By Globalization Partners
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South Africa has attracted international companies as prominent as BMW, the Standard Bank Group, Barclays Bank, Vodafone, Volkswagen, and General Electric to establish a business presence. Part of the draw may be South Africa’s combination of developed infrastructure and low business costs.
This guide will provide tips for hiring in South Africa so you’re ready to get started expanding your business operations into the country or hiring South African employees to work remotely for your company.
What to know before hiring in South Africa
International hiring initiatives should always begin with some research into the country’s labor force, language, laws, and customs. Below, we’ve covered some key points of information for any international employer looking to hire in South Africa.
1. The South African labor market
Despite South Africa’s progress as a country, the economy and labor force still face some serious challenges. Inequality is pronounced, though the earnings distribution, especially for higher earners, has been widening. The unemployment rate has hit a record high of 30.8 percent in the aftermath of the global pandemic, but even before that, South Africa’s unemployment rate had been consistently high. A 2016 report from the United Nations University World Institute for Development Economics Research (UNU-WIDER) described the country as being in a labor market crisis.
International companies may view South Africa’s high unemployment rate as a positive opportunity to employ qualified workers who may be struggling to find work. Note, however, that education attainments on South African resumes may not reflect the qualifications you’re used to seeing from applicants in your home country. Just 7 percent of South African adults have a tertiary education, the lowest number of all OECD and partner countries.
While tertiary education is rare, 77 percent of young adults in South Africa have attained an upper secondary or post-secondary qualification. Education in South Africa doesn’t emphasize tertiary education, but it does emphasize quality education. According to Dr. John Mbaku, a researcher at Africa Growth Initiative at the Brookings Institution, the quality education South Africans receive makes the labor force attractive to international companies.
2. Language diversity
South Africa is home to a wide variety of languages. The 1996 constitution officially recognizes 11 of these languages:
South Africa does not have a clear lingua franca, but in most official, educational, and formal business contexts, English has increasingly become the prevailing language. However, just 8.1 percent of South Africans speak English as their first language, and 16.6 percent speak English outside the home. Zulu is the most popular first and second language in the country.
When creating job ads, interviewing applicants, and establishing contracts, you should keep the local languages in mind and hire a translator if needed to ensure you can communicate with prospective employees.
3. Working hours and paid time off
South Africa first instated a national minimum wage in 2019. In 2020, the minimum wage increased, putting it at an hourly rate of 20.76 South African Rands (ZAR). Some classifications of workers currently have lower minimum wage rates, but these rates are set to increase annually until they align with the nation’s standard minimum wage. These groups of workers include farmworkers, expanded public works program workers, and domestic workers.
The Minimum Wage Act provides for annual reviews of the national minimum wage, so be sure to check current minimum wage rates and to pay attention to industry norms, as well. In addition to employees’ base salaries, you should also consider adding 13th-month pay. This bonus, equivalent to one month’s wages, is customary in South Africa at the end of each year.
5. Taxes and social security contributions
South Africa uses a progressive income tax system and tasks employers with withholding income taxes in advance in a Pay As You Earn (PAYE) model. In addition to PAYE, employees must also contribute 1 percent of their income monthly to the Unemployment Insurance Fund (UIF). The UIF provides a social safety net for workers who cannot work due to illness, maternity leave, or adoption leave. It can also provide a death benefit to a deceased employee’s descendants.
Employers match this contribution, totaling 2 percent. Employers with payrolls exceeding 500,000 ZAR per annum must also contribute 1 percent of their payroll per month to the South African Revenue Services to help with education and training in their sector and jurisdiction. Employers also make an annual contribution to the Compensation for Occupational Injuries and Diseases Act (COIDA). Their rate of contribution depends on the industry and can range from about 0.11 percent to 8.26 percent.
The cost of hiring an employee in South Africa
Hiring employees comes at a cost no matter what country you’re recruiting in. First, you have to think of recruiting costs, which when you’re hiring someone in South Africa for the first time, might include:
- Paying fees to set up your business
- Posting and publishing job ads
- Contracting a hiring agency or hiring new HR professionals
- Partnering with local experts to help you remain legally compliant
- Traveling to and from South Africa to meet candidates and set up the company
- Hiring a translator to aid communication
- Conducting pre-employment screenings
On top of these one-time recruiting expenses, you should also consider the ongoing costs involved in employing someone, including:
- Total remuneration: The amount you pay an employee is the largest ongoing expense in hiring an employee. This includes a base salary and any bonuses you award.
- Leave: When employees are on leave, they cost your company without contributing to your company’s productivity. Of course, granting leave is important, but you should factor in the cost of paying an employee for at least 21 days of leave annually.
