If you are up to date with what's been happening in Latin America in the past few months, you will know there has been a trend of labor reforms across the region. Governments are looking to modernize labor markets, and catch up with international standards. The reforms seek to enhance business opportunities and create a working environment more conducive to economic growth.
The recent labor reforms are affecting how new businesses expand into Latin America. That's why it's important to keep them in mind if you, as many others, are interested in Company Formation in Latin America.
The governments of Colombia, Chile and Mexico are all in the process of passing labor reforms. Some have already started implementing them, while others are still discussing them in congress. In this article we'll take a closer look at regulations in each one of these countries and how recent changes may potentially impact your business in the region.
In most countries, the new regulations include a workweek reduction. The standard workweek in most Latin American countries is long compared to the developed world, where the standard is 40 hours. In some countries, the new regulations also include broader protections for workers, entering more deeply into workers' conditions.
In much of the developed world, work time has continued to reduce, with pilots recently given 4-day workweeks in the UK, so seeing Latin America modernize and get up to standard is a good thing.
Chile's labor reform
After a year and a half since Chile's new government vowed to reform working conditions, in July 2023, they approved a law that reduces the legal working week from 45 to 40 hours, while keeping wages constant.
The new law shall be implemented over a period of five years to give businesses time to adapt. With this regulation in place, Chileans will no longer have some of the longest working hours in the world. The 40 hour standard is in line with the majority of OECD countries.
Chile's labor reforms provide much flexibility to businesses. The grace period, ending in 2028, will not be mandatory, so businesses can choose whether to take it or cut hours immediately. Additionally, the bill recognizes a variety of practices that companies and employees can agree upon.
For example, it offers the option of a 4 by 3 work model – consisting of four 10-hour days followed by three days off – as well as many others. Also, parents of children under 12 benefit by being given the option of having different start/end times if agreed upon with their employees.
Chile's reforms also ensure that workers' wages stay constant and in cases where work hours cannot be reduced, extra rest days are provided during the year.
Mexico's labor reform
Mexico's economy has stabilized over the past few years and the government has made important strides in eliminating corruption and improving foreign investment. This has led to a reexamination of working conditions.
Mexico's labor reforms are very similar to Chile's, in that they also reduce the workweek from what was previously one of the longest in the world at 48 hours, to the standard 40. In late April 2023, the Mexican Congress passed a ruling to amend the Constitution and pass this into law. It is likely this will happen in September.
The change follows a recent increase in the minimum wage as well as increased annual leave days for Mexican workers, which businesses will also have to keep in mind moving forward. The government plans to implement the new law as soon as possible, without a grace period.
Colombia's labor reform
Colombia is a special situation. The government is the country's first left-leaning government in history and is in the process of reforming multiple sectors, and one of their main goals is implementing wide-sweeping changes in labor conditions.
The initial proposal was introduced to Congress in July 2023, and although it didn't pass at the time, they plan to move forward with it as soon as possible.
The government's goals for the labor reform are to: formalize the labor market, simplify labor contracts, create incentives for young workers, and stimulate economic growth.
The workweek will be reduced from 48 to 42 hours, and like Chile, the change will be implemented progressively, giving businesses a grace period until 2026.
Additionally, night hours will start at 6 pm instead of 9 pm, and will be compensated with a surcharge of 100%, instead of the current 75%. This also applies to extra hours. Absences will be extended with a new expanded understanding of "legal calamity", and obligatory leave will be given for medical appointments and school obligations (for legal guardians of minors). Three months paternity leave is also included.
One of the most important aspects of this labor reform is to eliminate precarious contracts. The "prestación de servicios" type contract of defined term limits, which absolves the employer from having to pay for the worker's healthcare, among other basic services, will be restricted. The aim is to eliminate this contract, favoring undefined term contracts.
Colombia's labor reforms aim to improve job stability, increase severance pay, and strengthen workers' collective bargaining rights such as the right to strike.
Why are labor reforms in Latin America so prevalent?
Labor reforms have become a prevalent topic across Latin America as governments seek to modernize their labor markets, make businesses more competitive, and create environments conducive to economic growth. It is a response to the region's evolving economic landscape and a way of addressing labor market challenges.
While each country's labor reform journey is unique, the overarching goal remains the same: to create modern, competitive, and inclusive labor markets that drive economic growth and prosperity. As businesses navigate the changing regulatory landscape, understanding the implications and opportunities arising from new regulations is critical for success in the region.
As Latin America continues to evolve, aligning business strategies with emerging trends will position businesses to thrive in this promising part of the world. Although the new regulations are sure to impact businesses, it is important to keep in mind that productivity is likely to increase in the long term, as working conditions improve for workers.
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.
