Worldwide: Exploring The Minimum Wage Across Latin America: What Do Employers Need To Know?

For legal teams at both local businesses and multinational corporations across several jurisdictions, keeping up with minimum wage requirements can be tricky. In this article, first published on the Latin American Corporate Counsel Association website member firms of Ius Laboris provide a comparison of how rates differ across Latin America, taking into account any recent developments from the covid-19 pandemic.

Argentina

The Argentinian Labour Contract Law defines the minimum wage as "the lowest remuneration that a worker without dependants must receive to ensure adequate food, decent housing, education, clothing, healthcare, transportation and recreation, vacations and social security."

The Committee for the Minimum Wage, composed of representatives from government, employers and employees, sets the national minimum wage rate. Since 1 October 2019, it has been 16,875 Argentine pesos (US$229.4) per month and 84.37 pesos (US$1.15) per hour.

There is a collective bargaining agreement for almost every industry. These agreements set the minimum wage for each job and activity, plus any additional compensation given (someone's length of service or geographical location, for example, can impact this). The amounts set cannot be lower than the national minimum wage and it must be paid through an individual's basic salary.

The minimum wage rate has an impact on the cash benefits provided to citizens by the state in response to the covid-19 economic crisis. Currently, about 1.8 million private-sector workers receive complementary salary payments under the Work and Production Assistance Program, according to the country's social security administration. The allowance provided by the government is equivalent to 50% of the worker's net salary for February 2020 and cannot be less than the minimum wage or exceed one-and-a-half times the minimum wage, or the total net salary for that month. This assistance will continue until December for companies with up to 800 workers and for companies that are part of critical sectors such as tourism, hospitality, health, sports and culture.

The minimum wage also impacts retirement plans: individuals who retire with 30 years or more of contributions are entitled to 82% of the value of the minimum living wage. This affects more than one million retirees and pensioners, who are entitled to receive a minimum of 13,837.5 pesos (US$188) per month under this regulation.

Brazil

The minimum wage in Brazil depends on location and professional category. There is a federal minimum wage, which applies by default if there are no specific rules in the relevant collective bargaining agreement or in state laws. The federal minimum wage is adjusted annually for inflation and is currently 1,045 reais (US$186) per month.

Employees also have the right to 30 days' paid holiday and an end-ofyear bonus.

As trade unions also represent non-unionised workers, most workers are covered by an annual collective bargaining agreement that provides a minimum wage above the federal rate. Also, some states have their own minimum wages, which apply to certain professions. These vary from state to state and only apply if there is no applicable collective bargaining agreement. The states that have regional minimum wages are Ceará, Paraná, Rio de Janeiro, Rio Grande do Sul, Santa Catarina and São Paulo.

Although tips and bonuses are part of the employee's remuneration, they do not count towards the minimum wage. In practice, the statutory monthly minimum wage (1,045 reais) is mostly observed by small local businesses only. Large companies and multinational corporations often pay above the minimum wage, either as a matter of policy or to comply with the relevant collective bargaining agreement.

Companies operating in Brazil must plan and prepare for the annual review of minimum wages and the corresponding incremental payroll costs. Both the statutory minimum wage and the one under the relevant collective bargaining agreement have annual reviews to adjust for inflation losses. Since 2010, the review of the statutory minimum wage as taken place in January. The review date of the minimum wage stipulated in collective bargaining agreements varies by trade and region.

Chile

The minimum wage in Chile is 320,500 Chilean pesos (US$403) per month and applies to employees aged between 18 and 65 years. The minimum wage is set annually by law by the Chilean President. For employees under 18 and over 65 years, the minimum wage is currently 239,085 pesos (US$301) per month.

The basic wage paid to employees must not be lower than the monthly minimum wage. Other payments to the employee - such as transport and meal allowances, travel expenses or bonuses - do not contribute to the minimum wage.

On 3 April 2020, in response to the covid-19 crisis, the government passed Law No. 21,218, which created a monthly subsidy to guarantee a minimum monthly income of 300,000 pesos (US$378) for employees who receive less than 384,363 pesos (US$484) per month.

Employers must inform any of their employees who may be eligible for this subsidy. The benefit will remain in force until 31 December 2023 and will be supported by the Chilean Government.

Employers should also be aware that the government adjusts the minimum wage each year. Since there is still no established criterion for how it changes, it generates a lot of debate and controversy and legal teams must keep a close eye on all the changes that come into play.

Colombia

In Colombia the minimum wage is agreed between the unions, employers' organisations and the government once a year. If no agreement is reached, the government establishes the minimum wage by decree.

