Chile: Practical Tips For Staffing A New Entity In Latin America

Last Updated: 21 July 2017
Article by Harris Gomez

Over the last 16 years, Harris Gomez Group has been helping companies from Australia, Canada, United Kingdom, South Africa, United States, as well as those in-between, expand and do business in Latin America. It is amazing to look back and see the different paths that companies take. We truly have an insiders view. Obviously, some companies are more successful than others with expansions.

One area that stands out whether a company is successful or not is if a good team is employed from the beginning. There are generally two choices when staffing a new entity – bringing someone from their home country or hiring a local team. We have put together some commercial and legal tips based on our experience that companies should evaluate to ensure they are giving themselves the best chance of success.

Using Expatriates

It is no surprise that the cost of bringing someone to Latin America can be substantial. They generally expect housing, transportation, return trips, healthcare, moving costs, private education and further support for their family. You better be sure that the employee is going to fit well with the new culture and surroundings, let alone being able to move the needle to get the new business producing profit. Bringing the wrong person can be an expensive exercise.

  • Bring someone that can speak Spanish. Preferably, someone that is originally from the country you are trying to enter as they will understand the local culture. Yes... that is correct, all the Latin American countries have different cultures, qualities, and personalities!
  • A host of factors needs to be discussed before sending an expat. Get advice! You need to understand the risks and costs associated with bringing the person and potentially removing them if it does not work out.
  • Foreign managers will need local work contracts. They will be employed under local labor laws which mean you have to follow those laws. Ignorance is not a good defense and can be expensive.
  • Generally, it is a good idea to send expatriates to work in a Latin America country when there is an already existing business. A good example of this is when a company purchases a local company, expats can help the local management teams with technical areas or implementing certain systems/processes from the parent company.  They are there to support and tend to be more successful in these roles.
  • If you are starting a new entity, it is generally advisable to hire someone locally since you will need someone to perform sales, take advantage of relationships and understand the legal and business environment. See below!

Hiring Someone Locally 

Hiring a local employee can be beneficial since they will already have the relationships, language, and culture. It also has risks since they will not understand the companies culture and will be working independently with little supervision. It requires trust and some good instinct to get it right. Don't be mistaken though, even those with good instinct get it wrong! We have seen some bad hires in our time and the below should help.

  • The Anglo culture is very trusting. You would be surprised how many companies find their first employee at the trade shows they visited.  We have seen everything from the translator to the guy they met while getting a coffee. Just because someone speaks English, does not mean they are the right person for the role. Qualify candidates, ensure they have the skills and contacts that they say they do.
  • Use headhunters and local contacts to direct you to the right candidates. This may add some cost or time but you will get a better pool of candidates to choose from.
  • Understand the local salary market – you get what you pay for. Just because it is Latin American does not mean you can get employees on the cheap. On the other hand, do not be the person who pays too much. Often good candidates will command respectable salaries so it is important to understand the local labor market so that you find the balance.
  • Often companies will start by hiring a Business Development/Sales Manager. When starting a new company, this person is not going to have much admin support. It is important that they can handle the administrative duties as much as they can sell and grow the business. I cannot tell you how many times I have seen accounting books in a mess because the person hired could not save a receipt if their life depended on it.
  • Back to the trust issue, set up a check and balance.  Let me say that again, set up a check and balance! Provide enough powers that the person can do day-to-day activities but limit them enough that they can never get into too much trouble. I have seen employees sign contracts/enter into agreements on behalf of the company that would make you sick to your stomach.

Making an Employment Offer

When you do find the right employee, it is essential for management teams to understand the laws in order to minimize risk. In our experience, when assisting foreign clients who are in the process of hiring employees, certain questions and recurring situations seem to arise which often slow the negotiating and signing of the employment contract.

In line with this, we have developed some key points to bear in mind while undergoing the negotiation process of hiring a Chilean employee:

Net not Gross Salaries

In Australia and other countries, the common practice is to negotiate gross monthly salaries. However, in Chile salaries are typically negotiated according to their net amount. This can trip up the onboarding process and severely increase the cost of hiring someone if not understood from the beginning.

Mandatory Annual Bonus

This mandatory bonus sums up to 4.75 minimum Chilean wages that are currently equal to approximately $1,700.00 USD. It is important to bear in mind that this bonus is to be paid on a monthly basis (yes, an annual bonus that is paid monthly), meaning that the Employee will receive about $142.00 USD each month in addition to his/her salary.

Chilean Law does not allow for a Probationary Period

Many of our clients ask for the employment contract to provide that the employment will be subject to a probation period of "x" months. This is not possible under Chilean law since the labor law only considers strict causes for terminating an employment contract and not having a satisfactory performance during a probation period is not one of them. The best way to proceed is to hire the person under a temporary fixed term contract and then moving them an indefinite contract.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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Authors
Harris Gomez
 
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