By Globalization PartnersDecember 2016
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Often, we assist new clients who want to run their operations in Latin America the same way they do in the US: monthly bonuses for the sales team, bi-weekly paychecks, benefits packages that mirror those of the US employees, and at-will employment, but Latin American countries simply don’t operate this way. Before you structure compensation for your candidates and employees in Latin America, read this first.
First is the issue of commission payments. US sales people are typically paid commissions at the end of each month, but in Latin America following that practice would quickly become extremely costly. Take Brazil for example, where the legislation says that employee salaries can only go up, not down. What this means in practical terms is that if you were to give an employee month-end commission every month, the month’s pay plus commission would become the threshold pay for the following month. Imagine if you did this month after month! Your sales team would be ecstatic, but your CEO would probably faint. In Brazil, and in many other Latin American countries, bonus and commission payments are generally made no more than twice annually to make it clear that these are in fact bonus payments and to prevent the salary from mistakenly increasing and potentially setting a new threshold.
Next, throughout most of Latin America, employees are paid on a monthly basis, not bi-weekly, and it can be a problem to pay employees retroactively. In addition, most countries require employers to pay a 13th month bonus, while Ecuador, Guatemala, Honduras, and Peru also require a 14th month bonus. The law in each country stipulates when the bonus should be paid and it must be pro-rated if the employee leaves the company mid-year. In most countries, the bonus is equivalent to one-month’s wage, but in Argentina it must be equal to the highest monthly wage in the past six months. In Bolivia, the bonus must be doubled if the GDP performs above a certain benchmark. Some countries allow different arrangements to be made as part of collective bargaining agreements. When writing employment contracts, you must be very careful about stipulating the annual salary, monthly salary, and 13th and 14th month bonus amounts, otherwise you may find yourself on the hook for extra pay.
If your head is spinning and you had to go back and re-read the last paragraph for clarity, you are not alone. We hear a similar lament from so many of our clients. They tell us that working with a Global PEO and not having to bother with compensation cycles and calculating bonuses gives them peace of mind. We take care of the complicated details and they focus on maximizing their international opportunities. Need to make a hire in Latin America? Globalization Partners can help. We provide expert guidance on employment contracts, compensation cycles, bonuses and more.