What You Need to Know About Hiring and Firing in Latin America: Expert Q&A

Female Latin American human resource manager discussing LATAM hiring and firing policies with male employee while showing a document

Latin America (LATAM), a region known for its cultural richness and diverse landscapes, stands on the cusp of significant growth and transformation. With a population exceeding 650 million, LATAM offers a unique blend of opportunities and challenges for businesses venturing into this dynamic market.

As governments in LATAM implement business-friendly policies and focus on infrastructure development, the region becomes increasingly appealing to global companies seeking expansion. From the vibrant metropolises of Mexico City and São Paulo to the scenic landscapes of Buenos Aires and Santiago, LATAM provides a myriad of growth prospects.

portrait of Ana Vizzotto

In this special Q&A blog, we engage with Ana Vizzotto, Director of Client Solutions, specializing in LATAM at GoGlobal. Ana’s in-depth insights and expertise will provide valuable perspectives on the complexities of hiring and firing practices in LATAM, paving the way for our upcoming webinar on February 7.

Why are international companies, especially those from the U.S., increasingly drawn to countries in LATAM for recruitment? What unique advantages does the region offer? 

Ana Vizzotto: LATAM has become a prime destination for international organizations, particularly companies from the U.S., and nearshoring has played a significant role in this trend. 

The region offers compelling factors that make it an attractive choice for businesses looking to establish a presence. Notably, LATAM provides exceptional value, favorable time zones for effective collaboration and a pool of highly skilled professionals.

Nearshoring in LATAM has become synonymous with cost-effective talent development. Companies benefit from lower operational expenses and a more affordable cost of living compared to other regions, enabling them to offer competitive compensation packages without stretching their budgets.

What challenges should companies plan for?

Ana Vizzotto: While building a workforce in LATAM offers advantages, it’s crucial for companies to be aware of the challenges. The legal and cultural landscape in LATAM tends to favor employees, influencing how companies hire and fire. Navigating these complexities is essential for successful and compliant workforce management in the region.

Speaking of employee-friendly policies, there are certain benefits not statutory in LATAM but common practice. What are some of these supplemental benefits and how significant are they in building employee retention?

Ana Vizzotto: Supplemental benefits are instrumental in fostering employee retention throughout LATAM. For instance, prevalent fringe benefits in the region encompass allowances for transportation, meals and groceries. Private healthcare, although supplemental, is an anticipated 100% coverage in most industries. 

Typically, local regulations specify that, instead of cash, these additional benefits should be distributed through a debit-type card loaded with funds. This enables a tax-free arrangement for the workers. 

Supplemental benefits are typically dispensed on a monthly basis and have become so ingrained in the employment landscape that workers now anticipate their inclusion as a standard component of total compensation when receiving a job offer.

Profit sharing is legally mandated in some LATAM countries like Mexico, Chile and Peru. Can you elaborate on how profit sharing works and the impact it has on companies operating in these regions?

Ana Vizzotto: Profit sharing is a significant aspect of employment laws in several LATAM countries. For example, in Mexico, businesses are required to allocate a fixed percentage of pre-tax income to employees. This legal requirement ensures that employees share in the success of the company. 

Proper planning and adherence to these regulations are crucial, as failure to comply can lead to severe fines, legal complications and reputational harm. Profit-sharing programs require careful consideration to maintain compliance and foster positive relationships with employees.

How are commissions regulated for workers in LATAM and what considerations should international companies keep in mind?

Ana Vizzotto: Commissions are regulated by labor legislation, often posing challenges for international companies who operate in multiple countries and are unfamiliar with the provisions. 

While monthly commissions are standard in some countries, their cost-effectiveness may vary in LATAM jurisdictions. Regulations demand timely payment, outlined in employment contracts, with detailed justification from employers on calculations. Commissions, contributing to the base salary, incur taxation for both employer and employee. 

Varied regulations across LATAM countries require meticulous adherence to payment timelines and transparency, adding complexity. Therefore, a case-by-case evaluation is essential for compliance with local labor laws and effective commission payment structures.

The 13th-month bonus practice is common and required in most countries in LATAM. Can you shed light on the significance of this practice and its impact on employee engagement and satisfaction?

Ana Vizzotto: The 13th-month bonus, commonly known as ‘Aguinaldo’ in Spanish and ‘Décimo Terceiro’ in Portuguese, is a widespread and obligatory practice throughout the region. 

This additional compensation, typically equivalent to one month’s salary, holds great significance for employees. It not only provides financial support during festive seasons but also fosters a sense of appreciation and loyalty. 

Non-compliance with this established practice not only poses reputational risks but also legal consequences. Failure to adhere to the mandatory provision of the 13th-month bonus can lead to severe fines, legal complications and harm to the company’s standing within the region.

Puerto Rico holds a unique status as a territory of the U.S. Can you briefly touch upon the similarities and unique regulations for companies operating in Puerto Rico, considering its labor laws are primarily based on federal U.S. laws with some additional regulations specific to the territory?

Ana Vizzotto: Puerto Rico’s unique status as a U.S. territory brings a blend of similarities and unique regulations. While its labor laws are primarily based on federal U.S. laws, there are additional regulations specific to the territory. Key sources include the Puerto Rico Constitution, the Labor Transformation and Flexibility Act and various anti-discrimination provisions. 

Companies operating in Puerto Rico need to navigate this nuanced legal landscape, considering both federal and local regulations for effective workforce management.

As discussed, LATAM is known for its employee-friendly labor laws and business practices. How should international companies navigate this tendency and adapt their strategies to ensure compliance and success in the region?

Ana Vizzotto: Navigating the region’s employee-centric environment requires a thoughtful approach to compliance, prioritizing fair and ethical workforce practices. Understanding and aligning with local labor laws, prioritizing employee benefits and fostering positive workplace cultures are key steps to successfully operate in LATAM.

International companies should view these aspects not just as legal obligations but as opportunities to build strong, loyal teams and establish a positive reputation in the region.

Partnering with a local expert for recruiting and hiring, such as an Employer of Record (EOR) that specializes in a full breadth of cross-border HR services, can provide invaluable support to international companies. This localized, invaluable support can help safeguard compliance and drive success when it comes to hiring and firing in LATAM. 

Check out a recording of our webinar ‘From Singapore to Spain and Beyond: How to Hire and Fire Around the World’ or contact us to learn more about hiring and firing practices around the world. You can also download our new guide: Building a Resilient Workforce in Latin America Guide.