Back to BlogThe hidden risks of hiring LATAM freelancers (and how to avoid these risks)
When it comes to seeking top talent at competitive rates, hiring freelancers in Latin America (LATAM) has become a growing trend among companies. With strong technical expertise, time zone alignment, and increasing digital connectivity, the region is an attractive hub for remote work. LATAM is now a key part of many global hiring strategies as it offers flexibility and scalability across industries.
Yet, while the benefits are clear, diving in without proper planning can expose businesses to hidden risks such as legal complications and inconsistent delivery. These challenges can quickly erode the very advantages companies are looking for.
Let’s explore those risks (and how to navigate them) so you can hire LATAM freelancers with confidence.
Why companies hire freelancers in Latin America
Latin America is a top choice for companies aiming to balance quality and cost in their freelance workforce. Since the region has many economic, geographic, and cultural advantages, it’s no surprise that the area is attracting growing attention from global corporations.
- Affordability: Companies can significantly lower payroll costs by hiring talent in LATAM compared to U.S.-based talent—without compromising the quality of output.
- Time zone advantage: Since there is a substantial overlap with North American working hours, LATAM collaborations enable real-time communication and swift coordination.
- Cultural alignment: Shared business values and growing English proficiency help in the easy and smooth integration of LATAM freelancers with US and European teams. There’s not much of a language and cultural gap, in a sense.
SME insight: Booming freelance economy—yet complexity underestimated
The freelance economy in LATAM is expanding at a fast pace, driven by surging demand and digital transformation. The LATAM freelance platform market is projected to grow from roughly USD 523 million in 2023 to USD 1.65 billion by 2030, reflecting a robust CAGR near 17.8%.
Since 2020, the number of freelancers in the region has surged by 157%, now accounting for nearly 19% of the regional workforce. Yet, many SMEs entering the region still underestimate the operational complexities that lie beneath the surface.
The benefits (and the blind spots)
The region’s advantages are undeniable, but they don’t tell the whole story. Overlooking operational risks can lead to disruptions that cost more than they save.
Advantages include cost-effectiveness, synchronous work hours, and cultural compatibility. These benefits make LATAM a compelling hiring frontier. Additionally, the rapid expansion of freelancer platforms and the influx of talent show increasing opportunities for SMEs and scaling businesses.
Meanwhile, the blind spots include underestimating the complexity of local labour laws, tax obligations, or infrastructure realities. Additionally, businesses often assume cultural alignment without assessing working styles, communication preferences, or availability beforehand. Finally, failing to establish consistent vetting and onboarding processes can lead to misalignment or delays.
The hidden legal and compliance risks
Before engaging freelance talent in LATAM, it’s vital to recognise the legal and regulatory challenges that may arise. Failure to anticipate them could unravel initial advantages and lead to costly fixes.
Misclassification of freelancers
One of the most common risks is treating someone as a freelancer even though they work like an employee. This often happens when a person follows a set schedule, uses company tools, or works under direct supervision.
Governments in many Latin American countries protect worker rights and can force companies to pay back taxes, benefits, and penalties in case of misclassification.
Country-specific legal complexities
Labour laws vary widely across Latin America, and each country has its own rules about freelance work:
- Mexico has banned outsourcing core business tasks and now requires stricter rules around who qualifies as a contractor.
- Brazil penalises companies that misuse freelancer arrangements—a practice known as “pejotização.”
- Argentina, Chile, and Colombia require freelancers to show they work independently, with the proper paperwork and invoicing habits.
Tax and statutory compliance challenges
Tax laws are another area where things can get complicated. LATAM countries have strict reporting requirements for both local and foreign companies, such as:
- Missing tax filings or failing to make required payments can result in interest and fines.
- Lack of tax treaties (such as between the U.S. and Brazil) can cause double taxation issues.
- Social contributions (such as pensions or health payments) may still apply, even for contractors, depending on how the work is structured.
De facto employment risks
Even with a freelance contract, the way the working relationship functions matters. If the freelancer reports to a manager, follows company rules, or becomes the only person doing a core task, courts may decide they’re effectively an employee. This can lead to back pay, benefits, or even lawsuits.
