Absolutely! Employer of Record is your legal gateway to hiring software developers without the complexities of opening a legal entity abroad. Your EOR partner serves as the legal employer of programmers on your behalf, taking care of all the admin functions, like payroll, HR, legal, and benefits management. They also assume full liability for adhering to local labor laws, employment rules, and tax obligations, bearing any potential legal risks.

But make no mistake—you remain the one and only real employer of software engineers. From day one, you manage your team directly and integrate it into your culture and practices. All the bureaucracy? Gone. Legal risks and admin burdens? Off your shoulders. Instead, you focus on what matters the most—developing your software product.

So, an EOR service in Latin America is simply a means for tech companies to swiftly expand into new markets and hire a development team compliantly. Exactly what tech companies like BigCommerce, People.ai, Dotmatics, and Sift did. With the help of Alcor, an EOR provider for tech, they have seamlessly and securely built fully backed teams of 30+ developers and fast-tracked their product growth.

Picking the location to grow your business isn’t just about pinpointing dots on a map or chasing the market trends. A hotspot for one company could be a dead end for another. That’s why conducting thorough market research is key to finding a destination that aligns with your talent needs, budget, business comfort zone, and long-term goals.

Start by asking:

• Is there a large talent pool with the necessary tech skills?
• How cost-effective is it, and does the price align with the quality of the software development?
• Is the legal and business landscape expansion-friendly?
• What are the time zones and cultural proximity?
• Does the location embrace innovation?

Here are a few locations in Latin America for your consideration:

Mexico

• 800K+ tech experts—largest talent pool in LATAM
• 47% lower developer salaries than in the US
• #3 in LATAM for tech and data science skills
• 2 hours difference with California
• #3 innovation economy in the region

Colombia

• 51% cheaper—lowest developer salaries in LATAM
• 165K+ tech talents
• #5 in LATAM for data science skills
• 2-3-hour difference with California
• #4 innovation economy in the region

There are two prevalent models for hiring LATAM developers: employment agreement and B2B contract.

An employment agreement forms an employer-employee relationship governed by local Federal Labor Law. For employers, this type of employment comes with tax obligations, including paying payroll taxes and social security contributions (SSC), as well as withholding income tax and SSC on behalf of the employee. Additionally, it’s full of rigorous working terms and employee termination procedures. That’s where Alcor’s IT EOR in Latin America can serve as your lifeline in the deep employment waters.

For employees, an employment contract serves as a safety net, securing their salary amount, benefits, working hours, paid time off (PTO), and termination terms. The downside? Their salary is paid in a local currency, which may be affected by inflation.

A B2B contract is signed between a hiring technology company and a software developer, establishing a contractor-client relationship governed by civil or commercial law. The programmer must register as a sole trader (persona física con actividad empresarial) with the local tax authority to provide IT services.

Unlike an employment agreement, in B2B relations, the employer is free from tax obligations, while the contractors handle taxes and social contributions on their own or via an EOR vendor in Latin America. The reward is paid in a foreign currency, so inflation and exchange rate swings are not an issue. However, benefits, PTO, and working terms are typically negotiated individually and are usually more restrictive than those outlined in the employment contract.

An employment agreement typically entails tax obligations for both the employer and the employee.

What does the employer’s share include?

Social Security Contributions and payroll taxes are determined at the federal level and collected by the local institutions. In each LATAM country, the scope of these contributions varies significantly, but they typically include health insurance, pension funds, labor risk, sickness and maternity, disability, retirement, and unemployment contributions. Additionally, a separate payroll tax of 3% is levied in Mexico’s tech hubs such as Mexico City (CDMX), Guadalajara, Monterrey, and Querétaro.

Here are the average SSCs total in each country:

• Mexico: 39.9%-47% of the employee’s salary should be paid by the 17th of each following month;
• Colombia: around 30% of the employee’s salary should be paid by the 15th of each following month;

Now, the employee’s share:

1. Personal income tax follows a progressive structure in LATAM, with rates fluctuating as follows:- Mexico: from 1.92% to 35%;
   – Colombia: from 19% to 41% (applied in tax units).

   Both locally registered and foreign tech companies that engage LATAM software developers are required to withhold and remit income taxes on behalf of their employees. Partner with an Employer of Record company in Latin America, like Alcor, to get all the taxes paid for you—no more worries about miscalculations or missed deadlines.

