Remote Hiring in Latin America: Contractors vs. Full-Time Employees for US Companies

Legal Considerations and Worker Classification

Independent Contractor vs. Full-Time Employee Key Differences

In Latin America, employees work under the employer’s direction or “subordination” and are entitled to extensive labor benefits (minimum wage, overtime pay, paid leave, social security, severance, etc.)​. Independent contractors (ICs), by contrast, operate with greater autonomy – they control how and when they work, often use their own tools, and are not covered by most labor regulations on working hours or benefits​. Contractors are typically paid per project or deliverable and must manage their own taxes and social security, whereas employees are on payroll with taxes and contributions handled by the employer​.

Independent Contractor Characteristics:

• Legal Status: Self-employed; operates independently per a civil/commercial contract​.
• Benefits and Entitlements: Not entitled to employee benefits; must obtain own insurance, pensions, etc.​
• Control and Schedule: Contractor sets their schedule and work methods; high autonomy in service delivery​. However, there can be exceptions when a contractor and the employer agree on a full-time schedule.
• Exclusivity: Free to have multiple clients; no exclusivity unless contractually agreed.
• Tools and Equipment: Provides own tools/equipment to perform the work.
• Tax and Contributions: The company generally does not withhold local taxes and the contractor pays their own taxes and social contributions​.
• IP Rights: Without a contract clause, the contractor typically owns their work product, which requires a written IP assignment​.
• Termination: Terminable per contract terms (often “at will” with notice); no severance required by law.

Full-Time Employee Characteristics:

• Legal Status: Employed under labor laws; subordination to employer’s direction.
• Benefits and Entitlements: Entitled to statutory benefits: minimum wage, overtime, paid leave, social security, severance, 13th month, etc.
• Control and Schedule: The employer sets working hours/location; can enforce office policies and discipline
• Exclusivity: Typically full-time for one employer; often barred from outside work during employment.
• Tools and Equipment: Provided by employer (laptop, software, etc.)
• Tax and Contributions: The employer withholds income tax and pays employer social contributions; the employee portion is deducted from salary​.
• IP Rights: Work products usually belong to the employer by law or contract.
• Termination: Protected by labor law – termination requires cause or severance pay; notice periods are often mandated​.

When Is Contractor Status Legal? 

Most Latin American jurisdictions only permit independent contractor classification if the relationship meets strict criteria. Generally, the contractor must: 

• Supply their own resources and tools for the work.
• Work free from detailed supervision – the client does not dictate exactly where, when, and how the work is done.
• Bear economic risk 

If these conditions aren’t met – e.g. the individual works full-time in your office with your equipment and follows your hours – then legally, they are likely employees regardless of what the contract says.

Misclassification Risks

Misclassifying an employee as an independent contractor can trigger:

• Back pay for missed benefits (e.g., overtime, paid vacation, 13th-month salary).
• Penalties, fines, and retroactive payroll taxes.
• Potential claims for wrongful termination or labor disputes.

For US companies, these risks are amplified by the cross-border nature of the work. Even remote work is not exempt from local labor protections.

Steps for Hiring Remote Talent

Analyze the Role and Classification

Start by evaluating the nature of the work and the relationship. Will the worker be integrated into your daily operations with set hours, ongoing duties, and company-provided tools? If yes, treat them as an employee. If, instead, the engagement is project-based, and the person can work independently with their own equipment, an independent contractor setup may be appropriate. Check local criteria to decide the correct classification​.

Choose Your Hiring Method

If hiring as an employee, determine how you will legally employ them in that country. Generally, you have two options: establish a local entity (or local branch) and register as an employer, or use an Employer of Record (EOR) service. An EOR is a third party acting as the legal employer on your behalf – handling local contracts, payroll, taxes, and compliance – allowing you to hire full-time staff without setting up a local company​.

Many companies expanding into LatAm use EORs to quickly onboard employees in countries like Brazil or Argentina since the EOR manages all in-country HR, while the client just manages the worker’s day-to-day work. If you opt to use contractors instead, decide whether you will contract with them directly (common for foreign companies with no local entity) or via a local agency/freelancer platform.

Draft a Contract

Once classification and hiring vehicles are decided, prepare a written agreement tailored to the arrangement. For an independent contractor, draft a comprehensive Independent Contractor Agreement that clearly defines the scope of work, deliverables, and timeline​. It must explicitly state that the relationship is a contractor (not employment), that the contractor is free from company control in how they work, will use their own equipment, is not entitled to employee benefits, and is responsible for their own taxes and insurance​. Include strong clauses on IP ownership and confidentiality to protect your rights while the contractor is engaged. 

