In a recent post, we shared some of the reasons why hiring remote workers in Latin America could be a good move for your business.
In case you missed it, this often-overlooked region is fast becoming a hub for tech talent. And the low cost of living in many countries means you can often find workers a lot cheaper than at home — while still offering a locally competitive salary.
Plus, most Latin American countries have seen steadily increasing English language proficiency over the last ten years, in part fueled by adults who are keen to work in international environments. And for US companies, there’s another bonus: much of Latin America overlaps significantly with US time zones, which means you’ll easily be able to work with your new hires within your office hours.
Sounds great, right? But there’s a problem: hiring workers overseas is always complicated, and often costly — especially if you have to set up a legal entity in the country in question.
In this article, we’ll share how using an employer of record (like CXC) could be the solution you need to tap into the Latin American labour market.
Let’s start with a quick definition.
What is an employer of record (EoR)?
An employer of record (EoR) is an organisation that hires workers on behalf of other organisations. The EoR is the worker’s employer for tax and legal purposes. It usually provides HR services like drawing up contracts, running payroll and handling taxes and social contributions on behalf of the hiring company. But the hiring company is still in charge of the workers’ day-to-day management.
Benefits of using an Employer of Record to engage workers
So, why should you use an EoR, anyway? Well, the most important reason is that it allows you to hire workers in countries where you don’t already have a presence.
Without an EoR, you would usually have to go through the costly and time-consuming process of opening a legal entity in the region in question. And if you’re just testing the waters by exploring a new market or only want to take on one or two remote workers, it’s usually not worth the hassle.
Here are some of the other benefits of using an employer of record:
- Time and cost savings: EoRs take on HR tasks like running payroll, administering benefits and running background checks on potential employees. That can save you a lot of time compared to doing these things in-house.
- Taxes and social contributions handled for you: Understanding the particularities of payroll tax across different regions takes time — especially as the rules change frequently. EoRs handle tax withholding and payments on your behalf, so you don’t need to race to keep up with changing legislation.
- Reduced employee misclassification risk: The rules around what defines a contractor vs. an employee are complicated, and vary from one country to the next. Working with an EoR is a good way to ensure every worker you engage is classified correctly — avoiding costly fines and legal fees.
- Compliance with local labour laws and expectations: Every country in the world has specific rules about employment — and employees have different expectations from their employers in each country too. EoRs provide the local expertise you need to ensure you’re treating your employees fairly, in line with both the law and the cultural norms of their country.
EoR vs. AoR: What’s the difference?
An agent of record (AoR) is an employment organisation similar to an EoR, except that they specialise in the compliant engagement of independent contractors. They ensure that contractors are classified correctly, and usually handle things like payroll, expenses and record-keeping on behalf of their clients. Many providers (including CXC) offer both EoR and AoR services depending on your organisation’s needs.
Using an employer of record in Latin America
Latin America is a large region made up of more than 20 different countries and territories.
And each one has its own rules and regulations concerning working conditions and the use of employment solutions like EoRs. Each country’s labour market also presents unique challenges and opportunities.
Below, we’ll discuss the situation in some of the most popular Latin American countries for companies that want to hire workers overseas — through an EoR or otherwise.
Argentina is one of Latin America’s fastest-growing tech hubs, with a rapidly expanding pool of developers, engineers and other knowledge workers. Four out of ten companies that are considered unicorns in Latin America are located in or near Argentina’s capital, Buenos Aires. Argentina also has the highest English language proficiency rating in the region.
To hire a worker in Argentina, you either need to establish a local entity, or work with a company that already has a legal entity in the country — in other words, an employer of record.
Like many other countries, Argentina treats contractors and employees differently. And there are serious consequences to misclassifying a worker including fines, penalties and losing your licence to hire in the country.
Key facts about hiring in Argentina:
- Employers have to maintain a ‘labour book’ containing details about all employees, including each worker’s name, marital status, job description and salary.
- A normal working week should be no more than 48 hours, and a normal working day shouldn’t exceed 8 hours.
- Beyond these hours, overtime is paid at 150% of the worker’s normal pay, or 200% on rest days or public holidays.
