Back to BlogWhat is an Employer of Record (EoR) — and why US companies need one in LATAM
For many United States-based businesses, Latin America (LATAM) has become one of the most attractive regions for growth. The region offers a solid pool of highly-skilled professionals, competitive operating costs, and a geographical advantage that supports real‑time collaboration.
However, market potential alone does not guarantee success. Each country has its own labour codes, tax rules, and administrative systems. Navigating these differences without the right expertise can lead to delays, unexpected expenses, and compliance risks that erode the very benefits companies seek.
The solution? Well, for many US companies, an Employer of Record (EoR) offers a straightforward way to manage these complexities and hire in the region with confidence.
In this article, we share insights on the realities of hiring in LATAM—and how the right EoR partner can support faster, compliant, and sustainable expansion.
Why US companies are expanding into Latin America
As discussed in a previous article, a global shortage of skilled professionals, driven by rapid technological change and shifting demographics, has made it harder for US companies to find the expertise they need at home.
Latin America offers a compelling answer:
- a growing, cost‑efficient talent pool
- proximity that supports real‑time collaboration
- cultural alignment that eases integration.
Additionally, investments in education, infrastructure, and sector‑specific training have strengthened the region’s workforce across various fields from technology and engineering to marketing and customer service.
So yes, the opportunities are clear.
However, plenty of US businesses lack the local HR capacity needed to manage remote teams effectively. Without in‑country expertise, challenges can pile up. Navigating recruitment, onboarding, payroll, and compliance in multiple jurisdictions can slow expansion and create operational risk.
The opportunities in LATAM’s workforce
The appeal begins with cost efficiency. Lower living expenses mean competitive salaries—often 30–50% less than US equivalents—without compromising skill level.
For example, a software engineer in LATAM might earn around $38,000 per year, compared to $110,000 in the US, freeing up budget for innovation and growth.
Additionally, the talent pool is continuously growing deeper:
- Brazil commands over a third of the regional IT market.
- Argentina is building strong programming education in public schools.
- Colombia has become a hub for technology‑driven services.
Additionally, English proficiency is on the rise, making integration into US teams easier, while cultural alignment and similar time zones enable smoother collaboration and quicker decision‑making.
Diversity further strengthens LATAM’s value proposition. Teams often blend professionals from different cultural and educational backgrounds:
For example, a marketing strategist from Mexico City working alongside a software architect from São Paulo and a UX researcher from Buenos Aires.
This mix brings varied viewpoints to the table, enabling solutions that resonate across multiple markets rather than just one. Companies benefit from products and campaigns shaped by people who understand local nuances, global trends, and cross‑cultural communication, resulting in offerings that perform better in diverse customer segments.
The challenge of hiring in LATAM without an EoR
While the benefits of hiring in LATAM are crystal clear, building a compliant workforce in the region isn’t straightforward.
Many US companies underestimate how complex the legal and operational landscape can be. What starts as a promising nearshore strategy often stalls under the weight of unfamiliar regulations, administrative delays, and hidden costs.
Below are some of the most common pitfalls.
Entity setup: costs, timelines, and bureaucracy
Opening a legal entity in LATAM is rarely quick. Timelines range from a few weeks to several months, depending on the country and sector. Across the region, company formation can take anywhere from 2 to 16 weeks, with timelines shaped by local bureaucracy, licence requirements, sector regulations, and documentation readiness.
The costs go far beyond registration fees. You’ll likely need:
- Local legal counsel to manage incorporation paperwork.
- An accountant familiar with country-specific tax laws.
- A local director or representative who often requires a paid role or retainer.
Even after setup, you’re responsible for ongoing filings, audits, and compliance reporting. For small teams or initial market tests, these time and cost commitments can outweigh the benefits entirely.
Compliance risks and contractor misclassification
To avoid setting up a legal entity, many companies try to hire LATAM talent as independent contractors. It seems faster and more flexible, but governments closely monitor these arrangements for possible incidents of misclassification.
Enforcement is active and increasing:
- In Brazil, contractors must meet social security obligations and submit digital invoices to prove autonomy.
- Mexico bans outsourcing core business functions to contractors and enforces strict independence rules.
- Argentina and Colombia have intensified audits to uncover disguised employment.
- Chile requires contractors to contribute to pensions and health insurance, with automatic tax reporting.
If authorities determine that a contractor has been misclassified (whether it’s due to fixed hours, company-issued tools, or managerial oversight), the consequences can include:
- Retroactive payment of wages, benefits, and taxes
- Fines for breaching local labour laws
- Legal claims or court proceedings from the contractor
Additionally, misclassification laws differ across LATAM. What’s legal in one country could be illegal in the next. Without on-the-ground expertise, a one-size-fits-all contractor model doesn’t just increase risk; it invites audits, penalties, and reputational damage.
Navigating payroll and benefits without local expertise
Payroll in LATAM involves more than simply transferring salaries. Just like misclassification laws, each country has its own rules for tax withholdings, social security, mandatory bonuses, and leave entitlements. Many also require legally defined benefits like healthcare, transport stipends, and meal allowances that vary widely in cost and structure.
Without local knowledge, even small errors—like misapplying a tax rate or missing a deadline for social security filings—can result in automatic penalties or blocked payroll runs. Imagine an employee expecting a legally required mid-year bonus that isn’t processed. Not only is the company now facing fines, but that employee is likely to lose trust and start looking elsewhere.
In other words, trying to manage payroll and benefits remotely, without in-country HR or payroll specialists, puts companies at real risk—not just of non-compliance in LATAM, but of losing the very talent they worked hard to secure.
