Key Considerations for Human Resources and Payroll

EXPANDING TO LATIN AMERICA: KEY CONSIDERATIONS FOR HUMAN RESOURCES AND PAYROLL

May 2017

Venture Further tmf-group.com/venturefurther EXPANDING TO LATIN AMERICA - MAY 2017

EXPANDING TO LATIN AMERICA

With a mixture of emerging and booming economies, In this factbook, you will find out how HR and payroll political uncertainty and extreme contrasts in works in the following countries: business customs, the Americas can never be categorized as one homogeneous whole. • Argentina • Colombia • Brazil • Mexico When you operate in multiple countries and start to hire your employees, you must be aware to be fully • Chile compliant with the local labor regulations as well as your internal HR and payroll policies.

ARGENTINA 04

BRAZIL 06

CHILE 08

COLOMBIA 10

MEXICO 13-14

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ARGENTINA

FOREIGN PERSONNEL AND PAYROLL CYCLES AND OVERTIME WORK PERMITS • Employers in Argentina are required to pay salary If you are looking to establish a business or expand in Argentina, it is essential • There are no restrictions on the employment of and social security contributions to employees to be aware of the local HR and payroll policies. foreigners, provided they hold the appropriate visas. every month (or fortnightly in case of certain employments subject to Union’s rules), which is • Companies that intend to hire foreigners must be determined at the outset of employment, under the SOCIAL SECURITY SYSTEM HIRING/RETRENCHMENT ISSUES registered with the National Registry of Sponsoring employment contract. Entities, which is a division of the Department of Immigration • The Argentine law also requires a bonus (i.e. • Both employees and employers have to make • Argentina’s Labor Law, the Labor Union Law, contributions towards the cost of the health 13-month salary) to be paid to employees every the Labor Risk Law, and collective bargaining • Prospective employees from MERCOSUR countries year – in June and December – equal to 50% of the system, and to fund future retirement pensions agreements govern labor-management relations, and MERCOSUR associate countries can apply for employees. The contributions on charge of highest monthly wage received by the employee and employee rights and remuneration in the for a temporary residence visa that entitles the during the previous six-month period. employers are calculated at a rate of 23% of the country. individual to work in Argentina, without the need for gross salary paid, excepting entities with certain sponsorship. • Overtime work is permitted with certain restrictions. activities and high revenues, which are subject to a • Employees may be laid off without compensation In general, overtime on weekdays and Saturday higher rate: 27%. during the trial employment period (first 3 months), mornings is paid at 150%, and 200% is paid for provided 15 days’ notice is given. The most common types of work visas Saturday afternoons, Sundays and holidays. • Employees who have worked for an employer for issued in Argentina are: • Decree # 484/2000 established a limit of 200 hours The share of the employee’s contributions is more than five years must be given two months’ overtime per year and 30 hours overtime per month. calculated on the basis of his/her gross salary notice on termination, while one month’s notice is or by considering a fixed amount defined by sufficient for employees with less than five years • Article 29 (e) visas: Short-term visas with an initial • The vacation period ranges from 14 to 35 the Federal authorities on a semi-annual basis, of employment. Employers may also opt to provide validity is for 15 days consecutive days, depending on the number of whichever is the lowest, and according to the payment in lieu of advance notice equal to the years of service. To be entitled to a full vacation • Article 15 (E) Labor Contract/Temporary Residence following rates: salary of 15 days if the situation is verified during period, an employee must have worked for the Visa: Applicable for employees / people doing the trial period, or for an import equivalent for either same employer at least half of the working days in internships. The minimum duration is 6 to 12 one or two months of salary depending on the the calendar year. months. To obtain the visa a formal labor contract 11% of the gross salary for pension antiquity of employment. 11% between the Argentinean company and the fund system employee is required, along with a Código Único de Identificación Laboral (CUIL). HR LEGISLATION