Red flags include long-term work with no clear end, using company tools or systems daily, and having little control over how and when tasks are done.
Data security and intellectual property concerns
When working with freelancers, especially across borders, there’s always a risk of exposing sensitive information or losing control over intellectual property (IP).
Unlike full-time employees, freelancers often use personal devices, work in unsecured environments, and may not be fully covered by internal security protocols. Without strong agreements and systems in place, companies leave themselves open to data leaks, IP disputes, and reputational harm.
Protecting confidential information
To reduce these risks, it’s essential to build protection into every freelance engagement from the start. Contracts and systems should clearly define responsibilities, access, and legal safeguards. Here are key practices to follow:
- Use Non-Disclosure Agreements (NDAs). Require freelancers to sign NDAs before work begins, clearly defining what constitutes confidential information.
- Include IP clauses in the contracts. Ensure agreements state that all work created belongs to your company, and that the freelancer waives any rights to the output.
- Limit access to sensitive systems. Use role-based access controls and ensure freelancers only have access to what’s strictly necessary.
- Secure file-sharing and communication tools. Avoid personal email and unsecured platforms—use encrypted, company-approved tools for sharing documents and data.
- Audit and revoke access after contracts end. Immediately remove freelancers from internal systems and cloud tools when their engagement finishes.
- Regularly review legal protections. Work with legal counsel familiar with LATAM jurisdictions to ensure agreements are enforceable locally.
Performance and reliability challenges
Without the structure of an in-house team, issues like missed deadlines, inconsistent quality, and communication breakdowns become more likely.
In Latin America, companies may rush to hire without thoroughly vetting candidates or establishing accountability. This can lead to delays, misaligned expectations, and poor deliverables that damage project outcomes.
Setting expectations and communication protocols
Clear structure is key to success with freelance teams. Vague instructions or informal management often lead to miscommunication and errors. The following practices can help ensure smoother collaborations:
- Vet thoroughly before hiring. Request portfolios, test projects, and references to assess both quality and consistency.
- Define roles and deliverables clearly. Use written contracts or briefs to detail scope, deadlines, quality standards, and success metrics.
- Use structural onboarding. Provide freelancers with the tools, processes, and documentation they need from day one.
- Set communication routines. Establish regular check-ins (such as weekly calls or reports) and clear channels for day-to-day updates.
- Track progress in shared tools. Use project management systems (such as Trello, Asana, ClickUp) to keep everything visible and on record.
- Create fallback plans. For critical work, consider backup freelancers or phased milestones to manage risk.
Importance of background checks
In a fast-moving, freelance economy, it’s easy to rely on surface-level credentials. But not all profiles reflect the whole picture. Some freelancers use inflated portfolios or borrowed work samples. Others may lack professional references, making it difficult to assess how they operated under pressure or with long-term clients.
Conducting background checks—whether formal (via verification services) or informal (through past client interviews)—helps you avoid unreliable hires. It also gives you greater confidence that the person you’re hiring can deliver consistent, high-quality work in a remote setup.
Dispute resolution and offboarding challenges
No matter how careful the hiring process is, some freelance partnerships can and will still get messy. Missed deadlines, poor communication, or contract breaches can occur. When things go wrong, companies often find themselves without a clear course on how to handle the situation.
For example, terminating contracts with LATAM freelancers can become complicated if local labour expectations or unclear agreements are involved. Without a proper offboarding process, businesses risk losing access to files, exposing sensitive data, or leaving payments unresolved—all of which can damage future operations and reputation.
Ensuring timely and accurate payments
Late or inconsistent payments are the leading cause of disputes with freelancers. Likewise, companies may struggle with invoicing standards, exchange rates, or cross-border transfer fees. The following practices help avoid these common pain points.
- Use clear payment terms in contracts. Specify rates, due dates, invoicing procedures, and consequences for delays.
- Work with trusted payment platforms or even payroll outsourcing companies to handle international transfers securely and efficiently.
