An Africa PEO, or Africa Employer of Record means a third party company that hires employees on behalf of a client company in Africa.
While Africa is a diverse continent, with few commonalities across it, there are some key benefits of an Africa PEO that apply to hiring in Africa, no matter which country you are focused on.
Key Takeaways
1. An Africa PEO or Africa Employer of Record solution allows expansion or hiring in any country in Africa, without the need to incorporate there.
2. Benefits of an Africa PEO solution include a faster and more cost-effective expansion, full compliance and payroll efficiencies.
3. The usual process for an Africa PEO is to agree on the expansion/employment solution, recruit and onboard employees, process ongoing payroll and benefits and ensure ongoing tax and employment law compliance.
What Is the Business Case for Expansion into Africa?
Africa has become a major focus for international expansion over the last decade or so: It has been coined the ‘next Asia‘ or ‘next India‘ from an economic growth and foreign investment perspective.
In the 20th century, wealth in Africa (and the capital associated with it) was primarily attached to narrow extractive industries such as oil and diamonds. But now, businesses are increasingly focused on Africa as a new consumer market for their products.
With a geographical vastness that is hard to grasp, it is only natural that economic power in Africa is clustered in certain regions where major urban centres are located.
We set out some key features of those regions below.
- Southern Africa
- Southern Africa is a major economic force. The biggest industries are natural resources (e.g., South Africa is the world’s largest producer of platinum, manganese, and chromium), agriculture and tourism.
- There are also relatively strong financial services and business process outsourcing (BPO) industries. Multi-nationals basing a significant call-centre workforce in Cape Town include Lufthansa and Amazon.
- The urban centres of the region, aside from Cape Town are Johannesburg, Pretoria, Durban and, to a lesser extent, Windhoek (Namibia).
- East Africa
- This is the fastest growing economic region of Africa. It has been reported that three of the world’s ten fastest growing economies are in East Africa (Tanzania, Rwanda and Ethiopia).
- There has also been a massive increase in direct foreign investment in the area (largely from China).
- The diverse economic profile of the region includes significant agriculture and horticulture (especially in Kenya), a respectably-sized manufacturing, energy and tourism industries.
- Kenya (the largest country in the region) has intentionally structured its economic strategy on being an outsourcing hub.
- The East Africa urban grouping is centred on Nairobi (Kenya), and extends to Dar es Salaam (Tanzania) and Kampala (Uganda).
- West Africa
- Home of the biggest economy in Africa (Nigeria), West Africa is dominated by the energy industry (oil and natural gas), with significant related service and financial sectors.
- Aside from Lagos (Nigeria), other centres of economic activity are Accra (Ghana) and Abidjan (Ivory Coast).
Why Hire in Africa?
Aside from the economic prospects of expanding into Africa, there are a few reasons why recruiting and hiring professionals in Africa could make sense for your business. Key reasons include:
- Language
- As a result of a British colonial past, in many African countries English is both an official language, and one of the most commonly spoken languages.
- Countries where English is very widely spoken, for this reason, include South Africa, Ghana, Namibia, Zimbabwe, Zambia, Kenya, Botswana, Nigeria, Liberia, Sierra Leone, Uganda and The Gambia.
- This means it is usually extremely easy to recruit professionals in Africa who speak fluent English. Staff are almost always multi-lingual, as well, with other international languages such as French, Portuguese and Arabic being commonly spoken.
- Culture
- Aside from language commonalities, there are also strong cultural affinities between African countries and many international business hubs.
- For example, the legacy of British schooling and education systems mean professionals from countries like Kenya, Nigeria and South Africa integrate well with UK-based teams.
- A similar principle applies to professionals from countries where French is dominant including Algeria, Tunisia and the Democratic Republic of the Congo.
- Education
- As middle-economies with strong population growth, many countries are bustling with university-educated professionals ready to fulfil a variety of skilled jobs, including IT, accounting, marketing and sales roles.
What is an Africa PEO?
An Africa Professional Employer Organization (PEO) is an international expansion firm that supports businesses who seek to hire professionals in Africa.
As a PEO solution, an Africa PEO becomes the formal, legal employer of staff based in Africa, while the employees continue to work at the day-to-day direction of an international client company.
This means that the PEO takes care of all recruitment, contract drafting, onboarding, payroll, benefits administration, tax withholding and compliance.
As the PEO becomes the legal employer of staff in Africa, this is also known as an Africa Employer of Record solution.
An Africa PEO is a regional PEO, rather than a national PEO (that operates only in one country). It is common for an Africa PEO to also be a Global PEO (one that operates globally).