• Article 15 (E) Secondment/Temporary • Some of the issues covered by the labor law in Residence visa: Issued to employees who are force are: remuneration; annual vacations and 3% 3% of the gross salary for retirement sent to Argentina by their company for special leaves of absence; holidays and non- fund (INSSJP) at least 6-12 months. Presenting a working days; daily and weekly working and formal labor contract between resting hours and termination or transfer of a labor the Argentine company contract. and the employee is not • The Argentine labor law sets forth the following 3% of gross salary for medical mandatory. 3% types of labor contracts: assistance • Labor contract for an indefinite period • Labor contract for a fixed period • Seasonal labor contract • Part-time labor contract. • The vacation period ranges from 14 to 35 * Additional withholdings may be applicable in case of employees subject to Union’s rules. consecutive days, depending on the number of years of service. To be entitled to a full vacation * Employee’s salary may also be reached by the income tax - which the employer retains monthly to the “Fisco Federal”. period, an employee must have worked for the same employer at least half of the working days in the calendar year. 04 05 EXPANDING TO LATIN AMERICA - MAY 2017 EXPANDING TO LATIN AMERICA - MAY 2017

BRAZIL

The Brazilian business environment is complex and requires companies to have a clear understanding of the local rules and regulations.

SOCIAL SECURITY SYSTEM FOREIGN PERSONNEL AND PAYROLL CYCLES AND OVERTIME WORK PERMITS • Salaries are payable at least once a month. Companies are required to pay 20% of • Brazilian companies with more than three em- • Compensation for overtime is payable at a 20% employees’ gross salaries to finance the ployees are required by law to employ at least two minimum of 50% above the compensation for Brazilian Social Security System (INSS). Brazilians for each expatriate employee. normal working hours and is paid on a monthly • Foreign workers must hold a valid work permit basis. (temporary or permanent) to live and work in Brazil. Other social security charges are They must also have a local ID card (RNE Card), a • Bonuses and profit sharing are generally paid levied on employers, depending on the tax ID (CPF), and a CTPS. annually, in cash. 8.8% company’s activities, up to a maximum of 8.8% of payroll. • Employers must apply to the Ministry of Labour to • The minimum monthly wage specified by the obtain work permits for their foreign employees. government is BRL 937.

Employees also pay 8%-11% of their HR LEGISLATION AND 8-11% monthly salaries towards social security, WORKER BENEFITS which is withheld by the employer. Types of work permits: • Labour relations in Brazil are governed by the • Employees are entitled to 30 days of paid vacation, Brazilian Labour Code (CLT). following 12 months of work, which can be availed HIRING/RETRENCHMENT ISSUES • Temporary Visa V, without a labour contract, is for • Another body that enforces labor regulations in in the subsequent year. workers of foreign companies engaged in a • Employment contracts in Brazil may be verbal or Brazil is the Ministry of Labour and Employment • Employees are entitled to a 13th salary, an service. Contract with a Brazilian company. written. The contract must state the remuneration (MTE). additional month’s salary, paid at the end of the of the employee. • Temporary Visa V, with a labour contract, is for • Employers contribute 8% of employees’ gross year, generally in two installments. workers. Employed by a Brazilian company • Every employee must have a Work Booklet (CTPS), salaries to the Government Severance Indemnity • Female employees are entitled to 180 days of which contains terms of the employment contract. • Permanent Visa is for workers employed by a Fund for Employees (FTGS). Upon termination of maternity leave; men are provided with 5 days of Brazilian company in management positions employment, an employee is entitled to the funds paternity leave. The rules regarding paternity leave • An employer who give the employee at least 30 (directors, managers). Compliance with additional accumulated in it. is currently under discussion by the government. days’ prior notice and provide: requirements set by the National Immigration • Men and women can retire at any age after • The balance of wages Council is required. contributing to the social security system for 35 • The 13th salary (additional month’s salary • Business visas for short-term visitors are valid for and 30 years, respectively, to receive a full pension paid at the end of the year) up to five years, permit multiple re-entries, and limit or for 15 years to receive a partial pension. The individual stays to 90 days and total stay in a year retirement rules are currently under discussion by • The Government Severance Indemnity Fund to 180 days. the government. for Employees (FTGS) deposits with a 50% fine on the accumulated amount, and • Employees are entitled to 15 sick days; payment of additional days is made by INSS. • The unused earned vacations as well as additional vacations.