- The ‘13th salary’ is mandatory in Argentina. It’s paid in two installments: one by the end of June, and one by 18th December each year.
- Annual leave is granted according to the employee’s years of service and must be taken between 1st October and 30th April each year.
Brazil is the world’s 10th-largest economy, and the largest in Latin America. It’s also the most populous country in the region, and its advanced infrastructure and transportation facilities make it a key trading hub. Additionally, Brazil is a member of both the Southern Common Market and BRICS, two trade groups that allow access to important markets both inside and outside of Latin America.
To hire a worker in Brazil, you’ll need to either establish your own legal entity or work with a third party like an employer of record. A word of caution: Employment laws in Brazil can be difficult for foreign employers to understand. The country’s tax system is also known to be one of the most complex in the world.
There’s even an expression in Portuguese that refers to the high cost of doing business in Brazil: the Custo Brasil, or ‘Brazil Cost’. Working with an experienced partner who understands the market can help you cut costs and successfully navigate the country’s confusing rules and regulations.
Key facts about hiring in Brazil:
- The standard work week in Brazil is eight hours per day or 44 hours per week over a six-day period.
- Any hours in excess of the scheduled workday must be paid at a rate of 150% of the employee’s regular pay, or 200% on Sundays and holidays.
- After a year’s employment, employees are entitled to 30 days of paid vacation per year. There are also 12 public holidays each year.
- Employees are eligible for a 13th salary in Brazil. It’s usually paid in two instalments: one in November and one in December.
According to the World Economic Forum, Chile is the most economically competitive country in Latin America. This is thanks to its low inflation, low public debt and competitive open market. The country is part of the Pacific Alliance, a trade block with Colombia, Mexico and Peru which represents 38% of the region’s GDP and attracts 45% of Foreign Direct Investments.
Under Chilean law, employees and contractors are entitled to the same treatment. That makes it different from many other countries in Latin America and further afield, which treat the two types of workers differently.
Companies that want to hire in Chile must either own a local entity or use a global employment solutions provider like an EoR.
Key facts about hiring in Chile:
- The maximum working hours in Chile are 10 hours per day or 45 hours per week.
- Beyond this, overtime is paid at 150% of the worker’s normal rate, and shouldn’t exceed 10 hours per week or two hours per day.
- Employees are entitled to 15 days of paid annual leave (or 20 in certain regions) after a year’s service. Holidays can be carried over for up to two years. There are also 17 public holidays every year.
- Employers in Chile must pay their workers a portion of their profits every year. This should be either 30% of their net taxable income or 25% of the employee’s annual income (but no more than 4.75x the national minimum wage for one month).
- The 13th salary is not mandatory in the private sector in Chile, but many employers choose to provide it as an additional benefit.
Colombia is a signatory to 17 commercial agreements and part of the Pacific Alliance along with Chile. Ports on both the Pacific and Atlantic Oceans also make it a strategic business location.
To hire employees in Colombia, you need to either form a legal entity, or use an alternative solution like an employer of record. However, since labour laws can be difficult to navigate, it’s important to find a partner with a strong level of local knowledge.
Colombian employment law treats contractors and employees differently — and misclassifying workers can have serious consequences.
Key facts about hiring in Colombia:
- Maximum working hours in Colombia are 48 hours per week without overtime. The standard working day is eight hours. However, employers and employees can agree on anything between four and ten hours as long as the weekly total doesn’t exceed 48 hours.
- Above this, overtime must be paid at 125% of the worker’s normal rate during the day, and 175% for night work. Those who regularly work nights are paid 135% of the standard rate.
- Employees who have worked for an organisation for a year are granted at least 15 days of annual leave. They’re required to take at least six consecutive days of leave each year, although unused leave can be accrued for up to two years.
- There are 18 public holidays in Colombia each year, in addition to annual leave.
- Employees in Colombia receive an annual bonus equivalent to 15 days’ pay. This is paid in two equal instalments on the last day of June and on the 20th of December.
Costa Rica’s economy has historically been driven by agriculture, but it’s recently diversified to include multinational corporations. Sectors like finance, pharmaceuticals and ecotourism have seen significant growth in recent years.
