So far, Nearshore Americas has looked at Costa Rica, Colombia and Mexico in its ‘hiring and firing’ series. This instalment lands in Argentina, one of the Nearshore’s major stakeholders and provider of serious technical ability.
The country’s economic difficulties and the devaluation of its currency have increased its attractiveness for clients seeking services at a rate well-below those found in the US. But foreign companies setting up in Argentina, or even hiring talent directly, should take a few key points into consideration before diving in.
“Argentina’s labor laws tend to be very protective of the employee,” Maria del Milagro, a labor lawyer, and contract specialist at Accenture told Nearshore Americas recently. “It tends to be in the interest of the company to avoid going to court, so they should follow regulations. That said, it isn’t difficult for the employers to comply with those regulations.”
The Hiring Process, and Before
The start of the labor relationship has some vital steps that foreign companies setting up in Argentina are obliged the register themselves with the country’s authorities.
“If a company is hiring an employee under a labor relationship, that company must be registered here, before the tax authority and labor authority,” said Paola Forchiassin, senior associate in labor and employment practice at full service law firm Marval, O’Farrell & Mairal.
Once this is completed, the hiring begins. When companies decide to employ an individual, they must register the individual with the tax and labor authorities. Registering the employee’s start date for the commencement of their work is critical for the self-protection of the employer, should disagreements come up further down the line.
“It’s very important that the employee starts rendering services from the date stated to the tax authority. In Argentina there are very extensive fines for unregistered labor contracts, or when the actual remuneration given to the employee is lower than that stated to the tax authorities. These fines can be doubled if an employer attempts to fire without cause and is found not to have given the correct details when registering the employee,” Forchiassin explained.
International companies, which often search out employees before landing in a market, should be wary of signing contracts or offers of employment with start dates that they are not absolutely sure of.
“Our recommendation would be to sign the job offer on the day that the employee begins working, not before. If a company signs a job offer with an employee and then the job falls through, they are still considered to have a civil responsibility for that employee,” said Forchiassin.
One aspect of Argentina’s hiring process may come as a shock to foreign companies. Though it is often in the interest of the company to sign an employment contract with an employee, written contacts are not required by law for indefinite positions, Forchiassin said. For other contracting modalities like fixed-term or temporary contracts, written contracts are required.
“It isn’t mandatory to have a written employment contract, just a verbal agreement […] The law talks about a labor relationship, that what prevails under the labor contract law is the reality of the facts: if a person is working and is subordinated technically and economically to an employer, then they are an employee,” she explained.
“It isn’t mandatory to have a written employment contract, just a verbal agreement.” — Paola Forchiassin
“In place of a written contract, employers only need to log into the tax authorities website and enter the details of the employee. It’s effectively a unilateral declaration from the employer. The employer and employee must have a physical copy of this, but it need not be signed in the same way a contract is.”
As in some other Latin American countries, employers in Argentina have a three-month grace period to decide whether the employee is the right fit for the job and can handle the responsibility.
Terminating Employment Contracts
During the pandemic, dismissal without cause was entirely banned in Argentina. The practice is now permitted again, though companies are obligated to pay severance costs to an employee.
“Termination of a contract without cause requires the employer to pay compensation as outlined in the Labor Law Act. The company must indemnify the employee for the dismissal,” said Del Milagro.
To provide full compensation, companies must send a certified letter to the labor authorities saying that they will pay everything required by law.
Required payments include one full month’s salary for every year worked above three years of service – if the employee worked five years at a company, they must receive five months’ salary – as well as the proportion of Sueldo Anual Complementario (commonly referred to as Aguinaldo in other Latin American countries) and the equivalent value of unused vacations. The Sueldo Anual Complementario and unused vacation days are also required to be paid if an employee resigns.
“The paid leave of absence can be from three months to one year, depending on the employee’s tenure. The employer must pay the employee’s salary during this period,” — Maria del Milagro
“If the employer does not give the employee 15 days’ notice of the contract termination when the employee is in the probationary period, 30 days’ notice if the employee has worked between one and five years’, or two months’ notice for an employee who has worked over five years’, then the employer must also pay the salary for that notice period,” Del Milagro explained.
Should an employee decide to make a complaint against the employee, fines can double should the employer be found to have incorrectly registered the employee with tax authorities, or have not paid the equivalent severance of the full salary, which includes the portion of personal use on fringe benefits like cell phones.
Just cause dismissals are difficult to prove, the lawyers said. Therefore, settlement and release agreements are often signed, and approval is requested from labor authorities.
“This allows the employer to be sure of the amount they will pay out and minimize the possibility of receiving further claims. It will likely require a payment on top of the severance package. Often, employee and employer agree on benefits like an extension of healthcare coverage,” said Forchiassin.
Other Points to Consider in Argentina
Two other areas of interest for employers were raised by the lawyers.
The first is the paid leave of absence that employees can take in Argentina. This paid leave of absence, used by employees during periods of illness, is considered generous within Latin America.
“The paid leave of absence can be from three months to one year, depending on the employee’s tenure. The employer must pay the employee’s salary during this period,” explained Del Milagro.
Another point, particularly pertinent in Argentina, is the tax implications of hiring directly.
“If a foreign company is hiring an Argentinian employee directly there are tax risks to the employer. Regular payment may be considered proof of permanent establishment and that can be construed as having an employer in Argentina performing services, and they may not be paying taxes,” Forchiassin said.