- Account for currency fluctuations. Agree on a fixed currency (like USD) or use tools that automatically adjust for real-time rates.
- Verify payment compliance per country. Understand local freelancer tax obligations and reporting needs to avoid future disputes. Tools like CXC Comply can help you here.
- Schedule payment cycles. Set consistent payment dates (bi-weekly or monthly) to build trust and reliability.
How to avoid these risks
Many of the risks discussed earlier can actually be avoided with the right systems, partners, and processes in place.
Responsible hiring not only protects your business from fines and disputes. It also safeguards your reputation, ensures fair treatment of talent, and builds long-term trust with employees and contractors alike.
Below are key practices that support compliant and effective freelancer engagement. Feel free to use this as a mini-checklist.
✓ Use written contracts with clear scopes, timelines, and payment terms.
✓ Include NDAs and IP clauses to protect sensitive information
✓ Vet freelancers through structured interviews, tests, and reference checks.
✓ Limit access to internal tools and data using role-based permissions.
✓ Define communication routines and performance expectations.
✓ Comply with local laws on taxes, benefits, and employment classification.
✓ Have offboarding and dispute resolution plans in place from day one.
✓ Use trusted international payment platforms or providers to ensure smooth transactions.
Partnering with an Employer of Record (EoR)
An Employer of Record (EoR) acts as the legal employer on your behalf. They handle contracts, taxes, and compliance across different jurisdictions. This is especially useful in the LATAMregion, where local employment laws can be complex and strictly enforced.
An EoR can help you ensure freelancers and contractors are classified correctly. They can also take care of handling payroll, filing taxes in compliance with local laws, and processing social contributions in line with local laws. Additionally, EoRs can draft compliant contracts to shield your company from fines, lawsuits, or retroactive penalties.
In essence, working with an EoR simplifies hiring in multiple LATAM countries without setting up local entities. For companies scaling up quickly, an EoR adds peace of mind without slowing down hiring velocity.
Leveraging contractor management platforms
For those not ready to work with an EoR, contractor management platforms offer a flexible alternative.
These platforms provide infrastructure for hiring, paying, and managing freelancers—often with built-in compliance support. There are platforms that help with international payroll, contracts, tax and benefit management, and classification. Likewise, there are also specific tools that can help with managing onboarding, scopes of work, and team workflows.
CXC Comply brings all of these solutions together. It’s a digital platform that takes care of the three most essential compliance boxes: worker classification, right-to-work checks, and background checks. CXC leverages this solution to work with businesses in optimising their scaling strategy and setup.
With labour laws and regulations taken care of, businesses don’t need to keep looking over their shoulders once in a while. Instead, they can focus on other growth strategies.
Don’t let hidden risks undermine global growth
Latin America offers a wealth of freelance talent, but it’s not without its challenges. From legal missteps to tax compliance issues to performance inconsistencies and security concerns, companies that engage with LATAM freelancers without proper safeguards risk more than lost productivity—they risk fines, legal exposure, and long-term reputational damage.
The good news? These risks are avoidable with the right strategy. Clear contracts, structured onboarding, compliance awareness, and the use of trusted partners can ensure that your freelance workforce supports growth instead of disrupting it. CXC is one of the trusted partners that businesses all over the world can vouch for.
If you’re expanding into LATAM, or scaling your existing operations, do consider working with experienced partners like CXC, who understand the region’s legal and operations landscape. Plus, we don’t just understand the landscape. We know how to work seamlessly, efficiently, and compliantly across different countries. Organisations aiming to scale across various countries will definitely benefit from it.
Start engaging freelance talent compliantly and confidently by contacting us today!
About CXC
At CXC, we want to help you grow your business with flexible, contingent talent. But we also understand that managing a contingent workforce can be complicated, costly and time-consuming. Through our MSP solution, we can help you to fulfil all of your contingent hiring needs, including temp employees, independent contractors and SOW workers. And if your needs change? No problem. Our flexible solution is designed to scale up and down to match our clients’ requirements.
