|GH 2017 Argentina|
a. Factors that Determine Who is an Employee and Who is an Independent Contractor
An employee is defined by law as any individual who voluntarily renders services in favor of another within a legal, technical and economic subordination relationship, in exchange of compensation (“Employee”). On the other hand, an employer is defined as any natural individual or group of them, or legal entity that benefits from the services rendered by the Employee (“Employer”).
There is not a specific definition for an independent contractor (“Independent Contractor”). However, this type of relationship is characterized by the lack of any kind of subordination. There is a legal presumption that the rendering of services implies the existence of a labor relationship, and it is the one that benefits from the services (Employer) who has to prove otherwise.
b. General Differences in Tax Treatment
Employee’s Tax Treatment
The following chart shows the applicable Employee’s and Employer´s social security
contributions and payments, respectively:
|Item||Employee’s Contribution||Employer’s Payment1|
|Retirement||11%||12.71% or 10.17%|
|Health medical services|
|for retired people||3%||1.62% or 1.50%|
|Family allowances||—||5.56% or 4.44%|
|Unemployment fund||—||1.11% or 0.89%|
|Health medical services||3%||6%|
|TOTAL||17%||27% or 23%|
(1) The percentage of the employer’s contribution depends on the type of enterprise. Commerce and service enterprises with invoices above a set minimum contribute the higher percentage.
Ceiling to Employees’ contribution has been set at ARS 63,995.73 /USD 3,962.58 (based on the current exchange rate ARS 1=USD 16.15).
The Employer acts as a withholding agent and must withhold the Employee’s contribution from wages.
In addition to the social security contributions, income tax must be withheld from the Employee’s wages. Tax rates for 2016 are as follows:
|Annual Net Income (in ARS)||Tax|
|0 to 10,000||9%|
|10,001 to 20,000||900 + 14% on amount over ARS 10,000|
|20,001 to 30,000||2,300 + 19% on amount over ARS 20,000|
|30,001 to 60,000||4,200 + 23% on amount over ARS 30,000|
|60,001 to 90,000||11,100 + 27% on amount over ARS 60,000|
|90,001 to 120,000||19,200 + 31% on amount over ARS 90,000|
|120,001 and above||28,500 + 35% on amount over ARS 120,000|
Independent Contractor’s Tax Treatment
Due to the autonomous nature of the Independent Contractor, no taxes of any kind shall be withheld or paid by the hiring company on behalf of the former. Consequently, the Independent Contractor is solely responsible and liable for proper payment of any taxes, social security withholding or any other charges levied by the Argentinean authorities in connection with payments made to the Independent Contractor related to the rendering of the services described in the agreement executed between the parties.
It is not possible to give a precise amount or percentage regarding the amount to be paid by the Independent Contractor on account of his/her own taxes; it depends on the amount agreed between the parties.
If the Independent Contractor employs his/her own Employees to render services in favor of the hiring company, he/she must comply with and submit all tax filings under all applicable laws, rules and regulations to any authority having jurisdiction and pay all taxes, workers’ compensation insurance premiums and any other amounts payable under all applicable laws, rules and regulations.
c. Differences in Benefit Entitlement
Employee’s Benefit Entitlement
Employers must contribute to:
• Mandatory retirement and pension;
• Health care insurance;Family allowance system;
• Health medical services for retired people (Programa de Atención Medical Integral – PAMI -);
• Labor Risk Insurance (Aseguradora de Riesgos del Trabajo – ART -); and
• Unemployment fund
In addition, Employees must be paid for vacation time. Employees are entitled to an annual vacation period when they have been employed with their Employers for at least 6 months on a given calendar year.
Where the period of employment is less than 6 months in a given year, the Employee will have an annual leave equivalent to 1 day off for every 20 days of effective work.
Vacations are compulsory and the Employer must grant them between October 1 and April 30 of the next year. Its term varies according to the Employee’s seniority.
• less than 5 years of service: 14 running days;
• more than 5 and less than 10 years of service: 21 running days;
• more than 10 and less than 20 years of service: 28 running days; and
• more than 20 years of service: 35 running days.
The periods of annual leave mentioned above apply unless increased benefits are established in the applicable Collective Bargaining Agreement (CBA) or in the individual employment agreement.
Employees are also entitled to a supplementary annual salary (Sueldo Anual Complementario – SAC -), which is paid in 2 periods during the year. Such periods have an
expiration date, being the first on June 30 and the second on December 18 of each year. The amount that the Employers must pay each semester is equivalent to 50% of the best monthly salary collected in the prior 6-month term.
Employees are also provided with medical insurance for themselves and their primary family group during the labor relationship. According to Law No.23,660, in case of termination with no cause, medical insurance is extended for an additional 3-month period following termination. However, if the insurance granted was greater than the basic plan provided by a certain healthcare company, such plan will be reduced to the basic one for the referred period of time.
