Executive Summary

Latin America continues to attract strong interest from U.S. companies that need skilled talent, nearshore operations and lower-cost service hubs. Growth across the region is steady, with several countries outperforming regional averages in services and technical capabilities. Nearshoring is accelerating, and multiple studies highlight the potential for significant gains in exports and foreign direct investment. For U.S. companies, a structured approach to hiring, compliance and payroll is essential to avoid costly missteps. This guide provides a complete, practical framework for expansion.

What LATAM Expansion Actually Means

Expanding into LATAM requires early decisions about structure, legal presence and compliance. The three primary models for employing talent are contractors, an Employer of Record and forming a local legal entity.

Contractors: Used to test markets quickly or fill niche roles. Contractors invoice your company as independent providers. This model carries compliance risk when workers behave like employees under local laws.

Employer of Record: An EOR hires employees on your behalf, manages payroll, benefits and compliance and serves as the legal employer in that country. This model enables fast, low-risk entry and supports multi-country hiring.

Local Legal Entity: A formal subsidiary or branch is created and registered with tax and social security authorities. This is required for long-term operational scale, in-country invoicing, regulated sectors and larger teams.

A balanced LATAM strategy often uses all three. Early testing is supported by contractors and EORs, followed by entities when scale and stability are required.

Why U.S. Companies Are Expanding into LATAM

Nearshoring and supply chain alignment

Independent assessments indicate that nearshoring has the potential to generate significant annual export gains for Mexico and Brazil. Mexico has recently recorded some of its highest levels of foreign investment, largely attributed to U.S. companies relocating manufacturing and service functions closer to home. LATAM offers geographic proximity, reduced shipping times, improved supply chain resilience and easier coordination with U.S. headquarters.

Talent and time zone advantages

Latin America has become a major destination for IT services, software development, shared services and customer operations. Projections indicate consistent growth in the region's IT and business services markets, with strong employer demand across Brazil, Mexico, Colombia and Argentina. Time zone alignment between LATAM and the U.S. enables real-time collaboration, which is particularly valuable for engineering, CX and finance teams.

Professional rates in LATAM remain competitive compared to U.S. markets, and talent pools in major cities are experienced in remote and hybrid models. This makes the region an attractive extension of U.S. workforce planning.

Growth in shared services and BPO

Reports on the BPO and customer experience sectors show expanding revenue and strong multi-year growth expectations. Countries such as Colombia, Costa Rica, the Dominican Republic and Argentina continue to attract investments for shared services, finance operations, analytics, technical support and customer experience roles. For companies managing large transaction-based workloads, LATAM offers both capability and cost advantages.

Country-by-Country Comparison Table

The table below summarizes key considerations for U.S. companies evaluating major LATAM expansion destinations.

Step-by-Step LATAM Expansion Framework

Market Validation

Begin by identifying the countries that best align with your operational needs. Evaluate customer demand, service delivery models, regulatory tolerance and language requirements. Narrow to two or three strong candidates.

Workforce Strategy

Clarify which teams will be based in the region. Determine the volume and seniority mix of roles, identify the need for bilingual capability and define leadership structure.

Contractor, EOR or Entity Decision

Contractors provide early flexibility. EORs allow compliant hiring without forming an entity. Entities support long-term scale, invoicing, regulated operations and larger teams.

Hiring Compliance

Ensure all roles have compliant employment agreements in Spanish or Portuguese. Confirm job classification, social security obligations and working hour rules.

Payroll Setup

Register with local authorities or work through an EOR. Configure contributions, bonuses, invoicing requirements and HR system integration. Include 13th-month salary obligations where required.

Tax and Legal Registrations

Entities require registration with tax authorities, social security systems, municipal authorities and in some cases sector-specific regulators. Review intercompany agreements and transfer pricing.

Data Privacy

Follow country-level data protection laws and ensure secure handling of employee and customer information. Localize consent, retention, and breach notification procedures.

Onboarding and Cultural Enablement

Localize onboarding materials. Train managers on communication expectations, holidays, labor norms and escalation procedures.

Ongoing Compliance

Review payroll accuracy, contributions, benefits, contractor status, data handling and anti-corruption controls on a scheduled basis.

HR and Payroll Rules You Must Understand

13th-Month Salary and Bonuses

Many LATAM countries require additional annual payments including Christmas bonuses, June and December semi-annual payments, or profit-sharing. These obligations must be budgeted and accrued throughout the year.

Social Security and Employer Contributions

Employer contributions in many countries range from roughly 20 to 30 percent of salary and cover pension, health insurance, risk funds, unemployment programs and training institutions.

Severance and Termination

Severance formulas vary by country and often depend on years of service and monthly salary. Local labor codes assume job stability rather than at-will termination.

Working Time and Leave

Rules governing maximum weekly hours, holiday calendars, paid vacation and parental programs differ significantly from the U.S. Standardizing policies across countries requires careful legal review.

Common Compliance Mistakes U.S. Companies Make

• Treating employees as contractors when their work structure matches an employment relationship

• Ignoring rules on subcontracting or outsourcing in countries with strict regulations

• Underestimating employer social contributions and bonus obligations

• Reusing U.S. policies and contracts that conflict with local labor codes

• Overlooking data protection obligations and cross-border transfer requirements

• Weak oversight of subsidiaries or third parties that increases corruption risk

A disciplined approach to compliance avoids costly restructuring, delayed launches and audits.

Estimated Cost Breakdown

Budgeting for LATAM roles typically requires:

• Market-aligned base salaries

• Annual bonuses where required

• Employer social contributions

• Optional private benefits

• Payroll vendor or EOR fees

• Local legal and HR advisory support

A conservative planning approach is to add 25 to 35 percent on top of gross salary to cover statutory costs and benefits. The total cost remains competitive against U.S. equivalents for most service and technical roles.

How Lumena Supports Expansion

Lumena provides structured support for U.S. companies expanding across LATAM by delivering:

• A comprehensive regional blueprint for HR, payroll, tax and legal alignment

• Country-by-country cost and risk modeling

• Clear guidance on when to use contractors, EOR or entities

• Standardized compliance and governance frameworks

• A readiness assessment through the Lumena Certified standard

These capabilities allow leadership teams to expand confidently while controlling risk and cost.

Call to Action

Companies with growing teams or cross-border operations benefit from clarity and structure before committing resources. Schedule a LATAM Expansion Strategy Call to review your market options, hiring model and compliance requirements.

Frequently Asked Questions

What is the best LATAM country for first-time expansion

Mexico, Colombia and Costa Rica are commonly selected due to talent availability, service ecosystems and time-zone alignment. The best choice depends on function mix, regulatory tolerance and cost targets.

How long does setup take

Entity setup can take two to six months depending on the country. Hiring through an EOR is often possible within weeks.

Should companies rely solely on EOR

EOR is ideal for pilots and small teams but does not eliminate all regulatory considerations. For larger operations, invoicing or regulated work, an entity becomes necessary.

How do 13th-month salaries affect budgeting

Several countries require additional annual payments. Annual budgets must include these obligations through monthly accruals.

What concerns do boards typically have

Boards focus on contractor classification risk, employer cost accuracy, governance, data protection and anti-corruption controls.

How do time zones improve productivity

LATAM shares real-time working hours with the U.S., improving collaboration and reducing cycle times for engineering, CX and operational work.

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