The volatility of the rand following the spat between the US and South Africa is presenting challenges for international companies looking to hire skilled South African professionals to work remotely.
Philip Nel, the risk manager for Kuda Forex, told Business Times that the quarrel between the two countries has introduced payment system volatility due to the rand’s fluctuations against the dollar. Still, inward-migration clients are shielded from that volatility.
“It definitely has an effect. But that’s exactly what we help mitigate at Kuda Foreign Exchange — the risk that comes with volatility. Just look at the last few weeks: we went from around R18 to almost R19.90, close to the levels we saw during Covid. That’s the kind of movement we help our clients manage.”
The rand has stayed in the upper levels of the R18 point against the dollar for much of the year so far, as trade protectionism, GNU jitters, and the dispute between the US and South Africa weighed on the currency’s performance.
The employer of record (EOR) sector refers to third-party support services for businesses hiring employees in jurisdictions where they are not based. According to an EOR specialist, Breedj, South Africa accounts for up to 35% of all EOR services on the continent. The sector grew significantly during the Covid lockdown, and the South African sector was previously projected by DNA HR and Payroll to reach tens of billions of dollars in market value by 2030.
Nel said companies use the EOR model to secure local talent. After reaching a certain number of clients, companies could migrate to an inward-expansion model to insulate themselves from the risk of rand volatility. “We saw a massive surge in companies that... started from overseas, using South African talent… in the inwards expansion EOR model… From Covid, the amount of people that started working from home and retaining the talent here in South Africa was the biggest thing.
“It’s people working from home but earning more than they would have gotten [from a company based] in South Africa, because they work for clients overseas — but the company in South Africa pays them pounds, euros and dollars. So, you retain all the expertise of accountants, engineers, actuaries… These are the kind of clients EOR companies are looking for.”
He said because South Africa was seen as a “risk-on environment”, the rand loses value under volatile circumstances. The safer assets and the safer currencies do very well in these instances, so companies hiring foreign remote talent want to mitigate the risks.
Jean Ewang, counsel for employment law practice at Cliffe Dekker Hofmeyr, said EOR entities are critical as they also deal with the domestic employment law requirements of that country, such as employee taxes, benefits, payroll, and employment law obligations. “The EOR model presents an opportunity for foreign entities to access talent in the South African market. Employers looking to make use of the EOR model within South Africa will need to be mindful of the associated employment law risks.”
Ewang said, while the EOR model allows foreign entities to employ individuals in the country without establishing a juristic entity, with the EOR being the legal employer of the workers, it is not without employment law risk.
“This is particularly so because in South Africa, when a dispute as to who the true employer is arises, the courts will not be confined to merely referring to the contractual agreements in place between the EOR and the foreign client but will have regard to the true and real position between the parties and the workers.”
Andre Cilliers, currency strategist at TreasuryONE, said the dollar firmed on Friday morning despite the uncertainty over trade talks between the US and China. “The local currency failed to break below the R18.50 level yesterday and saw the rand weaken back up to R18.80 levels. This morning, the rand is quoted softer at R18.85, and we expect to see some consolidation between R18.60 and R19.00 ahead of the long weekend.”
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