Expanding a business overseas is an appealing prospect for many companies due to the potential opportunities for growth and profitability. By entering new markets, businesses can tap into a larger customer base, and diversify their revenue streams, and importantly, expansion also means gaining access to a wider talent pool.
And this is all true when it comes to Latin America, with this region certainly bearing the promise of significant possibilities and opportunities for growth. LATAM has around 660 million inhabitants and the energetic markets of Argentina, Brazil, Chile, Colombia, Mexico, and Peru – all offering exciting prospects.
While the advantages of branching out to these regions are plentiful, there are some challenges that require some careful consideration before taking the plunge. In particular, hiring in LATAM may arguably be among the most difficult regions in the world to build a workforce in.
In this article, we take a look at the challenges associated with hiring in LATAM, plus discuss the best approach and solution in this regard.
The LATAM Potential
First, let’s take a look at some of the biggest advantages of expanding to the LATAM region. While LATAM comprises many countries, the shared common language throughout LATAM is Spanish – which makes expansion considerably easier across the region as opposed to for example, Africa or Europe, where many to most countries have entirely different languages. So once a Spanish or bi-lingual leadership team is established, building the rest of the team becomes greatly more feasible.
LATAM is also particularly technologically advanced. In fact, almost 60% of the population owns a smartphone, putting LATAM in third place globally when it comes to smartphone ownership.
E-commerce has also flourished in the LATAM region – especially after the pandemic – with the adoption of e-commerce growing by 63.3% meaning golden opportunities for businesses to reach a large online audience.
For companies looking to hire in these countries, the diverse and dynamic talent pool also presents plenty of prospects. LATAM is home to a highly educated and proficient workforce, with a fast-growing number of skilled professionals in areas such as finance, engineering, and information technology.
The LATAM Challenges
While the LATAM region presents lots of promise for companies looking to establish a local team in these areas, it would be foolish to branch out into one of these countries without doing plenty of homework – and also putting the necessary support structures in place.
However, before we can prepare or offer solutions for the challenges of hiring in the LATAM region, we need to fully understand what these challenges consist of. So to gain a better understanding, let’s now discuss some of these main challenges faced by companies looking to grow a LATAM team.
Complex Labor Laws
When it comes to labor laws in the LATAM region, one of the biggest obstacles is that the laws are very hard to understand. While the laws are mapped out, as in any other country, the lines between when one condition ends and the other starts can be blurry on the best of days.
One example of these confusing laws can be demonstrated in the labor laws when hiring in Argentina, with regard to the conditions describing the difference between independent contractors and employees. There are various rules in play that define an independent contractor, but should any be exceeded, the person immediately becomes an employee, and is therefore entitled to full benefits.
These rules include that the worker can’t only work for one employer, can’t be subordinate to the employer, and must create their own work schedule and offering – while also taking any risks relating to the services they provide upon themselves. In addition, the worker may only offer service to the same employer for a maximum of 5 years.
Given the rigidity of the rules, one can also understand how the terms can become somewhat muddied. For example, if a contractor is temporarily between contracts, they may for a period of time only work for a single employer. However, during this time, the contractor must by law actually be considered an employee – entitled to all of the same work conditions and benefits as any other employee.
When hiring in Brazil, the labor law complexities also lie in trying to navigate the 6 different types of employment contracts, while loopholes in Brazilian labor law also make many employees want to be fired to gain benefits.
While the majority of LATAM countries are Spanish speaking, making the creation of a Spanish or bi-lingual leadership team a simpler task, this also does come at an additional cost. English proficiency in LATAM is also low, so this means that employers will often need to spend extra time and costs involved in seeking out bi-lingual employees or absorb the cost of hiring a translator to help facilitate communication.
Many countries in LATAM also have their own cultural quirks when it comes to workplace benefits. Some of these unusual benefits include companies having to pay for the groceries, lunch and transportation of employees. In fact, when it comes to hiring in Brazil, it is completely normal for employees to be owed the cost of transportation and lunch.
And then there is the topic of an annual bonus. Most LATAM countries require an employer to pay an annual bonus (or 13th salary). In Brazil, Colombia, Uruguay, and Argentina it is in fact compulsory and must be divided into two payments, one in the middle of the year and one at the end.
Bank Account Issues
Banking presents another surprising issue – albeit somewhat surprising. For example, in prosperous Argentina, less than 50% of the population has access to a bank account, which is also in fact a much lower percentage than many other LATAM countries. This can be due to a number of reasons, but distrust in the banking system and high bank charges play a significant role.
The consequence for companies regarding this issue is one of additional costs and effort. Not only will the company need to assist with the paperwork required for opening a bank account, but will also need to provide some financial education should their employee fall into the unbanked statistic.
Significant Tax Burden
The issue of the tax an employer is responsible to pay on behalf of workers in LATAM can also be considerably higher than in the rest of the world. An example of this can be the compulsory tax contribution owed by employers in Brazil, known as the INSS (Brazilian Social Security Institute) tax. This represents a tax obligation of 20% usually – but some industries can incur an additional 1 to 2% on that rate.
A Solution? Get the help of a global PEO
What becomes apparent for any company looking to expand and build a LATAM workforce is that this endeavor comes with a fair share of challenges. Not only are there labor and tax laws to comply with, but also cultural aspects, such as different public holidays and compulsory benefits that differ from country to country.
But there is a solution at hand in the form of partnering with an agency that can offer the correct professional help in this regard. A global human resource agency can offer PEO (professional employment organization) and EOR (employer of record) services which hire and pay the LATAM employee on behalf of the company – also without the company having to establish its own legal entity in the LATAM country. In a nutshell, a global HR agency can streamline the entire recruitment process, while also ensuring full compliance.
Overall, the employment challenges for companies hiring in LATAM can be significant, but with the right strategies and resources, employers can successfully navigate the complex tax systems and comply with local regulations. The end result is the expansion into promising and thriving lands, with skilled and dynamic talent just waiting to be snapped up.