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CHILE

According to TMF Group’s 2016 Global Benchmark Complexity Index, Chile has significantly improved its complexity ranking since 2015, strengthening its position as one of the top countries to do business in Latin America and the world. Still, having local knowledge is crucial for any business looking to operate in the country.

SOCIAL SECURITY SYSTEM • Health Insurance: paid to either to the state FOREIGN PERSONNEL AND PAYROLL CYCLES AND OVERTIME National Health Fund (FONASA), or to a private WORK PERMITS Social Security System in Chile comprises: Health Insurance Institution (ISAPRE), as per the • Payroll cycle can be set by days, weeks, monthly employee’s choice. The minimum legal contribution • The Chilean Labor Code states at least 85% or on piece rate terms. However, the unit of time • Pension Fund: every employee must be affiliated is 7% for the imposed rent. of a company’s employees must be of Chilean cannot exceed a month. to the Pension Fund Administrator (AFP) of choice. nationality (on companies with more than 25 • Labor-related Accident Insurance: This is 0.95% to • Minimum wage valid as of 1 January 2017 is The Pension Fund Administrator contribution employees). Exceptions to this rules: CLP$264.000 for workers between the age of 18 consists of: 3.4% of employee’s salary depending on the risk of the employment activity, covered in its entirety by Technical personnel not available locally and 65 years. the company. Foreigners married to a Chilean It will be increased to CLP$270.000 CLP from • Unemployment Insurance: 2.4 to 3% of the 1 July 2017. This amount will be increased to Foreigners who have been residing in Chile for Contribution to Survival and Disability employee’s salary paid to the Unemployment Fund CLP$270.000 from 1 July 2017. 1.41% more than five years Insurance: 1.41%, covered by the Administrator (AFC), covered by the employer and Different rates apply for workers over the age of employer 0.6% by the employee if it is applicable. • Chile does not issue business visas, therefore, 65 and under 18 years. potential foreign investors must enter to the • In January 2017, the second category tax table was Employees who serve overtime must receive an country under a “tourist” condition and may stay modified, the most relevant change is that the last additional payment, corresponding to the 50% Contribution to Individual Saving in the country for up to 90 days (a “tourist visa” is part is eliminated, so high rents pay 35% instead of of his/hers hourly wage as minimum. 10% Insurance: 10%, covered by the 40%. required for certain nationalities). employee Paid leave Temporary Visas HIRING/RETRENCHMENT ISSUES • An employee, with more than one year of service, is • Visas could be granted to people who have proven entitled to an annual paid leave of 15 business days • The work contract must be written. family ties or interests in Chile and whose residence A commission of between 0.41 and (20 business days in some regions). 0.41 and is deemed useful and convenient for the country*. 1.54% charged to each affiliate. • The Chilean Labor Code allows the employer to 1.54% • Every employee that has served for 10 years terminate an employee’s contract, based on the *Issued for a maximum period of one year, renewable for up to two or more (continuous or not), to one or more organisation’s needs. years, after which the foreigner must apply Definite Permanence or leave the country. companies, will be entitled to add one business day The termination notice must be delivered to to his/her leave, for every three new worked years. the employee 30 days in advance and personally or by certified mail. A copy of such Types of temporary visas: notice must be sent to the appropriate labour HR LEGISLATION inspector. • The Chilean Labour Code regulates the various The employer may choose to pay the types of work contracts that can be formed, • Investors and Traders employee 30 days salary, in lieu of such prior employment regulations and conditions for foreign notice. • Professionals and Senior Technicians employees, terms of remuneration and mandatory • Subject to Contract social security contributions, among other things. * Applicants from MERCOSUR countries cannot have any • Additional labour regulations are enforced by the penitentiary or criminal records. Work and Social Prevention Ministry (MTPS). 08 09 EXPANDING TO LATIN AMERICA - MAY 2017 EXPANDING TO LATIN AMERICA - MAY 2017