2. Social Security contributions on the employee’s side are usually lower compared to those of the employer, ranging as follows:

• Mexico: 2.785%
• Colombia: 9%

The second employment model is the B2B contract, which allows tech companies to hire Latin American software engineers as contractors. In this case, paying payroll taxes is not mandatory for the company. Hence, developers should cover:

1. Personal income tax differs in each location as follows:
   – Mexico: from 1% to 2.5%
   – Colombia: from 5.9% to 14.5%
2. Social Security contributions, which vary from country to country.

Latin America is a goldmine of skilled software engineers, offering a competitive advantage without the Silicon Valley price tag. The average annual salary for senior developers in this region ranges from $54,800 to $57,800. Even the highest-paid tech experts don’t break the bank in LATAM. For instance, senior DevOps engineers earn approximately $69,500 to $72,000, while a Head of R&D receives an annual salary of $96,000 to $104,000.

That’s up to 50% savings compared to the US. See yourself:

So, how much should you really budget to hire a software developer in Latin America? To break down the total cost beyond just salary, you need to include:

• annual income of a software engineer,
• taxes, social contributions, and additional payments presupposed by the local labor laws,
• employee benefits package, which typically includes health insurance, professional training, hardware, and corporate merchandise, totaling about $6,500 in LATAM and $15,400 in the US per developer/year,
• recruitment fee, which is typically 20% in LATAM and 30% in the US of the senior developer’s gross annual salary.

Have a sneak peek at the figures:

Contact Alcor, your EOR service provider in Latin America, to get precise payroll calculations for your tech positions and discover your true savings.

When hiring software engineers in LATAM, as an employer, you must comply with statutory employee benefits outlined in federal labor laws. They are mandatory for tech specialists working on the employment contract. Failure to provide these benefits may lead to legal troubles, penalties, and fines.

So, what are these statutory employee benefits?

• Social security (IMSS), including retirement, unemployment, healthcare, disability & life insurance, parental leave, occupational risk, etc.
• Aguinaldo (13th-month salary) is equal to 15 days of the employee’s annual wage in Mexico and Colombia.
• Profit sharing is offered in Mexico, where 10% of the company’s annual taxable profits are shared among workers.
• Annual leave consists of paid days off, calculated based on the number of years an employee has worked.
• National holidays, including Christmas Day, New Year’s Day, and Independence Day, are all set out in the local Federal Labor Laws.
• Severance pay is paid to an employee in the event of termination and varies depending on the reason for termination.

There are also supplementary employee benefits, which are optional but good to have if you want to attract top software engineers in LATAM, like:

• Private medical insurance is a common addition to the basic medical package, typically covering hospitalization, vision and dental care, emergencies, and other related expenses. There are both employee-only plans and family coverage.
• Life insurance provides financial protection to employees’ beneficiaries in case of death or accidental disability.
• Internet allowance, relevant for international dev teams working remotely;
• Tech courses & English classes to promote professional development;
• Stock options are predominantly offered to C-level experts.

The standard workweek 48 hours is in Mexico and 46 hours in Colombia. Each country presupposes the possibility of overtime:

• Mexico: should not exceed 3 hours/day and 9 hours/week, with compensation at 200% of the standard rate in regular hours and 225% on Sundays or national holidays.
• Colombia: should not exceed 2 hours/day and 12 hours/week, with compensation at 125% of the standard rate in regular hours and 175% during night shifts. Additional rates apply if working on Sundays or national holidays.

When you hire a software developer in LATAM, their probation period lasts

• 180 days in Mexico,
• 60 days in Colombia,

Typically, this period is sufficient to evaluate the skills and assess the new hire’s performance. We at Alcor guarantee only high-quality tech talent, with 98.6% of our hires passing probation with flying colors. In the rare case that someone doesn’t meet your expectations, we provide a replacement at no additional charge.

Software developers working on an employment contract in LATAM are entitled to annual leave, sick leave, maternity leave, extraordinary paid leave, and public holidays, which vary by country.

In Mexico, annual leave is accompanied by a bonus of 25% of the regular salary.

Sick leave is peculiar in each LATAM country:

• Mexico: covered by social security at 60% of salary from the 4th day up to 52 weeks.
• Colombia: covered by the employer at 100% of the salary for the first two days. Then, from the third day, the Social Security Institute (EPS) covers 66.67% of the salary for up to 90 days and 50% from the 91st to 180th day.

