Legal considerations for hiring in Latin America: Key insights

The capability to expand internationally is critical for competitive businesses. Technological advances have made doing so easier than ever before. No longer is there a reason any business cannot adopt a work in any way mindset to capitalize on the huge advantages of a remote and global workforce.

But it takes more than slick collaboration software to expand your business around the world and manage outsourced employees effectively. It takes a whole new skill set – global fluency - to recruit, hire, onboard, and manage teams across borders.

Take Latin America, for example. This region has seen a huge increase in interest from international businesses for a host of reasons.

There are, however, significant challenges to hiring in Latin America, which are not considerations to be taken lightly if you are looking to expand into this region. Keeping abreast of rapidly-changing political, legal, and economic landscapes is essential to a successful expansion into any region, including in Latin America. While it would be factually incorrect and incredibly shortsighted to paint the entire region with one brush, the political and economic situation in each country is different, with each country having its own opportunities and challenges.

Three of the biggest economies in Latin America, which have also drawn the most interest from multinational businesses, are Brazil, Mexico, and Peru. Understanding the unique legal considerations for each of these economies and countries is critical. Any business that assumes similarities between these three, or any other nation in the region, will get into trouble. The complexities of employment law and the inner workings of each of these economies warrants a knowledgeable partner to help ensure your business is taking all the proper steps to begin a successful and smooth expansion.

Compounding the complexities of employment law in Latin American countries is the fact that migration between countries in the region has grown significantly in the last few years and should be expected to remain high. In 2017 , nearly 37 million Latin Americans lived outside of their native countries. While Latin American nations have historically been welcoming to migrant workers and others who immigrate into their countries, it is still important to recognize the shifting cultures, the shifting demographics, and shifting workforce that this migration can induce.

Brazil’s labor and employment laws were originally created in 1943 and are directed by both the Federal Constitution of the country and the Consolidacao das Leis do Trabalho (CLT). The CLT alone includes more than 900 articles providing guidance in areas like workplace safety, minimum wage, vacations, working hours, employment contracts, protections for women workers, health regulations, and union regulations.

Under these Brazilian laws, an employee is defined as any person providing a service to an employer regularly and who receives a salary, while an employer is defined as a person or entity that assumes the risk of economic activity and hires and manages personnel. In order to distinguish between types of employees, the law outlines six types: a domestic worker, who provides services inside of a home; a celtista, who has a written and signed contract with an employer known as a Carteira de Trabalho e Previdencia Social; a self-employed worker, who performs work or provides services to one or more companies without a traditional celetista contract; interns, who are students at public and private institutions of learning and who are hired part time; and trainees, who are recent graduates in training with an employer who more often than not end up signing celetista contracts.

Understanding how the laws and regulations dictate each of these types of workers be treated and employed is essential, as is keeping abreast of changes to the laws.

For instance, another of the biggest and fastest-growing economies in the region, Mexico, just made a significant change to its employment laws. In Mexico this spring, an amendment to the Federal Labor Law, Social Security Law, National Workers’ Housing Fund Institute Law, Federal Tax Code, Income Tax Law, and Value Added Tax Law closed a loophole some multinational companies had been using, which means many may be suddenly out of compliance.

In Mexico , the use of third parties as the legal employer of record for multinational businesses has increased by 360% between 2003 to 2018 . The changes made this year forbid companies from using an employer of record outsourcing service to hire employees who perform “core business” functions. Non-compliant companies are left scrambling to either figure out how to create an on-ground presence in Mexico or determine how to leave the country.

While we have yet to see how this new law will be enforced and how its effects on foreign companies doing business in Mexico will play out, the government is hoping to ensure that all international employers are adhering to in-country employment laws, including fair wages, benefits, and profit-sharing.

Learning to comply with the new laws is essential, as failure to do so is not only unfair to Mexican workers who are eligible for benefits, but it is detrimental to public finances in Mexico. There is also great risk for companies caught using non-compliant employment outsourcing services in Mexico, including additional fines, an inability to deduct expenses for tax purposes, and potentially a criminal charge of tax evasion.

Thanks to President Pedro Pablo’s focus on creating economic growth in Peru and his signing of several free trade agreements, the rate of poverty in Peru has decreased from 58% in 2004 to just 21.8% in 2018. Economic reforms and free trade policies have generated a great deal of international investment interest from businesses and organizations outside of Peru. It has become an attractive emerging market, and in order to ensure its workers are well cared for, the Peruvian government has invested great care in forming employment laws to preserve the rights of its local workforce.

For instance, every employee is entitled to a 45-minute lunch break and can work no more than 6 days or 48 total hours per week. Any overtime must be agreed upon by both employer and employee and that employer cannot pay less than 25% of the total remuneration of the employee in the first two hours of overtime. Any additional hour of overtime after the first two must be paid no less than 35%. There are also strict requirements about employee entitlements regarding maternity leave, vacation, rest days, trial time, and part-time employment.

To remain compliant, it is essential that any business hoping to expand into Peru remain informed of the minutiae of these laws and any changes coming down the political pipeline.

Establishing systems to gather, process, and then use information and data for the purpose of strategic planning are the three basic tenets of Global Fluency. Without acquiring information and data, you don’t know what you don’t know; without systems and technology in palace to process and understand that data, you can’t draw clear conclusions; and without the ability to apply that knowledge and foresight to make clear and actionable plans, successful global expansion is nearly impossible.

Overall, closing any knowledge gap regarding employment law and workforce culture in Latin American countries allows organizations to hire in the region because they can integrate differences in languages and customs into corporate culture and tools. A company’s global growth is unlimited when HR teams have knowledge of social and political norms or rapidly changing legislations around tax and employment law.

Our services allow businesses to reduce their risk of compliance violation and allows them to engage the skills and workforce needed without the cost and time needed to open an in-country entity. Instead companies can recruit the workers they need, wherever those workers live. Work in any way allows for maximum flexibility to both employees no matter their location, classification, compensation needs, etc. as well as for the company, essentially eliminating borders as a restriction to hiring. We’re happy to talk about how we can help you ensure compliance with employment laws in Latin American countries as well.