For an employee, draft an Employment Agreement in accordance with local labor laws (often best done with local legal counsel or via the EOR). This contract should cover all mandatory terms (position, salary in local currency, working hours, probation period if applicable, benefits, termination, and severance conditions, etc.) and incorporate any required language from local law or collective bargaining agreements. Always have the contract (and handbook or policies) in the local official language (Spanish for Argentina/Colombia, Portuguese for Brazil) to ensure it’s enforceable. Both parties should sign before the individual starts work.

Complete Compliance Onboarding

After signing, fulfill all legal registration and documentation requirements for onboarding.

For Employees: 

Register the employee with the local authorities. This typically means enrolling them in the social security system, health insurance, and pension funds of that country. For example, employers in Argentina must register every new hire with the national social security (ANSES) and healthcare system, and in Colombia, you must affiliate the worker to the general social security system (pensions, health, labor risks)​. 

If you have a local entity, you’ll need to obtain labor accident insurance (workers’ comp) and possibly notify the labor ministry. Ensure the employee is added to payroll tax registers and that you have their local tax identification number (e.g. CUIT in Argentina, CPF in Brazil, NIT in Colombia). 

Many countries require employers to sign the worker up for mandatory benefits (e.g. life insurance or unemployment fund) – for instance, Argentina requires labor risk insurance (ART) coverage for each employee​. An EOR will handle these registrations on your behalf, but if you’re the employer, it’s your responsibility. Finally, have the employee complete any internal HR forms (bank account info for salary, emergency contact, etc.) and acknowledge company policies (code of conduct, IT use, etc.).

For Contractors: 

If engaging a contractor directly, you generally do not register them in local social security or payroll systems. However, to stay compliant, collect the contractor’s tax identification details (so you can report payments as needed) and ensure they will handle their own registrations. For example, an Argentine contractor should be registered with AFIP (the tax authority) and likely operate under a tax category (such as monotributista or registered VAT payer) – they will need to issue you official invoices (facturas) for their services​. 

International firms should have foreign contractors fill out IRS Form W-8 BEN to confirm their non-US status for tax purposes​, and will typically issue a 1099-NEC at year-end for any contractors paid from the U.S.​ (No U.S. tax is withheld if the W-8BEN is in place, but the income may need to be reported to the IRS.) 

Additionally, ask the contractor to show proof of compliance with local obligations if relevant – for instance, in Colombia; companies often require independent contractors to provide copies of their monthly social security contribution payments (health and pension) and a registro mercantil (commercial registration) if they have one, to document that the person is truly an independent business. Maintaining these records can help demonstrate you engaged them as a bona fide contractor.

Establish Payment Processes

Set up a method to pay the talent in a legally compliant way. Decide on the currency and frequency of payments. For employees, you will pay via local payroll in local currency (e.g. BRL for Brazil, COP for Colombia, ARS for Argentina) on a weekly, biweekly, or monthly schedule as required by law. 

For contractors, you may pay in a foreign currency (USD) or local currency, but be aware of any currency control rules (for example, Argentina requires contractor payments from abroad to be routed through the Central Bank in ARS). Ensure you can obtain invoices or receipts for each payment – a contractor should invoice you (including any applicable VAT if they’re required to charge it). 

If you’re a U.S. company, record all payments to foreign contractors for your 1099 filings​. Also, clarify whether you must withhold any local taxes from the payment – in some jurisdictions, if you pay a contractor who is an individual (not a company), local law might require a withholding tax (e.g. Brazil mandates that companies withhold income tax and 11% social security if paying an unincorporated individual contractor)​. Consult a local accountant to handle any required withholdings and to remit those to the tax authorities.

Train Your Team and Monitor Compliance: 

Internally, educate your HR managers and team leads about the differences in treating contractors vs employees​. This prevents well-meaning managers from inadvertently doing anything that could undermine your classification. Maintain a clear distinction: Contractors shouldn’t have company business cards or appear on your org chart, for instance. 

Use a checklist for onboarding to ensure all steps are completed for each hire. Keep meticulous documentation – signed contracts, invoices, proof of payments, copies of registration forms – as evidence of compliance​. If regulations change (and labor laws in LatAm do evolve frequently), update your processes accordingly. By following these steps, you’ll minimize legal risks and set the foundation for a smooth working relationship.

Onboarding and Orientation

Onboard remote Latin American workers much as you would local staff, with some localization:

Provide a Welcome Package 

Include the signed contract, an outline of their role and how it fits into the company, and information about working hours, communication tools, and key contacts. If the person is an employee via EOR, coordinate with the EOR so the messaging is consistent (they will handle HR paperwork while you handle team integration).

Explain Company Culture and Expectations 

US companies should be mindful that labor culture may differ. Explain any important company policies (e.g., codes of conduct, IT use policies) in a way the worker understands. Also, be aware of local work culture: for example, in Latin America, it’s common to greet colleagues more personally; understanding and respecting cultural nuances helps integration​.

Assign a Mentor/Buddy

Having someone in the team responsible for integrating the remote hire can help. This person can schedule regular check-ins, ensure the remote employee is included in team meetings (accounting for time zone differences), and help navigate any language barriers or clarifications needed.

Equipment and Setup

Decide whether you will ship company equipment or if they will work on their own equipment. Some US companies provide a laptop and peripherals to employees (and some to contractors) for security and standardization. If so, arrange shipping with consideration of customs (you may need to list it as a temporary export/import). 

Alternatively, companies may provide a stipend for the worker to purchase needed equipment locally. In some countries (like Argentina’s telework law), employers are required to provide or pay for work tools and Internet for remote employees – check if that applies and comply accordingly.

Key Contract Provisions for Remote Arrangements

For Independent Contractors

Your independent contractor agreement should include the following:

• Scope of Work and Deliverables: Define project objectives, timelines, and expected outcomes.
• Declaration of Independence: Clearly state that the contractor controls how, when, and where the work is performed and that they provide their own equipment.
• Payment Terms and Tax Responsibilities: Specify that the contractor invoices for services and is responsible for their own income tax, social security contributions, and any applicable VAT. Note that local jurisdictions (like Argentina) may require payments to be made in local currency.
• Intellectual Property and Confidentiality: Include robust IP assignment and confidentiality clauses to protect proprietary information and ensure that all work products are transferred to your company.
• Termination: Outline how either party may end the relationship

For Full-Time Employees

An employment contract for remote workers should clearly detail:

• Job Description and Remote Work Arrangements: Specify that the employee works remotely, the work schedule (even if flexible), and reporting requirements.
• Compensation and Benefits: State the gross salary (paid in local currency), mandatory benefits (such as paid leave, bonuses like the 13th-month salary), and employer contributions (social security, health insurance, etc.).
• Compliance with Local Law: Note that the contract is subject to local labor regulations and any dispute will be handled under the applicable law.
• Confidentiality, IP, and Non-Compete Clauses: Include provisions to protect company information, especially when sensitive data is accessed remotely.
• Termination and Severance: Define the process for termination in line with local laws, including required notice periods and severance payments where applicable.

Payment Structures and Tax Responsibilities

For Independent Contractors

• Invoicing: Contractors should submit invoices that comply with local tax requirements (including necessary tax IDs and VAT when applicable). US companies typically pay the gross fee, leaving tax obligations to the contractor.
• Currency Considerations: In countries like Argentina, currency controls may require payments to be made in local pesos, even for a US company. Make sure your payment method complies with local regulations.
• Withholding Requirements: Some countries may require limited withholding if the contractor is an individual rather than an incorporated business. Check local rules to determine if any withholding is needed.

In summary, for contractors, the company’s financial duty is paying the agreed fee (plus any VAT) and handling any legally mandated withholdings. The contractor then takes that gross payment and handles their own income taxes, social contributions, and benefits. You don’t typically provide paid vacation, bonuses, or insurance to a contractor – those costs are “baked into” their rate. Both parties should be aware of these responsibilities from the start to avoid confusion (e.g. a contractor should not later claim they expected you to cover their pension). A well-written contract will state these obligations clearly (e.g. “Contractor shall be responsible for all tax filings and will indemnify Company if any authority seeks social security contributions or other employment-related payments from Company.”)

For Full-Time Employees

• Payroll Processing: Remote employees must be paid via a compliant local payroll system, often managed by an EOR. This ensures that mandatory withholdings (income tax, social security, etc.) and benefits are correctly administered.
• Additional Costs: Beyond gross salary, employers are responsible for contributions to local social security and benefits programs. These costs can add 20–30% (or more) to the total cost of employment.
• Documentation and Reporting: Maintain meticulous records of all payments, deductions, and filings to satisfy both US accounting practices and local legal requirements.

In conclusion, companies are responsible for substantially more payments when hiring employees (paying both net salary to the worker and various contributions to the government), whereas contractors handle their own obligations and simply invoice for their fees. Structuring payments in compliance with local law – correct currency, timely deposits, proper withholdings – will keep your operations running smoothly and your workforce happy (and law-abiding).

Country-Specific Considerations for Remote Talent

Argentina

• Classification: Argentine law presumes an employment relationship when a worker is integrated and working in the local economy. 
• Currency and Tax: Payments must generally be made in Argentine Pesos (ARS). Independent contractors often use the “monotributo” tax regime, while employees require full registration with ANSES and AFIP.
• Best Practice: For ongoing roles, using an established agency like South is recommended to handle the complexities of local employment law.

Brazil

• Classification: Brazilian law distinguishes clearly between autonomous “PJ” arrangements and employment. If a remote worker follows a fixed schedule and is integrated into your processes, they are likely an employee under the CLT.
• Payroll and Benefits: Employee benefits (such as the 13th salary, FGTS, and paid leave) and employer contributions (social security and additional payroll taxes) are mandatory. Independent contractors must manage their own tax filings.
• Best Practice: For ongoing roles, using an established agency like South is recommended to handle the complexities of local employment law.

Colombia

• Classification: In Colombia, subordination and dependence are the key criteria. A remote worker who is managed closely by your US team will likely be deemed an employee.
• Payroll and Social Contributions: Employers must handle multiple contributions (health, pension, labor risks, and parafiscales) through local payroll. Independent contractors must invoice for their services and handle their own social security contributions.
• Best Practice: For ongoing roles, using an established agency like South is recommended to handle the complexities of local employment law.

Practical Guidance for US Companies

If you’re looking to hire in Latin America, there are several key things you need to know and prepare to ensure compliance. Below is guidance to help you navigate the process:

Understand Your Compliance Responsibilities 

Your company can bear liability if local laws aren’t followed. You cannot “opt-out” of statutory protections via a contract​. As the end client, you should ensure the hiring is done properly with well-drafted contracts to avoid any issues. Ignorance of the law is not a defense if an issue arises.

Establish Clear Engagement Models

• For Employees: Use a local EOR or set up a legal entity. This ensures proper compliance with local labor laws and reduces your exposure to misclassification claims.
• For Independent Contractors: Draft robust agreements to adhere to the right classification.

Prepare and Use Standardized Documentation

• Contract Templates and Checklists: Work with local legal experts or a staffing partner to develop templates that include all necessary clauses for remote arrangements. Maintain a checklist for onboarding remote workers that covers background checks, IT setup, tax documentation, and compliance with local laws.
• Tax Forms: As a client paying a foreign worker or vendor, make sure to handle tax forms. From a US perspective, have each foreign contractor sign Form W-8 BEN (certifying foreign status)​ so you don’t have to withhold US taxes. For US-based payments, you’ll issue Form 1099-NEC for contractors at year-end​. Suppose you’re using a staffing firm/EOR. In that case, they will invoice you, likely from a US or other entity, so you won’t individually report the foreign employee’s wages (the EOR does locally). However, you may ask the EOR for copies of payment slips or proof of compliance for peace of mind.

Intellectual Property and Confidentiality Protections

As the end client, ensure that any contractor agreement includes a direct IP assignment to your company for all work produced, even if the staffing firm is intermediate. Some EORs sign the IP over to the client in the service agreement. Similarly, have NDAs in place between your company and the individual (the staffing firm will often have one with them, but belt-and-suspenders approach: include your own NDA). This prevents any confusion about who owns the work results – especially important if the staffing firm is the legal employer but you are the beneficiary of the work.

Ongoing Compliance and Management

• Regular Audits: Periodically review your remote workforce arrangements with local legal counsel or your staffing partner to ensure continued compliance.
• Manager Training: Train your US-based managers on the differences between contractor and employee engagements, especially in a remote context. Avoid practices like strict office use and company equipment that might blur the lines between contractor and employee.
• Stay Informed: Labor laws and tax regulations in Latin America are subject to change. Keep up with local regulatory updates, especially in countries where economic conditions or political priorities can prompt rapid legal changes.

The Takeaway

For US companies hiring remote talent in Latin America, it’s essential to align the engagement model with the nature of the working relationship. Independent contractor arrangements are the standard for most remote work done at home, but be careful to adhere to all the rules.

Collaborating with local experts or using international recruitment agencies like South can help navigate these complexities, ensuring that your remote workforce is managed legally and efficiently. With proper planning, documentation, and ongoing compliance, US companies can successfully access the diverse talent available throughout Latin America.

‍Schedule a free call with us and save time, money, and hassle while building a highly skilled Latin American workforce.