- Overhead: If you’re renting office space or building a facility in South Africa to house your employees, then this is part of your overall costs to employ workers. The same is true for other administrative costs and any equipment you need to purchase that employees will use on the job.
- Training: Training employees is always important, but especially when you’re hiring employees with different education backgrounds than you may be used to in your home country. You must invest in the training employees need to do their jobs with excellence.
What does a company need to hire employees in South Africa?
To hire employees in South Africa, your company first needs to establish a legal entity in the country. You can choose to form a branch, a private or public company, a close corporation, a partnership, or a joint venture. Many international companies choose to form a private company in South Africa, which can operate more independently than a foreign branch. Starting a business in South Africa takes at least 40 days and involves several steps. To establish your South African subsidiary, you must:
- Apply for a company name, or accept your business number as your name.
- File a notice of incorporation.
- Submit your memorandum of incorporation.
- Open a South African bank account.
- Register with the tax authorities.
- File for UIF with the Department of Labor.
- Register for COIDA.
- Apply with the District Council.
You may also need to procure special business licenses or permits depending on your industry and business operations in the country. You should also factor in time for setting up your business location, whether that means renting out office space or building a manufacturing plant.
The simpler solution if you don’t need a physical business presence in the country and you want to start hiring new employees in South Africa right away is to partner with an Employer of Record (EOR). A South African EOR, also known as a professional employment organization (PEO), already has an entity established in the country and can employ professionals there for you. On paper, the EOR is the employer, but the employees you hire will actually be working for your company.
The EOR bears the responsibility of legal compliance and HR tasks like managing payroll and leave. This means your company gets all the benefits of employing South African employees without having to deal with the complexities of international hiring.
Steps to hiring in South Africa
Understanding how to hire in South Africa really comes down to familiarizing yourself with the nuanced differences between hiring practices in South Africa and those you’re used to at home. Let’s look at how these differences may come into play for each of the basic steps in the hiring process.
- Publishing job ads: Post job ads on job board websites that are popular among South Africans, such as Careerjet and Indeed. Depending on the audience you want to reach, you may also want to publish ads in national or local newspapers since South Africa’s internet penetration rate is just 56.3 percent. If you’re targeting employees who can speak English, write and publish ads in English. If you’re open to other language speakers, consider adding a translation in Zulu and other prominent languages.
- Evaluating applications: South African curricula vitae (CVs) include personal details you may not be used to seeing on resumes or CVs in your home country. This includes date of birth, identity number, gender, marital status, driver’s license, and even the state of the applicant’s health. Another thing to remember as you search for the most qualified candidates is, due to the country’s low emphasis on tertiary education, you aren’t likely to see as many degree qualifications as you may be used to from job candidates in your country.
- Interviewing candidates: If you’re hiring remote employees in South Africa, you’ll likely want to conduct interviews virtually. When scheduling these interviews, take the time difference into account between your location and South Africa Standard Time (UTC +2). You should also check to ensure candidates have access to a quality internet connection for a video call. Interview questions focused on a candidate’s competencies and aptitude for the job will help you differentiate between candidates who don’t have the education qualifications you would typically look for.
- Screening candidates: Another part of the process, which can take place at varying points in the hiring process, is pre-employment screenings. South African employers are allowed to conduct background checks as part of the hiring process, including checking criminal records and credit history, as long as they obtain the employee’s consent. You may want to conduct background checks toward the end of the hiring process to minimize the number of checks you need to conduct.
- Sharing job offers: Reach out to the most qualified candidates to offer them a position with your company. Employers with at least five employees are required to give written employment contracts to any employees who work 24 hours or more per month. You can share this contract now or cover the most important items and save the contract itself for onboarding.
- Onboarding employees: Company managers may want to travel to South Africa to meet their new employees as part of onboarding. On your employees’ first day, walk them through their employment contract. This contract must include certain information, such as salary, working hours, leave entitlements, and notice period. You must also do all the necessary paperwork to set up payroll.
Hire South African employees with Globalization Partners as your trusted EOR
Globalization Partners is an industry-leading EOR with local teams in 187 countries around the world, including South Africa. As your EOR, we can onboard the employees you choose, provide legally compliant employment contracts and terms, and manage compensation and benefits. Meanwhile, you can forgo or temporarily put off establishing an entity in the country and enjoy a productive relationship with your South African employees — all without any headaches that often can come with international employment.
To get started, learn more about our EOR solution in South Africa and see whether working with an EOR is the right fit for your international expansion goals.