How an Employer of Record solves these challenges
The challenges of hiring in LATAM can discourage many US companies before they even get started. But these barriers aren’t a dead end. They’re a signal that a different model is needed.
An Employer of Record (EoR) offers that alternative. Rather than building a local legal entity from scratch, companies can engage an EoR to act as the legal employer on their behalf. The EoR manages everything tied to employment while the business keeps control of the employee’s tasks and performance.
This gives US companies a fast, low-risk way to enter LATAM markets, hire locally, and stay fully compliant, without long timelines, legal exposure, or administrative overhead.
What an EoR actually does
Once engaged, the EoR, as mentioned above, becomes the legal employer in-country, assuming full responsibility for compliance with local employment laws. This includes issuing lawful contracts, running payroll aligned with local tax codes, and managing benefits in line with national regulations.
It also handles:
- Calculating and withholding income taxes and social contributions
- Disbursing statutory bonuses and allowances on schedule
- Filing reports with tax and labour agencies
- Managing terminations with proper notice and severance
- Updating employment terms as laws change
All records are kept audit-ready, giving businesses peace of mind without needing to track every regulation across jurisdictions. The EoR doesn’t just reduce admin duties; it protects organisations from risk by ensuring every employment detail is handled correctly under local law.
Supporting both local and foreign hires
Many businesses don’t just need to hire locally. They sometimes also need to relocate foreign talent to support strategic roles on the ground. But cross-border hiring involves strict immigration processes, slow government approvals, and complex documentation that can vary by country.
An EoR with immigration expertise can manage the full process on your behalf. This includes sponsoring work visas, securing permits, handling renewals, and ensuring all legal requirements are met before work begins. They also stay updated on changing immigration policies, reducing your risk of delays or violations.
This lets you manage both local and foreign hires through one partner, streamlining compliance while keeping your workforce plans on track.
EoR vs. PEO: understanding the difference
When looking for global hiring solutions, many companies come across both EoRs and Professional Employer Organisations (PEOs). They may seem similar at first, but the models are built for very different needs.
- An EoR becomes the legal employer on record, handling contracts, payroll, taxes, and compliance. It allows you to hire in a country without setting up a local entity.
- A PEO supports HR and payroll functions but operates under a co-employment model, meaning you must already have a legal entity in place.
If you don’t have a local presence and need to hire quickly, an EoR is the only viable path. A PEO is a better fit when you’re already established and want to offload HR operations.
The benefits of using an EoR in LATAM
Now that we’ve covered how an EoR works, the next step is understanding the advantages it delivers in practice. Let’s break down these benefits in detail.
Faster time to hire
Without the need to set up a legal entity, an EoR can have your employment structure in place within days. Once contracts are signed, new hires can be onboarded in as little as one to two weeks, depending on the country.
This speed means you can respond to project demands, fill critical roles, and start operations without months of administrative delay. Instead of waiting for registrations, permits, and payroll systems to be built from scratch, you plug into an existing, compliant framework and get straight to work.
Legal and tax compliance
An EoR keeps your hiring fully aligned with each country’s labour laws and tax requirements from day one. Contracts are drafted to meet local standards, payroll is processed with the correct withholdings, and statutory benefits are administered without error.
They also handle all required filings with tax and labour authorities, ensuring deadlines are met and records are audit-ready. This proactive compliance management protects you from fines, back payments, and legal disputes, giving you the confidence to focus on running your team.
Cost efficiency and scalability
Using an EoR removes the upfront and ongoing costs of setting up and maintaining a local entity, such as legal fees, accounting services, and administrative staff. You only pay for the employees you have, with no fixed overhead tied to unused infrastructure.
This flexibility also works in reverse, as you can scale up quickly to meet new demand or reduce headcount just as easily, without the sunk costs or contractual obligations of a permanent setup. It’s a way to align your workforce size and spend with real business needs, not fixed commitments.
Choosing the right EoR partner in LATAM
Convinced of partnering with an EoR? One major thing you should consider is that not all EoRs offer the same level of coverage, expertise, or support. Selecting the right one is critical to making your market entry smooth and sustainable.
Assessing regional expertise and services
Ideally, an EoR should have proven experience in the specific LATAM countries where you plan to hire. This means staying current on local labour laws, tax systems, and benefits requirements, and having established processes for onboarding and payroll in each location.
Equally important is the range of services they provide. An EoR that can manage compliance, payroll, benefits administration, and immigration support under one roof will save you from juggling multiple vendors and reduce the risk of gaps in coverage.
Aligning with long-term growth plans
Your EoR partner should be able to scale with you. Whether you plan to expand into more countries, increase headcount, or eventually establish your legal entity, they should offer flexible solutions that adapt to your strategy. Look for a partner who can provide market insights, salary benchmarks, and workforce data to guide decisions beyond the initial hiring phase.
Start scaling in LATAM seamlessly
Employer of Record solutions give US businesses a direct route into Latin America’s talent markets without the delays, compliance risks, and costs of setting up local entities. By acting as the legal employer, an EoR handles contracts, payroll, benefits, and regulatory requirements so you can focus on building teams and driving growth. A clear understanding of how EoRs work prevents costly mistakes and ensures your market entry is fast, compliant, and sustainable.
For businesses seeking this level of speed and assurance, CXC delivers. Operating in over 100 countries, we combine deep in-region expertise with full-service workforce support, covering onboarding, payroll, immigration, and ongoing compliance. Our tailored solutions are built for scale, backed by 33 years of global experience, and delivered by local teams who know the regulations inside out.
If you’re ready to build your LATAM team quickly, strategically, and without operational drag, talk to CXC today. We’ll manage the details—you capture the opportunity.
