    A maximum period of 90 days

    South African Work Visa
    • This visa is issued to foreigners with specific skills.
    • This allows companies to transfer multinational companies to transfer personnel to South African branches
    Duration depends on the type of work

    Work Permits

    Work permits or temporary visas are provided by the Department of Home Affairs. Applicants are required to apply for these visas which get processed and finalized at the foreign offices of the Department of home affairs. You can make travel arrangements only when the visa has been approved.

    Payroll and Taxes in South Africa

    Payroll Details

    Instead of registering under a single tax authority, employers are required to register and file under the South African Revenue Service (SARS) and the South African Department of Labor. Tax contributions work on the principle of “Pay as You Earn” wherein employers directly deduct tax from employee’s earnings.

    In South Africa, the tax that you pay ends up in standard income tax withholdings, Standard Income Tax on Employees (SITE), Unemployment Insurance Fund (UIF), and Skills Development Levy. This means all employers must be registered with four tax destinations within two governmental entities.

    Taxation in South Africa

    The tax year begins on January 1 and ends on December 31. All employees are required to file income tax returns by the end of January. The government through SARS can invoice any taxpayer if they owe additional tax after they have filed returns.

    Employer Taxation

    Tax Explanation
    Corporate income tax 28%

    Employee Taxation

    Tax Explanation
    Income tax
    Income Range (in Rand) Income Tax Amount Income Tax Rate Excess*
    R 1 - 205,900 (1 – 216 200 from 2022) 0 – 195,850 18%
    R 205,901 - 321,600 (216 201 – 337 800 from 2022) 195,851 – 305,850 R 37,062 35,253 26%
    R 321,601 - 445,100 ( 337 801 – 467 500 from 2022) 305,851 – 423,300 R 67,144 63,853 31%
    R445,101 - 584,200 (467 501 – 613 600 from 2022) 423,301 – 555,600 R105,429 100,263 36%
    R 584,201 - 744,800 (613 601 – 782 200 from 2022) 555,601 – 708,310 R 155,505 147,891 39%
    R 744,801 - 1,577,300 (782 201 – 1 656 600 from 2022) 708,311 – 1,500,000 R 218,139 207,448 41%
    R 1,577,301 and above (1 656 601 and above from 2022) 1,500,001+ R 559,464 532,041 45%
    *On Excess refers to any amount above the minimum income range. For instance, for the income range R 195,851 – 305,850 the tax is R 35,253. The tax levied on any amount above R 195, 851 is 26% but the amount has to be below R 305,850.

    Bonuses

    Bonuses are not required by law to be paid by employers. Bonuses may be paid as a result of a contract, custom, or the employer's discretion.

    Incorporation: How to set up a Subsidiary in South Africa

    South Africa has few restrictions on the opening of new companies or branches. Nonetheless, it's a good idea to revisit tax treaties that South Africa has with specific countries. This will ensure the profits you earn are not taxed twice by authorities.

    The most common type of business set up in South Africa is Pty Ltd. This has no restrictions on shareholder ownership and it can be entirely foreign-owned.

    The prescribed steps to set up a Pty Ltd are as follows:

    • Companies need to reserve a name and file a notice with the Companies and Intellectual Property Commission (CIPC).
    • The companies need to register with the South African Revenue Service (SARS) for Pay as You Earn (PAYE) and Standard Income Tax on Employees.
    • All this can take several months.
    • In addition, it is necessary to open a bank account.

    All employees must be registered with the Department of Labor which ensures employees are treated fairly by their employers.

    Professional Employer Organization (PEO)

    A professional employer organization (PEO) and an EOR render almost similar services. The key difference is that a PEO acts as your co-employer to handle the HR administration. The employees hired by a PEO are your legal employees, and you are liable for them.

    On the other hand, an EOR becomes the legal employer of your employees and the liability of employees lies with them. You may opt for a PEO or an EOR depending on how much responsibility you are ready to take on. If you do not want to get involved in the daily decisions of human resources operations, then EOR is your safe choice.

    Skuad offers both PEO and EOR solutions. Book a demo for comprehensive support and guidance.

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