The contribution to the health coverage is calculated as follows:
• 6% of the Employee’s salary: paid by the Employer;
• 3% of the Employee´s salary: paid by the Employee; and
• an additional 1-½% per beneficiary covered under the Employee’s health coverage plan (the Employee’s primary family group): paid by the Employee.
The Employee has the right to choose the health coverage to which he/she wants to contribute during the employment contract.
Independent Contractor’s Benefit Entitlement
Due to his/her status, the Independent Contractor does not enjoy the legal benefits granted to the Employee. As an example, if the Independent Contractor takes vacation, it is not paid by the company that requires the Independent Contractor’s services.
d. Differences in Protection from Termination
Employee’s Protection from Termination
One of the main principles of the Argentine Labor Law is the principle of the continuity of the labor relationship. This principle considers that the labor relationship ends with the Employee’s retirement. However, the Employer may dismiss an Employee without cause, paying statutory severance compensation established by law, and taking into account corresponding preventive measures for the dismissal not to be considered as a discriminatory act.
An Employer may also dismiss an Employee with cause, provided that the Employer can prove the grounds for the dismissal. If the Employer has evidence to establish grounds for dismissal, the Employer should not pay any compensation to the Employee.
Dismissal with cause must be the last resource after having implemented other disciplinary measures or the offense should be serious enough that it would make impossible the continuation of the labor relationship.
Legislation imposes certain requirements for dismissal with cause:
• notification of dismissal must be in writing;
• the cause and reasons alleged as the grounds for termination must be clear, accurate and detailed; and
• the alleged cause cannot be changed in successive legal notifications or during the judicial process.
In the case that the cause is challenged before the Court of Law and requirements are not met, there is a high chance that the acting judge will rule that the Employer has failed to comply with legal requirements and order it to pay severance compensation as if termination was with no cause.
Judges on termination cases must objectively evaluate: i) the facts giving rise to the dispute to determine whether there was cause for dismissal and ii) if formal requirements of notification were accomplished.
The party invoking the existence of the offense that caused the termination must submit evidence supporting such cause. However, the decision on whether the cause was sufficient lies with the judge, who analyzes the facts and evidence under the light of labor regulations and principles that govern employment relationships.
When evaluating the existence of just cause, the judge also considers:
• the proportionality of the discipline measure considering the offense committed;
• the disciplinary background of the Employee; and
• the Employee’s seniority.
• Certain Employees have special protection in case of dismissals:
• Pregnant Employees within 7.5 months before or after the date of birth. If the Employer dismisses the Employee during this period, he/she shall pay severance compensation plus a fine equal to 1 complete year of compensation.
• Married Employees within 3 months before or 6 months after the marriage celebration. The Employer shall pay the same compensation as that in the case of dismissal of a pregnant employee (mentioned in the above paragraph) if he/she dismisses a married Employee during that time.
• Union representatives have a special protection granted by law in case of dismissals. They may not be dismissed if there is no prior judicial resolution to remove such protection. Officers and delegates (shop stewards) of officially recognized unions may not be dismissed from their jobs while they hold office and for 1 year thereafter. If the Employer violates this special protection, the union representative may claim the reinstatement in his/her position or consider himself/herself constructively dismissed and claim the corresponding severance compensation plus the payment of the pending salaries until the expiration of his/ her period, plus a severance equivalent to a 1-year salary.
• Employee with a license for an accident or disease not related to work: If an Employer dismisses such Employee, he/she shall pay, in addition to severance compensation, the wages for all the time remaining to the expiration date of the license or to the release date, as appropriate.
Independent Contractor’s Protection from Termination
Contrary to the Employee, the Independent Contractor is not protected from the termination of his/her contract.
However, in the Independent Contractor agreement, it may be established that the contract may be terminated by any of the parties, at any time, upon prior written notice sent to the other party at least 30 days in advance, irrespective of the payment of any fine and/or indemnity, for any purposes, to the other party.
In addition, either party may terminate the Independent Contractor agreement in case the other party defaults on its respective obligations and fails to remedy such default within 10 days after written notice being sent to the defaulting party for such effect, and shall bear all damages and losses caused by it.
However, considering the existence of the principle of primacy of reality, the nature of the relationship will be determined in accordance with the facts rather than by the for-malities under which the relationship has been framed.
Therefore, consider that an Independent Contractor may argue that the real nature of his/her relationship is of labor kind in case there is some note of subordination note. Thus, he/she may claim statutory severance compensation plus applicable fines for wrongful registration.
e. Local Limitations on Use of Independent Contractors
There are no specific limitations on the use of Independent Contractors in Argentina. The main limitation on the use of Independent Contractors is the risk that they will be reclassified as Employees.
f. Leased or Seconded Employees
A temporary worker or leased Employee is the one provided by a temporary labor agency for short-time employment, related to temporary (not more than 6 months in a period of 1 year or 1 year in a period of 3 years) or extraordinary tasks or needs to be faced by a third company. The employment relationship will be deemed as of a temporary nature when the relationship begins and ends with the completion of the task, the execution of the act or the provision of service for which the Employee was hired. Nevertheless, the Employer who claims that the employment relationship is of a temporary nature has the burden of proving it.
