The rise in remote work we’ve seen over the last few years has led to many companies sourcing talent outside of their immediate area — including overseas.
In many cases, this allows them to save money by hiring in places where salaries are lower. It also gives them access to previously untapped markets of skilled workers, and helps them to build a diverse workforce with a wide range of skills and abilities.
If you’re struggling to find quality talent in 2023, it could be because you’re looking in the wrong places. Read on to learn about the benefits of hiring remote workers in Latin America.
Hiring contractors vs employees
If you’re looking to hire talent overseas, one of the first questions you might ask yourself is how exactly you should engage them. Is it best to take them on as permanent employees, with an employment contract, benefits, and everything else that entails? Or should you try to avoid all of this admin and engage them as independent contractors instead?
The answer? It depends.
Engaging an employee overseas usually means setting up a legal entity in the country where you want to hire them. This can be a complex, time-consuming and expensive process — and is almost certainly not worth it if you only want to take on a few employees.
But the other option — taking on workers as independent contractors — isn’t free of risk either. The question is, how sure are you that the workers in question will actually be considered to be independent contractors under the laws of the country they’re working in? If your answer is anything less than 100%, we wouldn’t go down this route.
Don’t panic, though! There is a way to legally, compliantly and easily hire workers abroad without the hassle (and expense) of setting up a legal entity. We’ll get to that in a moment.
First, let’s talk a bit about why Latin America is the right place to try and source remote talent for your business.
5 reasons to hire remote talent in Latin America
Here are some of the major benefits that hiring remote talent in Latin America could bring to your business:
- Lower your payroll costs (without shortchanging your workers)
One of the major reasons for hiring international workers in Latin America is that salaries tend to be a lot lower there. For example, a recent study by CodeSubmit found that the average salary for a software engineer in Argentina was $39,898, compared to $110,140 in the US.
The fact that the cost of living is much lower in most Latin American countries than in the US or the UK, for example, means that many workers are happy to accept a lower salary.
And importantly, because the gap between salary expectations in Latin America and what you’d pay at home is so wide, there’s plenty of room to find a middle ground that keeps everyone happy. By paying slightly over the odds for a Latin American worker, companies in the US and elsewhere can save money while ensuring their employees still feel that they’re getting a good deal.
- A growing talent pool for skilled tech workers
Latin America is fast becoming a hub for tech companies, with Brazil alone receiving over $45 billion in tech investment last year. And with this growth comes a boom in tech talent: a study from 2019 found that Latin America is the second-fastest growing market for developers. That means that this region could be the answer to tech talent shortages that companies are facing in countries like the US, Canada and the UK.
And there’s evidence that companies are noticing this wealth of Latin American tech talent. In a recent episode of our HR podcast, The Open Talent Report, our MD EMEA Connor Heaney spoke with Tomas O’Farrell, Co-Founder and CEO of Workana, a talent platform for professionals across Latin America.
According to Tomas, Workana signs up around 200,000 new professionals every month. The platform was initially intended as a place for companies in Latin America to hire local talent. But, the increase in remote work we’ve seen after the pandemic means that the company is now seeing more and more US companies open to hiring from Latin American countries.
- Convenient time zone for collaboration (for US companies)
There are all sorts of challenges associated with working with employees from a distance — even when we disregard the compliance and legal hurdles you have to jump to engage them. But Latin America has one major point in its favour for US companies seeking remote workers: time zone overlap.
While both the US and Latin America have multiple time zones, for the most part they’re similar enough that they shouldn’t pose too much of a problem. For example, Argentina, Chile, Uruguay, Bolivia and parts of Brazil are only an hour ahead of Eastern Standard Time. That means it’s easy for employees on the east coast of the US to collaborate with colleagues in these countries. Even on the west coast, the difference is only a few hours — making it much easier to overlap with Latin American colleagues than those in Asia or Europe, for example.
- Diverse workforces breed ideas and innovation
There are some pretty compelling business reasons why hiring diverse talent is a good idea. In fact, according to one study, diverse organisations have a 2.5× higher cash flow per employee than those whose workforces are more homogeneous.
Diverse teams are more effective at coming up with new, creative solutions to problems because different people think about things in different ways. The more diverse your workforce, the more different ideas and insights they’ll bring to the table. That’s why diverse companies have a 20% higher rate of innovation and 19% higher innovation revenues, according to a study from 2020.