What Are the Benefits of an Africa PEO?
In order hire a workforce in Africa, a company could set up its own subsidiaries in each country it wished to operate in. What is then the advantage of engaging an Africa PEO?
- Compliance
- An Africa PEO is a local compliance expert. Payroll and HR obligations in Africa can be particularly complex. Due to a lack of universal welfare schemes, employers have particularly stringent obligations when it comes to compulsory social contributions.
- For example, in Nigeria, aside from registration with federal and state tax authorities, it is necessary to register with, and hold contributions for, the National Pension Commission, the Nigeria Social Insurance Trust Fund (NSITF), the National Housing Fund (NHF)and the Industrial Trading Fund (ITF).
- A business attempting to fully comply on its own is at serious risk of penalties. By contrast, an Africa Employer of Record can ensure full compliance with these requirements, and becomes liable for non-compliance.
- Speed and Cost Effectiveness
- Setting up separate entities to employ staff and maintain payroll throughout Africa can be an expensive and time-consuming process.
- For example, in Kenya, this means:
- Reserving a name with the Registrar of Companies and awaiting approval
- Preparing and stamping a Memorandum, Articles of Association and, where required, a Statement of Nominal Capital
- Signing a declaration of compliance
- Filing all documents with the Registrar of Companies and await issuance of Certificate of Incorporation;
- Making necessary Value-Added Tax (VAT) and Pay-As-You-Earn (PAYE) registrations with the Kenyan Revenue Authority.
- By engaging an Africa PEO, you avoid having to carry out this step in each country in which you hire employees.
- Efficient payroll
- With an Africa Employer of Record, your company pays one monthly bill for payroll across all locations (both across Africa and outside of it).
- By contrast, running your own payroll through multiple local subsidiaries means managing payments every month in multiple different currencies (such as the Nigerian Naira and the South African Rand).
- Competitive benefits access
- In most African countries, employees expect to fund their retirement through private (usually employer-contributed) pension schemes.
- It is often easier for a PEO to to access substantial pension and other benefits schemes, than it is for an individual company.
- This is because (a), an Africa PEO will often be a bigger employer in that individual country than an individual client company would be and (b), an Africa PEO will likely have the existing industry contacts to access better benefits packages.
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How Does an Africa PEO Work?
While every Africa PEO will have a slightly different process, commonly the company will follow the following key steps:
1. Strategic discussion
The Africa PEO and the client company will discuss the best tools for expanding into or hiring in Africa. This may be an Africa Employer of Record solution in some cases, but in other cases the Africa PEO may advise on local company incorporation.
2. Engagement agreement
The Africa PEO and the client company enter into an agreement about the precise scope of services to be offered. This is often a full Africa Employer of Record solution, but may in some cases be a more narrow recruitment or payroll solution.
3. Talent acquisition
The Africa PEO will recruit appropriate talent for the client company in whichever African location it seeks to expand into. The client company will be consulted, and have final say on recruits.
4. Onboarding
All staff will be provided with local law-compliant employment contracts. Payroll and tax information will be obtained to ensure that the employee is ready to start work and receiving payment.
5. Payroll processing
Employee payroll is processed on a regular basis as specified in the employment contract.
6. Ongoing HR and Employment Compliance
The Africa Employer of Record deals with any employment issues (such as disputes) as they arise.
7. Contract renewal/termination
The Africa Employer of Record will renew contracts of employees when desired and oversee the termination or dismissal process where requested.
Frequently asked questions
No. Africa PEO and Africa Employer of Record solutions differ depending on the African country of expansion.
For example, in South Africa there are strict rules relating to PEOs that offer staff on temporary contracts. Under section Section 198A of the Labour Relations Act 1995, with certain exceptions and caveats (such as earning less than a basic threshold amount), an individual supplied by a ‘temporary employment service’ for more than three months, is deemed to be the permanent employee of the client company.
Yes. There are a range of differences in employment law, custom and employee expectations which make hiring different from elsewhere.
For example, performance-based bonuses for employees are particularly common in Africa. So too are extensive fringe benefits (such as use of a company car) and cash allowances.
This means that, in Africa more than other places, there can be a substantial disconnect between salary/wages and the total compensation package.
Yes. An Africa PEO will be able to help you transition to a local legal entity set up (such as a subsidiary), where that makes sense for your enterprise.
Contact an Africa PEO
An Africa PEO or Africa Employer of Record solution is usually the fastest, most cost-effective and most compliant option for hiring employees in Africa.
Get in touch with Horizons to see how they can support you in any African country which you wish to hire in.