FOREIGN PERSONNEL AND WORK • Employees are entitled to receive a paid annual PERMITS vacation time of 15 days for each year of service. • Employees are also entitled to 18 weeks of paid • Foreigners are required to hold a valid work visa maternity leave, eight days of paid paternity leave, to live and work in Colombia. Entry of foreigners and five days of paid bereavement leave. with technical, professional or intellectual qualifications and experience that can contribute Currently, the Colombian Congress is preparing a law to the development of economic, scientific, cultural to extend those paid leaves. or educational activities that benefit Colombia is facilitated. • In general, the foreigners have to comply the same HR LEGISLATION obligations like the Colombian workers in relation with the HR and Payroll matters • Employment in Colombia is primarily governed by the Labor Code which applies to all employers • Decree 834, 2013 issued by the Ministry of Foreign and employees in Colombia, regardless of COLOMBIA Affairs must be reviewed to determine which visa their nationality. The Code governs the terms and or permit must be obtained. This law consolidates conditions of employment, such as the form and visas in the following categories: Business (NE), duration of the employment contracts, probation Temporary (TE) and Resident (RE). periods, wages, working hours, holidays and Colombia provides a gateway for • The employer and the employee can both terminate • Temporary Visa TP-4 (employee) authorizes leaves, termination of employment, and collective companies to expand into Central and the employment contract without notice. If the the entry and permanency in the country of a bargaining. employee contract is terminated by the employer, the foreign employee that has a labor contract with a South American states. effects of termination vary depending on the type of personal or legal entity domiciled in Colombia. contract and if it is ended with a valid justification. SOCIAL SECURITY SYSTEM • Employees dismissed without a lawful cause are entitled to a severance payment, depending on their PAYROLL CYCLES AND OVERTIME • Colombia has a mandatory social security system, salary and tenure of service. which provides benefits for retirement, disability Employees are paid either monthly or biweekly basis. and death, healthcare, and labor risks. For employees who earn a salary of less than 10 legal monthly minimum wages: • The monthly minimum wage is COP$737.717 effec- • Both the employers and the employees are required tive from 1 January 2017 until 31 December 2017. to make contributions towards social security. a) 30 days of salary when the employee has less Total payroll contributions: than one year of service • Night-time work is payable at a rate of at-least 35% above the normal pay rate. b) If the employee has more than one year of service, the severance payment will be of 30 • Overtime during daytime working hours is payable days of salary for the first year and 20 days of at a rate of at least 25% above the normal pay rate, 31% Employer: up to 31% of salary, salary for each consequent year and fraction of while overtime during night-time working hours is including the payroll taxes service. payable at a rate of at least 75% above the normal pay rate. For employees who earn a salary equal to or higher than 10 legal monthly minimum wages: • Overtime will not be able to exceed 12 hours per week (two hours per day). 10% Employee: up to 10% of salary. a) 20 days of salary when the employee has less than one year of service • If an employee works on Sunday or during a holi- b) When the employee has more than one day, he/she is entitled to an extra pay of 75% of the year of continuous service, he or she will get normal pay rate, as a compensatory of working on a severance payment of 20 days of salary for those days. HIRING/RETRENCHMENT ISSUES the first year of service, and 15 days for the consequent years and fraction of service. • Employment contracts can be verbal or written, as well as of fixed or indefinite duration. Employers • Employees under a definite contract have the right to can also enter into collective bargaining agree- receive compensation according to the time it takes ments with employees. to finish the agreed period, or the time determined on the contract, in that case the severance payment • Employers may require employees to serve a trial will not be less than 15 days. period, not exceeding two months.