And, when you hire talent from Latin America, you’re not only getting access to skilled workers but also opening your doors to people from a wide range of cultural, linguistic and professional backgrounds — which can only help with bringing innovation to your organisation.
- Rising English language proficiency shows an appetite for international roles
Historically, Latin America has been seen as a region with relatively low English proficiency — but things are changing. In fact, international education company Education’s First’s most recent annual English Proficiency Index shows that scores for English language proficiency rose in almost every country in Latin America from 2021–22. This is consistent with a trend which has seen the region go from ‘Very Low’ proficiency to largely ‘Moderate’ proficiency over the past decade.
What’s particularly interesting about this data, though, is the generation gap it reveals. Since 2015, the group showing the biggest improvements in English proficiency is people in their 30s, with those aged 26–30 close behind. This suggests that the change is not due to schooling but to a growing desire to work in international workplaces where English is a must.
The challenges of hiring remote workers in Latin America
We believe hiring remote talent in Latin America could be a great move for your organisation. But it’s true that there are some challenges involved. Here are some of the things you might have to consider if you go down this route:
Correctly classifying workers
Whether you’re engaging workers at home or abroad, you need to make sure that the engagement structure you use is legal and compliant. Specifically, you need to ensure that when you engage someone as a contractor, they are legally seen as having that status in the country they work in — and that can be complicated in some Latin American countries.
According to the Society for Human Resource Management, almost every nation in South America sees a working relationship as employment when the worker provides their services in exchange for money, under the ‘subordination or dependence’ of their employer. The SHRM also clarifies that if there’s a conflict between what the worker’s contract says and what their actual working relationship looks like, labour courts in Latin America will almost always disregard the contract language and treat the worker as an employee. That means that you could have an employment relationship with a worker even if their contract states that they are an independent contractor.
In practice, this impacts employers because permanent employees are entitled to benefits like a minimum wage, social security, pensions, and more — while independent contractors are usually not. Incorrectly classifying an employee as an independent contractor could lead to fines, legal fees, and back-dated liabilities from the beginning of the employment relationship.
Bonuses, profit-sharing and other local expectations
Every country in the world has its own set of laws, regulations and cultural expectations around work — and Latin American countries are no different. That means that if you want to hire workers in Brazil, Argentina or Peru, for example, you need to know how work works in those countries.
For example, in many Latin American countries including Brazil, Bolivia, Argentina and Colombia, employees are paid their salary in 13 instalments over the year, not 12. The ‘13th salary’ is treated as a kind of mandatory bonus that employees receive at the end of the year. And in some countries, workers expect a second bonus — a total of 14 payments over the year.
In other countries, like Venezuela and Peru, employers are required by law to share a portion of their profits with their employees — and not doing so could get you into trouble.
All of this is to say that if you want to hire employees in a country, you need to understand the particularities of employment there — or work with a partner who does. It’s also worth noting that Latin America is a huge region, made up of more than 20 different countries and territories. That means that even if you’ve worked with employees in one Latin American country before, you won’t necessarily understand the particularities of another one.
Permanent establishment risk
In some circumstances, hiring workers in a country could be enough to trigger an obligation to pay corporate taxes, and sometimes VAT. This is a tax concept known as permanent establishment, which essentially means that a company has a stable and ongoing enough presence in a country that they should be paying taxes.
So, should you be worried about permanent establishment if you hire employees in Latin America? The simple answer is that it depends: whether or not there’s a risk might come down to the type of work your Latin American employees do, and whether or not they work from a fixed place of business. But the rules are different in every Latin American country, and it’s important to understand them to ensure you don’t put your business at risk.
How to compliantly hire remote workers in Latin America
As we mentioned at the top of this article, hiring workers in a foreign country usually means creating a legal entity there — an expensive process that can take several months (or more) to complete.
But there is another way: working with a global professional employment agency (PEO) that can engage, pay and manage your workers on your behalf. These organisations handle everything from taxes to payroll to onboarding, giving your workers the consistent, positive HR experience they deserve, with no hassle on your end.
This way, you can engage the skilled workforce you need, without putting your business at risk of expensive compliance mistakes.
Expand your business with confidence with CXC
At CXC, we understand the complexities of running an international operation — we’ve been in this business for over 30 years, after all. And we can help you to compliantly, legally and quickly engage talented professionals. We offer programmes for anything from 30 to 3000 workers, in more than 100 countries around the world.
Want to learn more? Get in touch with our team to find out how we could help you.