Compensation in Latin America Vs. U.S.: Learn The Main Differences

Latin America is positioned to be one of the next great frontiers for economic growth, including for companies based in the United States. However, establishing business operations in the region is much more complicated than taking what you do in other locations and bringing it there, particularly when it comes to Human Resources and Compensations.

Labor and employment laws differ based on a country’s values, political history, and tradition. Navigating them appropriately is a major key to financial success and developing strong morale among your workforce. One area in which there are stark differences from what businesses in other regions are accustomed to is compensation.

For example, employees are paid monthly in most of Latin America, as opposed to a bi-weekly basis that is more common elsewhere.

Here are some other ways in which compensation practices differ in the region and tips for addressing them:

Bonuses

Unlike in the U.S., the payment of mandatory bonuses is a very common feature of doing business in Latin America. Most nations in the region require employers to pay a 13th-month bonus, while others also mandate a 14th-month bonus. For example, Mexico requires employers to pay a minimum of 15 days bonus (called “aguinaldo” which translates to Christmas Bonus) at the end of the year, and many pay 30 days for management level. Other countries require half of the bonus to be paid in December and the remainder at a different time of the year. Paying fixed bonuses at the proper time will prevent costly retroactive payments or fines.

Understanding the bonus requirement in the nation where you are establishing a company is essential because employment contracts should spell out an employee’s monthly salary, annual salary, and fixed bonus amounts. If the labor contracts do not include those items, the employer often has to pay more than it had planned for due to various laws.

Commissions

Distributing commission payments to sales employees in Latin America is another task that must be undertaken with care. While commissions are often paid to employees in the U.S. at the end of each month, the same approach would cost an employer much more in certain countries in Latin America.

For example, in Brazil, employee salaries cannot be lowered but only increased. So if an employee was paid a healthy commission in one month, that would be the base of what they could be paid the next month. As a result of requirements like this, employers in many Latin American countries pay commissions far less frequently and typically classify them as bonus payments to avoid increasing the salary they must pay an employee. This approach prevents the personnel budget from ballooning over the course of the year, which is crucial if you are seeking to turn a profit.

Minimum Wage and Profit Sharing

Most countries in Latin America establish a minimum wage to be paid, and this amount is often raised based on a government-determined inflation rate. Mexico increased its minimum wage for 2019 by 16 percent to roughly 103 pesos and almost doubled it in the northern border region to roughly 177 pesos ($8.79 USD) approximately. The minimum wage should be closely considered when adjusting salaries. Many Latin American nations also require employers to provide their workers with profit-sharing benefits. These benefits can have a significant impact on a company’s finances, so profit-sharing policies must be reviewed carefully before commencing operations.

Some countries mandate companies to pay a set percentage of their annual income to workers, such as Mexico’s requirement that employees be paid 10 percent of a company’s pre-tax income. The profit percentage that employers in Peru must share is based on the company’s industry. These policies differ from the U.S., which does not require employee profit-sharing.

Some nations in the region also strictly enforce the idea of equal pay for equal work. Columbia is one nation where this takes place. If an employer in Colombia decides to give a raise to an employee based on performance, another employee in the same position may seek the same level of compensation.

Contact an Expert

There are a variety of compensation issues to keep in mind when establishing companies in Latin America, depending on the country where you are seeking to set up shop. Make sure you research and plan your compensation strategy with the help of an expert.

At Barbachano International, we understand how important compensation and other human resource issues are for companies that operate globally. Don’t hesitate to contact us or visit our blog to learn more about employability and other HR issues and trends. You can also acquire a free copy of our Mexico Salary and Benefit Guide to assist you with doing business in Mexico.

Fernando Ortiz-Barbachano is CEO of Barbachano International (BIP), the Human Capital Solutions leader in Mexico, Latin America, and the USA, offering high-impact executive search, executive coaching, and outplacement.

Get in touch with us today at (619) 427-2310 or email us at [email protected]. Experience the BIP difference.

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