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MEXICO

FOREIGN PERSONNEL AND WORK PERMITS

Mexico offers investors and businesses a land of opportunity that rivals any • According to the Mexican Federal Labor Law, other emerging market, but doing business can be a time-absorbing task, 90% of a company’s workforce must be Mexican which is why having local knowledge as part of the venture is crucial. nationals. • Temporary employment of foreign technicians is allowed up to 10% of the total workforce, if the • Mexico has only an economic region, with a minimum general wage. SOCIAL SECURITY SYSTEM HIRING/RETRENCHMENT ISSUES company can prove that skilled workers are not available locally. • Minimum wages are determined by the National • All employers are required to be registered • Under the Mexican Federal Labor Law, employees * The above personnel requirements do not Minimum Wage Commission, which comprises themselves, and their employees in front of the must enter into an individual employment apply to companies with operations along the US of representatives from business, labor, and Mexican Social Security Institute, which provides agreement with employers. border. government. them with job-related and other disabilities, pension The employment agreement, which can be • Year-end Bonus (Aguinaldo): Consists in the and death benefits. • Expatriate employees must obtain valid work visas indefinite or for a fixed term, sets the terms in order to live and work in Mexico. payment of at least 15 days´ wages. This payment • Employees make IMSS contributions based on and conditions of employment, and cannot should be done no later than 20 December each their salaries, with at least one minimum wage be modified by the employer without the • Under NAFTA, Mexico allows temporary entry of year. North American business visitors; traders and and a maximum of 25 times the minimum wage. employee’s consent. • For each year of service, employees are entitled to (In case of higher salaries corresponds less investors; intra-company transferees; and a few Employers may also enter into collective six days of paid leave, increasing by two days for contributions, unlike, for lower salaries applies specific professionals. bargaining agreements with labor unions. each of the subsequent four years. After that, the higher contributions). • Registration with the National Immigration vacation period increases by two days after every • If an employer wishes to dismiss an employee with • Employers must contribute 5.15% of the integrated Institute for all sponsoring companies in Mexico is five years of service. cause, he/she must dismiss the employee within 30 salary (salary base plus daily benefits proportion) mandatory. days of the day when the employer became aware • Vacations premium: this is a bonus equal to 25% of to an employee retirement fund and 5% of payroll of the cause for dismissal; and give written notice the worker´s daily wage for each day of eligible of to a housing fund, which together constitute of dismissal to the employee. vacation. an employee pension fund managed by private Work Permits financial institutions. • An employee who has been dismissed without • Profit Sharing (PTU): According to the Mexican cause is entitled to severance pay amounting to Constitution and the Federal Labor Law, Mexican companies are required to pay employees a Profit three months’ salary, and 20 days’ additional pay for • Foreigners require a temporary permit to live and Sharing 10% of their profits. each year of service, as well as a seniority premium work in Mexico. This permit is valid for a period of 2 up to Local Payroll Tax which is 12 days’ salary for each year of service. no more than four years. 3.5% All federal states in Mexico apply a tax HR LEGISLATION from 2% up to 3.5% on salaries. • Employees are entitled to challenge their dismissal • Foreign nationals from other countries must apply before the Labor Board. In case of a successful for a permit in the Mexican Consulate of their • Employment in Mexico is governed by the Mexican challenge, a dismissed employee can be reinstated. country. This permit should be subject to a job Constitution and the Mexican Federal Labor Law. Income tax for employees If the employer is not willing to reinstate the offer. 35% The tax rate for employees is variable employee, he/she must pay severance charges as • The Federal Labor Law regulates employment contracts, wages, hours of work, legal holidays and according to their incomes up to 35%. described above. PAYROLL CYCLES AND OVERTIME paid vacations, labor unions, strikes, severance compensation, and other issues related to • According to the Mexican Federal Labor Law, employment. Also there is an obligation to certify all payroll employees must be paid in cash on a weekly or a bi payments and issue a digital payroll tax receipt, or -weekly basis. Employers are allowed to pay wages • The Federal Labor Law applies to all employees in called “Comprobante Fiscal Digital (CFDI) de nómina” using electronic means with employees’ prior Mexico, regardless of their nationality or place of in Mexico, per each pay slip issued to the employees. consent. work.

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HOW TMF GROUP CAN HELP

With our own specialists based in-country in more than 80 countries around the world, TMF Group recognizes that every business, and every market is different so we work with companies to adapt our services to give them what they need, when and where they need it. We have more than 2,000 specialists in more than 20 countries in the Americas, and they understand the nuances of your local market, local currency and local dialect.

015 Contact us today for more information about our HR and payroll services: [email protected] www.tmf-group.com/

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