In the light of trade deals between Europe and Mercosur and the CPTPP (Comprehensive and Progressive Agreement for Trans-Pacific Partnership) which will open up the region to unprecedented trade opportunities with Asia, expansion into growing markets in Latin America and the Caribbean is an increasingly popular option, with exciting opportunities across the region. A PEO in Latin America can help you do this quickly.
A PEO in Latin America is short for a Professional Employer Organization. They will employ people on your behalf and make sure all legal obligations are fulfilled. A PEO solution can be a very attractive option fo companies looking to enter a country quickly where they do not have a presence.
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Company formation in the region, despite the fruitful benefits in the long-term, is not often a quick, cheap or straightforward process, which is why a PEO in Latin America can give you the option to test the market before you commit to the country. Biz Latin Hub can help you with both processes, as we are the largest fully integrated provider of back office services across Latin America and the Caribbean.
What is a Professional Employer Organisation (PEO) in Latin America?
A Professional Employer Organisation (PEO) in Latin America is a service company that allows businesses to hire employees in the region without the need to establish a legal entity in those countries. PEOs manage responsibilities like wage payment, tax management, and compliance with local employment laws, easing the complexity of navigating diverse and complicated regulations across Latin American countries.
A PEO in Latin America may also be known as an Employer of Record, or EOR. These two models are essentially the same, as they both act as legal employers to keep your business legally compliant while you retain full control over their activities.
It means that as an employer, you will maintain full day-to-day management of your employee, and will be the person that directs and encourages your staff, however, you will not be burdened with the difficulty of registering a local legal entity and hiring staff in a country where you do not understand the rules and requirements for employment (not to mention the administration involved in running a company).
Advantages and Disadvantages of a PEO in Latin America
Hiring Advantages:
- Time and money: The first and most important advantage of using PEO or an Employer of Record Service provider is they can save you large amounts of time and money. Especially if you are a small to medium-sized company, or equally if you are only seeking to hire a few members of staff to carry out more specific tasks abroad, the cost and time involved with forming a legal entity in Latin America can be quite problematic.
- Localised support: Another major issue that can be resolved by utilising the services of a PEO, is navigating and overcoming the various niches that are present in each country when it comes to hiring employees. Each country will have different employee benefits that must be paid; a PEO will ensure that you are fully compliant with local legal requirements and reduces the risk of mitigation.
- More time to do your job: One of the most tangible benefits you will experience from using a PEO service provider is the freedom you will have to directly manage your employees that are working abroad. With much of the administrative burden undertaken by the PEO, you will be able to focus your time and effort on working directly with employees.
Hiring Disadvantages:
- Loss of Control: Despite the advantages involved with using a PEO, in certain cases, it can lead to having slightly less control of your employment strategy. As well as taking care of your employee’s payment and benefits scheme, a PEO can sometimes take this one step further and dictate the tone of such schemes. This means that it can be different, for example, to replicate a system that works very well in your head office in subsidiaries that are located elsewhere.
- Lack of Personability: Another associated problem with using a PEO is that on occasions, the HR services provided to employees may lack flexibility and personability. A PEO is not always the perfect alternative to on-site employee support, and in the event of personal problems, may not be ideally suited to dealing with welfare issues of employees.
Hiring Staff Through the Formation of a Local Company
The other option for employers that do not want to use a PEO in Latin America or Employer of Record Service is to form a legal entity in the country of operation, and then use the company to hire local staff. The complexity of this process differs through each country across the region.
Despite the bureaucratic issues involved in forming a local company, there are many advantages that must be taken into account. The first is that you will not need to pay a PEO service provider to manage and organise staff payment and therefore could make considerable long-term savings in your budget.
Furthermore, through company incorporation, you will not have the issue of potential ambiguity that can surround the responsibilities of the PEO and your company. By being directly responsible for all aspects of staff management, including payroll and benefits, there will be less opportunity for misunderstandings between the employees and the employer.
Additionally, there are many local companies who you can partner with to assist in the formation of a local company who can manage everything from the incorporation of the company, registration with local tax authorities to the opening of a corporate bank account.
In fact, this process can even be performed through a Power of Attorney (POA), allowing for a company formation to be completed without the need for you to physically be in the country.