For 2020, the minimum ordinary monthly wage is 877,802 Colombian pesos (US$231) and is known as the salario mínimo legal mensual vigente or "SMLMV" in Spanish. This amount may be paid in cash or in kind, but any in-kind element is restricted to 30%, meaning that 70% of the minimum legal wage must always be paid in cash (although it is not common for employees earning a minimum legal wage to agree on a percentage of salary in-kind). The SMLMV increased by 6% this year compared to 2019 - 2% over the country's average inflation rate.

Employers with employees earning a minimum legal wage are obliged to increase these salaries by the percentage established by the government. Legal teams must be aware that, depending on the percentage increase, it is possible that employees earning salaries slightly over the minimum legal wage one year will then be placed under the minimum legal amount. In this case, the employer will have tob increase these salaries too.

It is also important to remember that employees earning up to a maximum of twice the minimum legal wage are entitled to receive a transport allowance. The amount is set by the government every year: for 2020 this is 102,854 pesos (US$27) per month. Also, employees earning up to twice the minimum legal wage are entitled to receive a footwear and clothing allowance every four months.

Mexico

Mexican employment law establishes a minimum wage, which is set each year by the National Minimum Wage Commission. The minimum wage must be sufficient to meet the normal basic material, social and cultural needs of a family, and provide for the compulsory educational needs of its children. The Commission's annual decision is guided by research data, which may include inflation, exchange rates and the cost of living in different regions of the country.

Since 1 January 2020, the daily minimum wage is 123.22 Mexican pesos (US$5.62). This rate is applicable nationwide, except for cities located in the 25kilometre strip at the Mexico-US border where the daily minimum wage is set at 185.56 pesos (US$8.47). The wage applies to all employees, as there is no legal distinction between full and part-time employees in Mexico. It should, therefore, not be pro-rated for members of staff working part-time.

Certain job categories are defined by law as occupational categories for which a specified minimum wage applies. There is a list of 59 occupations in this category (including bricklayers, carpenters, electricians, blacksmiths and mechanics) which have a minimum wage higher than the minimum general daily wage.

The informal sector of the economy is mostly immune to government regulations regarding minimum wage provisions.

It is not mandatory in the public and private sector to increase wages yearly, provided they remain at least in line with the minimum wage.

However, if an employer considers a pay increase for employees, it is often in line with the inflation rate. For 2020, it is expected to be around 5-6%.

Peru

Employers must pay workers a specified minimum wage, which is 930 Peruvian soles (US$260) per month, if they work four or more hours a day. The minimum wage is adjusted periodically by decree. The minimum wage consists solely of the basic salary. Other payments are not included.

The minimum wage is also taken into consideration when the government calculates the Family Allowance (a mandatory labour benefit), which is equivalent to 10% of the minimum monthly wage (93 soles) and is given to employees who have one or more dependents under 18 years old or has a dependent over 18 who is engaged in higher education or university studies.

Employers should keep in mind that the remuneration paid to employees will be used to calculate the social benefits employees receive - including compensation granted depending on length of service as well as annual bonuses and vacation time - and social contributions they make to the health and pension systems.

If employers pay less than the minimum wage, the labour authority can impose a fine and employees can apply to the courts for compensation, so legal teams are keen to avoid this by complying with the legal requirements.

Venezuela

The minimum wage is set by presidential decree. The government has been consistently increasing the minimum wage over the past few years (five times throughout 2019 and 2020 alone). The minimum wage must be paid through basic salary; therefore, bonuses and other variable payments are not taken into account when determining the wage.

The government recently raised the minimum wage by 60%, effective from 1 May 2020, to a monthly salary of 400,000 bolívares soberanos (US$1.61). For young apprentices, the monthly minimum wage was set as 300,000 soberanos (US$1).

Hyperinflation has severely hampered the impact of the most recent wage increases, so the minimum wage is no longer a market reference for the minimum income required for decent living in Venezuela.

Consequently, most employers pay salaries exceeding its value and tend to offer payments in foreign "hard" currency, often to "qualified" and "skilled" personnel. Wage payment in foreign currency plays an important role in retaining local workers at a time when Venezuela is losing high levels of specialised workforces who are migrating abroad.

Employers are advised to implement split-pay schemes to cover applicable payroll taxes, which can only be paid in local currency.

Payroll taxes result from employer contributions and employee wage deductions, so the employer would make wage deductions on the local currency portion.

For companies paying staff in local currency, collective bargaining agreements in both the private and public sectors generally set salary scales above the minimum wage and they implement clauses that require employees and employers to discuss regular wage increases set in local currency (biannually or even quarterly) to make up for the devaluation of the bolívar soberano.

It is advisable for employers considering a shift to a foreign currency payment scheme to include a clause in employment contracts that allows them to alternatively make payments in the equivalent local currency, to ensure certain flexibility for employers who may want to occasionally pay wages in local currency.

First published on the Latin American Corporate Counsel Association website, 25 August 2020. To see the original article, click here.