Virtual Open House Webinar Series – Latin America
The webinar focuses on hiring, on-boarding, employment contracts, employment law, benefits, payroll, termination and more in the Latin America. I’m looking for general knowledge around HR practices in Brazil, including compensation, incentive pay, benefits, and recruiting. Particularly in Brazil, they do encourage you to define an employment agreement as it relates to compensation, holidays, vacations, and customary and statutory benefits. The recruitment process in Brazil is quite onerous because once they hire you, there is almost an immediate entitlement in terms of that worker. We have had good success with staffing agencies. They do have the concept of the 13th month, a bonus month around Christmas time. There is also the concept of variable pay, but you want to make sure that you address them when you’re in these employment agreements.
Virtual Open House Webinar Series
The webinar focuses on hiring, on-boarding, employment contracts, employment law, benefits, payroll, termination and more in the Latin America.
Read the full transcript of questions and answers from the open house below. Download the presentation here.
QUESTION AND ANSWERS:
I’m looking for general knowledge around HR practices in Brazil, including compensation, incentive pay, benefits, and recruiting.
Particularly in Brazil, they do encourage you to define an employment agreement as it relates to compensation, holidays, vacations, and customary and statutory benefits. The recruitment process in Brazil is quite onerous because once they hire you, there is almost an immediate entitlement in terms of that worker. We have had good success with staffing agencies. They do have the concept of the 13th month, a bonus month around Christmas time. There is also the concept of variable pay, but you want to make sure that you address them when you’re in these employment agreements.
What is the MBO Bonus in Brazil?
We do not recommend having a MBO Bonus program. This is a result of not only the employment law requirements in Brazil, but also the specific CBA requirements from the employee’s union. These items are laid out based upon the type of company.
Independent contractor vs. payroll service for Brazil
This goes back to what we discussed about the definition of a part-time worker in Brazil, which is up to 30 hours. If you have an independent contractor that is full time, then you’re not in compliance, and you’re not obeying the labor law requirements. However, if you have another legal presence and do not intend to establish a legal presence, or you’re not doing business with companies in Brazil, then the burden falls on the independent contractor, from a tax and compliance perspective. However, if you have customers, or you do intend to do business in Brazil, then the recommendation would be to incorporate the legal entity and hire the independent contractor if they are full time.
Inpats to the USA and expats from the USA.
This is a very general question, but I would use Brazil as an example. There is no tax treaty between Brazil in the US. This includes totalization agreements, so the expats or inpats can become very complex projects. I would definitely recommend having experts on your team or a part of your team to address the items.
What is the termination process and the calculation in Chile, Argentina, Colombia, Peru, Brazil, and Mexico?
It’s widely different from country to country. Certain countries like Brazil, you actually do have to get approval from the government agency before you can go through the termination process, depending on what the number of employees are. There are specific requirements in terms of notice periods that you have to give the employees in terms of the notification to them about the intent to terminate. There are particular questions to be asked, including whether there is cause for termination or not or whether there’s voluntary resignation, but certainly it varies in terms of the individual employee, as opposed to a workforce reduction when there’s a number of employees involved. But, in all cases, I think that, particularly in Latin America, you should have legal counsel as well as human resources involved; there are specific requirements in each country, and complicated labor tribunals, and a lot of collective bargaining agreements that govern specific industries. So it is very complicated and does require legal counsel.
How do I recruit for positions in Mexico?
A lot of is really finding local resources, staffing agencies, as well as particular expertise used by those agencies in terms of identifying the skill sets. Because of the penetration of the US companies into Mexico in terms of a lot of so many industries, there’s a lot of maquiladora’s and networks, particularly in northern Mexico as it relates to supporting US industry there, that use lots of specialists who do recruiting specifically for particular industries. There are various methods, based on job descriptions and what you’re looking for and finding what you need.
What is the 13th month requirement in Brazil?
The 13th month requirement in Brazil is a statutory requirement to pay an extra monthly salary to all employees. Standard procedure is to pay half of the 13th month in November, and the other half in December. One thing to keep in mind is that CBA’s are now having an influence on the payout, so there may be flexibilities offered to the employee throughout the year when it comes to the 13th month requirement in Brazil.
What unique items are there to consider when thinking about setting up an operation in Colombia?
In Columbia, and a lot of Latin America, your only option is to incorporate a legal entity, register appropriately, and open a bank account to account for income taxes, indirect taxes, payroll taxes, and statutory benefits. Having these will put yourself in a position to hire directly using an employment contract that conforms to the local laws and statutory requirements. Understand your industry, and also look at the supplemental customary benefits it will take to attract the right employees as well as what types of compensations, fixed and variable, you should be using.
What are collective labor agreements (CLAs)?
Collective Labor Agreements are different than CBAs or Collect Bargaining Agreements. Collective Labor Agreements refer generally to working hours, and are actually agreements between the company and the employees as a whole. This is similar to what you would find in EMEA in regards to some of the agreements between the employees through the Work Councils.
Can you elaborate on profit sharing rules in Mexico?
The profit sharing rules in Mexico are very specific and only apply to certain employees. It is a constitutional right for an employee if they work for company that has an annual income of at least 300,000 pesos. It covers most plant workers and workers hired on a fixed term of at least 60 days out of the year. Also, there can be situations where even former employees are eligible to receive profit sharing in Mexico.
For Columbia, can you provide more specifics about when you would be able to use a PEO, rather than creating a legal entity?
In terms of Columbia, your options are that you could use either. The PEO has a legal entity down there already. The PEO has registered for the payroll taxes and statutory benefits, and they have their own employment contracts. The PEO can employ the person on your behalf while ensuring the person would act at your direction. It actually does provide some benefits in terms of a sales situations: if they are a sales person, they can act more overtly in terms of representing the company. If your intention is to be in Columbia doing business for a period longer than 12 months, then forming a legal entity is best. Longer term it will be cheaper, and it is going to give you more flexibility and strength from a legal perspective to actually be established in the country and be able to represent yourself.
*PLEASE NOTE – These questions and answers are intended to be used for informational and guidance purposes only, not as legal advice. Set up a consultation today with a Global Upside team-member for advice and strategy specific to the unique needs of your business and geographic area.
Co-Founder and CEO
Ragu Bhargava is an experienced financial executive, entrepreneur and leader. He is the Co-Founder and CEO of Global Upside, and its three sister companies: Global PEO Services, Mihi, and Gava Talent Solutions.
VP, Strategic Accounts
Andrew helps some of the world’s leading companies tackle complex global HR and Payroll challenges. Prior to Global Upside, Andrew worked at Price Waterhouse Coopers, Oracle and also consulted for companies like Nestle, P&G, Pepsi-Cola and Colgate Palmolive.
Director, Global Payroll
Nathan North is Director of Global Payroll and manages all aspects of payroll for Global Upside clients. Currently, he oversees payroll processing for 5000+ client employees across 45 countries.