How to use a payroll calculator for a PEO in Latin America
If you want to get an idea of the possible costs involved with a professional employer organization in Latin America, using a payroll calculator is one way to get a good estimate.
A payroll calculator will give you the opportunity to look at costs while varying the salary, the number of employees, the country you want to enter, and the currency you wish to work in. As such, you will be able to understand your likely costs across a range of salaries, while also being able to compare other countries as potential alternative destinations.
You can find the BLH payroll calculator at the bottom of our Hiring & PEO Services page. The calculator will allow you to make good estimations of the costs involved in hiring in Latin America and the Caribbean based on country, currency, and salary, with the calculator factoring in local statutory deductions.
To use the BLH payroll calculator, you will need to undertake the following steps:
Step 1: Select the country
Choose the country where you are doing business, or planning to launch. This feature will be useful when it comes to comparing potential alternative markets.
Step 2: Select the currency you wish to deal in
You can choose between US dollars (USD), British Sterling (GBP) and Euros, as well as the local currency for the country you are looking at, compared to what is most convenient for you. Note that for Ecuador, El Salvador, and Panama, the local currency is also USD, as they have dollarized economies.
Step 3: Indicate an employees monthly income
Here you can indicate the expected salary you will be paying an employee, in the currency of your choice.
Step 4: Calculate your estimated costs
Based on all of the information you have provided, you will receive results indicating your estimated costs, including a breakdown for estimated statutory benefits you will be liable for.
Step 5: Compare your costs to other options
With a good estimate at hand of how much your staff will cost, if you are flexible about your expansion into Latin America and the Caribbean, you can use the BLH payroll calculator to compare those costs to other jurisdictions.
FAQs on a PEO in Latin America
Based on our extensive experience, these are the common questions and doubts of our clients on hiring through a PEO in Latin America
You can hire an employee by incorporating your own legal entity, and then using your own entity to hire employees or you can hire through an Employer of Record (EOR) or PEO in Latin America, which is a third party organization that allows you to hire employees by acting as the legal employer. This means you do not need a local legal entity to hire local employees.
A standard employment contract should be written in Spanish or Portuguese (and can also be in English) and contain the following information:
ID and address of the employer and employee
City and date
The location where the service will be provided.
Type of tasks to be carried out
Remuneration and bonifications/commissions (if applicable)
Method payment frequency
Duration of the contract.
Probation period
Work hours
Additional benefits (if applicable)
This depends on the country that you are interested in entering, but typical benefits include:
Working tools necessary to carry out the work (if applicable)
Payment of social security contributions (health, pension, and labor risks).
Social benefits (service premium, severance pay, and interest on severance pay).
Paid time off (vacation and Sunday rest).
Maternity/Paternity leave.
Disabilities (common or labor origin).
Transportation allowance (if applicable)
Overtime and surcharges (if applicable)
Again, this will depend on the country and the nature of the task. Using a tool such as the Biz Latin Hub payroll calculator on this page will help you understand the general costs and compare countries.
The best decision depends on the needs of your company. Forming a legal entity has the following characteristics:
Slower to establish.
Permanent presence in the country.
All costs deductible through a local entity.
Ability to sign contracts and agreements locally.
Ability to invoice through local entity.
Legal entity compliance support required.
Hire employees directly.
A PEO works with your company as a co-employer, while a EOR is the legal employer of your employees. An EOR can provide more services than a PEO.
Biz Latin Hub can help you with PEO in Latin America
For any company looking to profit from the rapidly expanding opportunities in Latin America, the two main options available to hire staff are to form a fully functioning legal entity or to use the services of a Professional Employer Organisation.
Biz Latin Hub provides PEO services in Latin America because of our specialised knowledge of the local markets in the region. We have offices in 10 countries in the region and we are expanding each year.
Having such localised expertise will ultimately advance your business needs, and at BLH, we will do everything in our power to establish fair, balanced and compromised terms of agreement with our clients that seek PEO services.
For any queries regarding PEO services, for advice on whether it is the right option or any other business services, do not hesitate to contact our CEO, Craig Dempsey.
Want to learn a bit more about business in Latin America? Have a look at the following video:
