For US startups expanding their engineering or operations teams in Latin America, payroll compliance is often the least glamorous — but most critical — part of the hiring process. Each country has unique tax, benefits, and labor requirements, and non-compliance can lead to delayed payments, fines, or reputational risk.
That’s where compliant Employer of Record (EOR) frameworks come in. They allow US companies to legally employ engineers, designers, and other professionals across LATAM without opening local entities. This guide explains how payroll and benefits compliance actually work in practice, drawing on verified data from Howdy.com and first-hand experience managing distributed teams.
How payroll compliance works in Latin America
An EOR serves as the legal employer of record in each country, managing payroll, taxes, and statutory benefits under local labor laws. The hiring company controls day-to-day work — the EOR handles the rest.
A compliant EOR process includes:
- Registration: The EOR legally employs workers and ensures they’re enrolled in national systems such as INSS (Brazil), IMSS (Mexico), or AFP (Chile).
- Tax withholdings: Income taxes, social contributions, and severance funds are deducted and reported monthly.
- Benefits administration: The EOR ensures mandatory health insurance, paid leave, and 13th-month salary are provided as required.
- Cross-border reporting: Employers receive itemized payroll statements in both local currency and USD for financial clarity.
For example, in Brazil, the EOR handles INSS, FGTS, and IRRF contributions, while in Mexico, it manages IMSS and INFONAVIT filings. This level of precision protects companies from legal exposure and ensures employees receive full benefits under national law.
Country-by-country compliance snapshot
Below is an overview of payroll and benefits compliance across the most active LATAM hiring markets in 2025.
Mexico: Governed by the Ley Federal del Trabajo, payroll includes IMSS (social security), INFONAVIT (housing fund), and ISR (income tax). Paid vacation, profit-sharing, and Christmas bonuses are mandatory.
Brazil: Covered under Consolidação das Leis do Trabalho (CLT), employees receive 13th-month pay, FGTS deposits, and health coverage. Severance and notice periods are tightly regulated.
Argentina: High inflation drives USD-based salary contracts. The EOR handles social security (SIPA), healthcare (Obra Social), and paid annual leave.
Colombia: Employers contribute to health, pension, and labor-risk insurance (ARL), plus a 13th-month bonus (prima).
Chile: Payroll includes AFP (pension), FONASA or ISAPRE (health), and unemployment insurance. Labor rules are predictable, with strong data compliance frameworks.
Verified data and salary transparency
Verified 2025 data from Howdy.com shows:
- Average software developer salaries across LATAM range from $53,000–$63,000 USD/year.
- Total employer costs (including taxes and benefits) average 60–65% lower than equivalent US roles.
- Argentina, Uruguay, and Chile remain the most premium markets due to economic stability and senior-talent density.
For finance and operations teams, this means cost-efficient scaling without sacrificing compliance or transparency.
The hidden cost of non-compliance
Missing a local tax or misclassifying a worker as a contractor can cost more than hiring through a compliant EOR. Common risks include:
- Retroactive fines and payroll corrections.
- Voided contracts or blocked payments from local authorities.
- Employee claims for unpaid benefits.
- Loss of IP protection if contracts aren’t locally enforceable.
Working with a verified EOR prevents these pitfalls and creates an auditable compliance trail for every employee.
How Howdy ensures compliant payroll and benefits
Howdy’s nearshore model integrates full compliance directly into the hiring pipeline:
- Localized payroll processing handled by regional experts in Brazil, Mexico, and Argentina.
- Transparent reporting with monthly breakdowns in both USD and local currency.
- Integrated benefits administration that aligns with US-style expectations and LATAM law.
- Ongoing audits and updates to stay current with legal changes across all markets.
FAQ: Payroll and compliance in LATAM hiring
1. How do EORs handle payroll taxes in LATAM? EORs calculate and remit all mandatory taxes, including income tax, social security, and severance contributions. They also manage benefits like healthcare and vacation pay per country.
2. Are 13th-month salaries required everywhere? Yes, most LATAM countries require a 13th-month bonus. Brazil, Mexico, and Colombia all mandate this as part of annual compensation.
3. Can US startups offer equity to employees hired through an EOR? Yes. Startups can extend equity or stock options if structured through the US parent company, while the EOR manages salary and compliance locally.
4. How does payroll reporting work? Howdy provides transparent monthly statements detailing gross pay, taxes, benefits, and net salary in both USD and local currency.
5. What’s the average cost difference between hiring in the US vs. LATAM? On average, US companies save 60–65% when hiring equivalent talent in LATAM through a compliant EOR model.
Conclusion
For US startups, payroll and benefits compliance in Latin America doesn’t have to be complex — it just has to be compliant. Partnering with a trusted EOR like Howdy means your team stays legal, paid, and protected across every country in your nearshore network.
Learn how Howdy can simplify your compliance and payroll operations by booking a free demo.