When a US-based tech company hires software developers in LATAM, it should consider visa requirements. To travel on a business trip to the United States, a LATAM programmer should obtain a B1/B2 visa, which permits a stay of up to 6 months, depending on the visa’s validity. It allows business-related activities, such as attending conferences and meetings, participating in short-term training or team-building sessions, and exploring partnerships, but not permanent work in the United States.

To get it, a LATAM citizen should

• Complete Form DS-160,
• Pay the application fee of $185,
• Schedule and pass the interview at the nearest U.S. embassy/consulate,
• Prepare documents, including a valid passport, proof of corporate ties, and financial proof (bank statements, sponsor letter, etc.).

But no need to stress over these visa challenges. Alcor, your Employer of Record service provider in Latin America, can seamlessly handle all aspects of visas for your software engineers, just like we did for US tech company ThredUP.

The termination of an employee in LATAM is governed by federal labor law, which establishes strict guidelines for the termination process, thereby protecting workers’ rights and posing risks for employers. Luckily, there are EOR companies in Latin America like Alcor that serve as your compliance buffer, ensuring a smooth employee offboarding process.

General termination rules:

The notice period is 15 days in Colombia, whereas it is not required in Mexico.

Dismissal: When justified, employers in Colombia must provide written notice, a severance payment, and the reason for dismissal. Mexico allows two witnesses to be present at the moment of dismissal.

Termination payments:

• Compensation for unused vacation days, pro-rated 13th-month salary, and any pending compensation for days worked but not yet paid (also applied to termination during probation period).
• Severance payments:

Mexico

• 90 days’ salary;
• 20 days’ salary per year of employment;
• 12 days’ salary per year of employment.

Colombia

• 20 days’ salary for the first year of service and;
• 15 additional days for each subsequent year.

Pregnant women, union leaders, and employees on sick leave have special protections; termination requires additional justification or approval.

Expanding your development team abroad often means establishing a local legal entity, which varies from country to country based on the local laws of business incorporation. Generally, you would need to navigate complex legal requirements, including selecting the type of entity, registering with relevant authorities, opening bank accounts, and ensuring compliance with local tax and social security laws.

The business incorporation process can drag on for months, draining tens of thousands of dollars in legal fees, registration, and insurance. What is even worse, failing to comply with local laws and practices can expose your tech company to hefty fines or even legal actions, putting your expansion plans at risk.

The EOR solution in Latin America allows you to bypass the lengthy and expensive route of setting up your own entity abroad. For instance, with Alcor EOR for tech, you can hire developers through our readily established legal entities in LATAM or Eastern Europe, saving an average of 3.5 months on business incorporation. Plus, manage admin and legal complexities hassle-free. It’s a faster, safer way to expand your business compliantly without the financial burden.

Alcor’s Employer of Record for Tech is a 360-degree solution devised for the compliant and seamless hiring of software engineers in Latin America and Eastern Europe. With no need to open a legal entity, it saves tech companies an average of 3.5 months and tens of thousands of dollars in setup costs. This means you can skip the red tape and build your own team of 30+ developers in just three months, accelerating your software development and unlocking faster growth.

With our Employer of Record solution in geo, you get more than just HR & payroll:

• Tech-focused services: from FTE or B2B employment options and tax incentives to R&D deductions and tailored benefits for developers.
• 100% compliance: get shielded with guidance from our lawyers, who have expertise in IT law.
• Customized pricing: volume discounts, no hidden costs or pre-payment.
• Ongoing in-country support: our Dedicated Customer Success Managers go above and beyond to simplify your business expansion.
• All-in-one place: manage everything in one place, no need for multiple vendors.

But EOR is just the beginning…

You can upgrade it to our software R&D center solution, which includes:

• In-house tech hiring is handled by our 40 recruiters, who headhunt the top 10% of the market developers across LATAM and EE. With our 80% CV pass rate and 2-6 weeks to fill a vacancy, you can scale your team from 0 to 100 engineers in a year.
• Operational support encompasses additional services, including leasing office or co-working space, procuring equipment, setting up IT infrastructure, and employer branding.

The result? A fully backed tech R&D center with a software development team that’s 100% yours from day one.