The Employer of the temporary worker is the Temporary Employment Agencies (TEA), disregarding the fact that the worker may render services to different companies or even switch jobs.
A breach of the TEA regime will be viewed as a fraudulent act under local labor law. This can result in the worker being deemed to be a direct worker of the company that directly benefits from his/her service, i.e. the user company.
There must be a “reasonable and justified” balance between the number of workers hired through TEAs and the user company’s permanent personnel, as well as an “adequate” term of employment. The guidelines to determine such limitations for each activity must be established by the applicable CBA.
Non-compliance with this obligation means that the agency worker will be deemed to be directly employed by the user company. Thus, the user company will be obliged to register the worker on its payroll.
In addition, the user company will be directly liable for all labor and social security obligations derived from the employment relationship.
TEAs must have an exclusive corporate purpose of supplying industrial, administrative, technical or professional staff to third-party companies (user companies) in order to:
- perform, on a temporary basis, extraordinary services defined in advance; or
- meet the specific and temporary needs of the user company.
- User companies may engage workers through a TEA, only if needed, in the following circumstances:
- to cover the absence of a permanent worker, during the term of his/her leave of absence;
- leave of absence of a permanent worker, legal or contractual suspension due to strike or force majeure, reduction or absence of work;
- in the event of increased business activities of the user company, requiring more workers, on an exceptional and extraordinary basis;
- to organize and/or participate in congresses, conferences, fairs, exhibitions or programmes;
- to perform urgent tasks to prevent accidents or repair equipment when such duties cannot be performed by regular staff; and
- when, due to extraordinary or temporary needs, tasks not related to the usual business activities of the user company are required.
With respect to the circumstances described in i) and ii) above, the name of the worker who is on leave must be specified in the agreement and, if the replaced worker returns to his/her position and the worker hired through a TEA is still working, he/she will be considered a direct worker of the user company.
Regarding the circumstances described in iii), iv), v) and vi), the hiring period must not exceed 6 months in a 1 year period, or 1 year in a 3 year period. If the hiring exceeds these limits, the worker may be considered a direct worker of the user company.
Therefore, to hire workers through a TEA, the user company will have to provide evidence that the hiring satisfies one of the extraordinary circumstances discussed. In the case of non-compliance with the legal requirements, the worker may claim that the user company has fraudulently used the TEA to avoid correct labor registration in violation of local labor laws and claim to be correctly registered by the latter. If the user company refuses to do so, the worker may be considered constructively dismissed and claim severance compensation, plus applicable fines for incorrect registration.
Agency workers do not have special protection against dismissal. They have the same rights as other Employees engaged under contracts for an indefinite period of time. Claims for dismissal would be brought against the TEA since it is considered to be the Employer of the agency worker. However, both companies are joint and severally liable for labor and social security obligations.
g. Regulations of the Different Categories of Contracts
Labor relationships are, mainly, governed by the National Employment Law (“NEL”) – Law No. 20,744 -. Argentine labor regulation is characterized by its protective nature.
The NEL covers the majority of labor relationships in their different modalities and the consequences thereof such as, compensation; annual vacation and special leave of absence provisions; holidays and non-working days; daily and weekly working and resting hours; special provisions for women and children; illness; the transfer of the labor contract; its termination; Employee’s privileges, etc. Certain activities such as civil ser vice (public sector employment), domestic and rural work are excluded from the NEL and are governed by special laws.
In addition, labor relationships are governed by the following regulations:
• Law No. 24,013: It regulates, inter alia, i) temporary personnel service companies, ii) the protection of unemployed workers and iii) applicable fines and penalties for incorrect registration of labor relationships;
• Law No. 25,877: It amended relevant issues regarding the individual labor
relationships, which, mainly, are the following: i) trial period; ii) prior notice, iii) severance payments due to dismissal with no cause and iv) promotion of employment;
• The social security system and institutions (i.e. pension funds, family allowances, schooling allowances and health social welfare) are contained in a number of different provisions;
• Labor Risks Law (Law No. 24,557): It has created a new indemnification system for labor accidents and job-related illnesses and it has been modified and complemented by Decree No. 1,649/2009 on Upgrade of Disability Compensation; Resolution No. 35,550 on Civil Liability Insurance for Occupational Accidents and Diseases; Law No. 26,773 about a New Regime to Organize the Repair of Damage Caused by Occupational Accidents and Diseases; Decree No. 49/2014 on New Illnesses incorporated to the Official List of Occupational Diseases and Decree No. 472/2014 regulating Law No. 26,773; and
• Wage scales and other specific conditions are also ruled by CBAs, negotiated between the chambers of commerce of certain industry sectors and union representatives.
Independent Contractors are subject to a different regulation, far less protective than the Employee’s one. They are governed by civil and commercial laws, which have been grouped within a unique code, since 2015.