In Costa Rica, all businesses that want to hire employees need to be registered with the national business registry. That means that if you want to hire workers, you either need to set up a legal entity or use an employer of record.
The law in Costa Rica sees clear differences between contractors and employees in terms of taxation and working practices.
Key facts about hiring in Costa Rica:
- The maximum working week in Costa Rica is 48 hours. Many employees work eight hours per day Monday through Friday, with a half-day on Saturday.
- Unusually, there is no standard national minimum wage in Costa Rica. Instead, each profession has a minimum salary. These figures are revised every six months.
- Employees in Costa Rica receive a 13th salary payment equal to one month’s pay every year. It’s usually paid between the 1st and the 20th December, and employers who don’t pay it can be fined.
- Employees are usually granted 15 days’ leave for 50 consecutive weeks of work. Unlike in other countries, it’s not possible to carry over unused leave from one year to the next, so employees are encouraged to use it.
- There are also 11 national holidays, plus additional ones that vary by state.
Mexico is the second-largest economy in Latin America and the region’s biggest exporter. According to the World Economic Forum, it’s predicted to be the seventh-largest economy in the world by 2050. The country is part of 13 free trade agreements, and its close proximity to the USA makes it an attractive place to do business.
However, hiring employees through a third party in Mexico is challenging, thanks to a law passed in 2021 that effectively bans outsourcing arrangements for those performing ‘core activities’. That said, using an EoR is still legal if you want to hire workers for work that is secondary to the business’s main activity.
Employment law in Mexico tends to favour employees, and employers are expected to provide generous benefits like profit sharing, overtime and sick pay.
Key facts about hiring in Mexico:
- Statutory working hours in Mexico are 48 hours per week or eight hours per day, with a minimum of one full rest day each week.
- Overtime is paid at 200% of the worker’s normal rate for the first nine hours worked in a week, and 300% of the normal rate for any hours worked above this.
- Employers in Mexico are required to share 10% of their net annual profits with their employees.
- Employees are entitled to a minimum of 6 days of leave every year, which increases with experience. They also receive a 25% vacation premium while they are on leave. There are seven mandatory holidays throughout the year.
- Employees in Mexico are entitled to a Christmas bonus equivalent to 15 days’ pay. It needs to be paid before the 20th of December, though it’s sometimes paid in two instalments with one in the middle of the year.
How to choose an employer of record
So, you want to hire workers in Latin America, and you’ve decided an EoR is the best way to do it. What now?
There are a lot of different EoR companies out there, and you need to make sure you’re choosing the best one for your business. Here are a few things to consider when you’re shopping for an EoR:
- Global coverage: Naturally, the most important thing to consider is whether your chosen EoR can offer services in the region you’re interested in. You should also check how extensive their global coverage is in general, since you never know what direction your business might take in the future. At CXC, for example, we provide workforce solutions including EoR services in more than 100 countries worldwide.
- Pricing: Of course, you also need to make sure that the employer of record provider you choose fits into your budget. A good provider should give you full details of their pricing structure upfront, and not introduce hidden costs down the line. Keep in mind that whatever the cost of your EoR provider, it’s likely much less than the cost of opening a legal entity.
- Level of service: You also need to find out what level of service any EoR provider you’re considering working with offers. Ideally, you should look for a provider that will assign you a dedicated account manager. That way, you’ll always have a real human to contact with any questions or concerns.
- Track record: It’s also important to find out about the EoR provider’s track record with other customers. You can do this by reading online reviews and checking their website for case studies and client testimonials. Ideally, you should choose an EoR that has experience providing services to clients in your industry.
After all, you never know how your needs will change or expand in the future — and working with just one provider for everything can help to keep things simple and cost-effective.
CXC’s EoR services
Today, we provide services in more than 100 countries around the world — including in Latin America. If you’re looking for an employer of record in Latin America or just want to chat about the best options for expanding your workforce, get in touch with our team to find out how we could help you.
And if you want to learn more about how hiring remote workers in Latin America could help your business, check out our recent post.