Expanding into Central & South America: Part 3 – Labor Legislation Complexity

Throughout June, HSP Group is releasing a series of blogs that delve into the opportunities and challenges of expanding your business to Latin America (LatAm). Today we’ll discuss the complexities you may face around labor legislation, sharing some specific examples from Brazil and Mexico.

Part 3 – The Complex Nature of Labor Legislation

If you decide to expand to any country around the world, you will be faced with varied labor legislation and specific laws around employee rights. This is just as prevalent in LatAm, where diverse cultures, languages, and political spheres mean a range of contrasting approaches to employment law. Let us look at some key issues you may encounter.

Understanding Employee Rights and HR Best Practices

Many LatAm countries have Collective Bargaining Agreements (CBAs) that maintain and mandate minimum employee rights and requirements. These collective agreements are never set in stone and can be regularly updated depending on an employee’s circumstance. Negotiations and new agreements will form, and amendments will need to be made quickly regarding existing contract agreements as well as potential adjustments to payroll operations.

These CBAs will often form the basis of key considerations and allowances around subjects like healthcare, paid time-off (PTO), and a minimum pay scale. Understanding these evolving agreements is vital in maintaining HR compliance and staying competitive with the packages you offer to potential employees.

There are certain HR administration practices that are not common outside of LatAm. A good example is Brazil, where you must always maintain awareness of the status of each of your employee’s health. Any changes must be reported in an employee records booklet.

Complex Payroll Processes

Ensuring compliant payroll operations can be a complex issue in LatAm, with many countries requiring varied and burdensome administrative tasks. Companies face unexpected costs and fines if these tasks are not followed appropriately.

In Brazil, for example, it’s common for a company to pay employees mid-month, but they would still be legally obligated to file the payment at the end of the month. This would mean running payroll twice per month. Companies that operate in Mexico must contribute 10.5% of a worker’s salary to social security. Employers must also offer an annual Christmas bonus, which equates to at least 15 days of an individual’s salary.

Paid Time Off (PTO)

In the US, PTO and flexibility alone are a perk to attract employees. However, in many LatAm countries, you are required by law to offer a minimum amount of time off for employees. Additionally, companies must account for a 25% premium on an individual’s pay rate for each day taken. In Brazil, specifically, after 12 months of employment, an employee is entitled to 30 calendar days of paid leave. This leave must be compensated at an amount equating to a month’s salary plus one-third of the relevant total.

Non-mandatory Benefits

Additionally, companies often offer employees additional benefits, which, while not mandatory, are commonly used to attract and retain talent.

In the tech sector, for example, supplementary healthcare plans can play a major role in attracting the best talent. This is often the case in Brazil: even though citizens have access to universal healthcare known as The Sistema Único de Saúde (SUS), access to private healthcare is a benefit that many professionals look for.

Meal vouchers are another common employee benefit. This is usually a built-in payment that accounts for the average cost of a meal during an employee’s working hours. While this is not a legal requirement, it may be in the best interests of your talent acquisition process to keep up with competitors who do offer this. In Brazil, cards with a set amount adjusted to the average amount of a meal according to location are common. (For example, in Rio De Janeiro this is between 30-50 Brazilian Real).

Translating Contract Terms to the Local Language

Thoroughly translating the terms of the agreement from your origin language to the territory where you’re employing is vital to avoid potential legal issues. However, you can present and finalize the terms with a prospective employee in your native language. However, this could lead to representation issues. In Brazil, for example, a contract should have a sworn verbatim translation in Portuguese to hold up against any claims made in a court of law.

Although most LatAm countries have Spanish, Portuguese, or French as their prime language, there can also be local colloquial differences to be aware of when drafting a potential agreement. Being aware of different connecting words (For example, Argentina uses vos rather than tú as a standard opening address) can be vital in avoiding miscommunication in an agreement.