1. Legal Framework Differentiating Employees From Independent Contractors
A. Factors that Determine Who is an Employee and Who is an Independent Contractor
In order to determine the existence of a labour relationship under Argentine labour law, the actual terms and conditions under which the services are rendered must be considered in each particular case, regardless of the documents signed. This is the result of the application of the principle that substance prevails over the form.
Labour courts have ruled that a labour relationship exists when an individual provides a personal service (i.e., services provided by one single individual that is not replaced by others) to someone else in a habitual and continuous manner, and the other party organises the services (i.e., the individual receives orders or instructions as to how to perform services), assumes the inherent risks of the activity (i.e., the individual providing the services does not assume this risk) and the individual does not have a business of his/her own (i.e., offices, other clients, employees, tools, etc.) and, therefore, cannot be considered an entrepreneur.
Other aspects that labour courts have also considered as evidence of the existence of a labour relationship are:
- Independent contractor has business cards with the principal’s letterhead.
- Independent contractor has a corporate email including the principal’s name.
- The company provides the independent contractor with working elements, such as computer, car, mobile phone, etc.
- Independent contractor performs services on an exclusive basis for the company (i.e., he/she does not have other clients).
- Independent contractor reports to company’s personnel.
- Independent contractor is paid a minimum guaranteed fixed amount and, therefore, payments are not fully subject or tied to sales, evidencing that the independent contractor is not assuming commercial risks for his/her activity.
- Independent contractor regularly attends to the company´s offices.
Please note that the contractor would not be required to prove each and every one of the circumstances listed above, but rather some of them, and a labour court would analyse those circumstances broadly to determine whether or not a labour relationship existed.
B. General Differences in Tax Treatment
Argentine Income Tax Law and Social Security Law set forth that the employee´s salary is subject to social security contributions and income tax.
Social security contributions are equal to 44% of the employee´s gross salary (27% as contributions made by the employer and 17% as withholdings borne by the employee).
Income tax withholdings range from 5% to 35% of the employee’s gross income, depending upon the amount of the employee’s gross income.
On the other hand, payments made to contractors are not subject to social security contributions; however they are subject to applicable taxes for commercial transactions (i.e. VAT, withholdings of income tax and gross income tax) depending on the contractor’s tax condition before tax authorities.
C. Differences in Benefit Entitlement
Argentine labour laws and applicable collective bargaining agreements are mandatory, very comprehensive and govern almost every term of the employment relationship. The employer is obliged to grant employees at least what is provided by labour laws and applicable collective bargain agreements. Therefore, the employer can grant employees benefits on top of what is provided by those laws and applicable collective bargain agreements, but cannot agree (with the employees) in detriment of what is provided by said laws and CBAs, nor can employees waive any right included in said laws and applicable collective bargain agreements.
Among the most common benefits that employees receive include:
- Employees are entitled to a 13th salary or statutory annual bonus. It is payable in two semi-annual installments, falling due on 30 June and 18 December, each installment being equal to 50% of the highest monthly salary accrued during the corresponding semester.
- Employers must pay a compulsory life insurance and labour risk insurance for all employees. Mandatory health insurance and pension is provided by local laws and is funded by employers’ and employees’ contributions.
- Employees are also granted sick leave, the allowance of which depends on the employee´s seniority and family burdens.
On the other hand, independent contractors are not entitled to any of the benefits provided to employees, which implies that the only legal protection they are granted, is that which would be obtained by any third party with whom the employer contracts for services.
D. Differences in Protection from Termination
Employees can claim payment of severance compensation as provided for in an unfair dismissal (dismissal without justified cause). Severance compensation for termination of the relationship, which broadly speaking would be equal to the highest monthly payment received by the independent contractor during the last 12-month period, multiplied by the number of years - or fraction of three months - worked (including the period of time that they have acted as independent contractors) plus one or two monthly salaries on account of compensation in lieu of prior notice.
Under Argentine labour laws, employees must be registered in Argentina as employees of an Argentine employer before the tax authorities and in the relevant employer’s labour ledgers. In case of lack or improper registration of the employment relationship (i.e. entry date, salary, fringe benefits), in the event of termination of the employment, the employee will be entitled to claim additional labour fines in his favour, on top of the aforementioned severance compensation package.
On the other hand, independent contractors are not protected from termination of the services provided, beyond the analysis which can be made in commercial matters, because of the conditions under which the service was terminated.
E. Local Limitations on Use of Independent Contractors
Argentina’s labour laws do not establish any limitation on use of independent contractors.
F. Other Ramifications of Classification
See tax and social security contingencies and liabilities for corporate directors mentioned below in point III. part d.
G. Leased or Seconded Employees
Argentina’s labour laws set forth that a company may lease staff through temporary services agencies, to the extent that the tasks performed are temporary and not permanent. When the tasks to be performed by the leased personnel exceed or do not constitute casual employment (i.e., a temporary solution), the leased employee would be entitled to formally demand registration as an employee as from the date in which he/she began providing services for the company, under the caveat of considering themselves dismissed on a constructive basis, if the situation would arise wherein the company should fail to comply. Legal risks will be described below in point III. sections c. and d.
H. Regulations of the Different Categories of Contracts
Argentina’s labour laws provide the following categories of employment contracts with the ensuing key features:
- Indefinite term is the rule;
- The trial period is up to 3 months. Termination during trial period can be decided without any compensation or severance payment liability for the employer (except for prior notice and the wages due);
- If employer terminates the employment without any cause and beyond the trial period, severance compensations must be paid or claimed by employee (seniority compensation, compensation in lieu of notice, etc.).
- Under a part-time job scheme, the employee commits to render services for a certain number of hours during the day, week or month, provided that said number of hours is less than 2/3 of the customary working hours within the corresponding activity;
- Salary cannot be lower than the pro rata compensation for an employee performing services on full-time basis;
- There is no cap for the number of employees to be hired part-time;
- Although it is not mandatory to execute a contract in writing, it is advisable to implement in such a way, any part-time employment agreement.
- This scheme requires as a “sine qua non condition” - a written contract in which the fixed term has been agreed between the parties;
- An extraordinary requirement is also required by law in order to duly justify a fixed term contract;
- Continuous use of such fixed-term contracts or in excess of legal requirements, will automatically convert it into a permanent labour contract;
- Maximum term of 5 years, but only if the above-mentioned requirements are duly complied with;
- Advance notice of termination is a very important item in a fixed term contract. The omission in giving such advance notice cannot be replaced by any compensation and will convert the contract into a permanent one (advance notice must be given no less than 1 month, not to exceed 2 months). The only exception is the fixed term contract with a duration of less than one month, in which no notice is required;
- Regarding the due compensations for terminating a fixed-term contract, if an unfair dismissal occurs before the agreed term is finished, the employee is entitled to the corresponding compensations plus a special compensation, which is usually determined by calculating the wages due to the agreed date of termination;
- If the term of the fixed contract ends, the sole termination of such period does not entail employer's liability to pay compensations, unless the period contract is over a term of one year. In such case, the employer must pay a severance compensation equivalent to 50% of a regular one;
- A fixed term contract has no trial period.
Contract for a specific activity (casual or temporary contract)
- This contract takes place when extraordinary and transitory production demands or requirements are foreseeable, although a specific term for the contract termination cannot be foreseen;
- This kind of contract will also take place when the relationship begins and ends with the specific job execution, or with the specific service for which the employee was hired to execute;
- There is no obligation to give any notice of termination;
- No severance payments or compensations are owed when the contract finishes;
- A written contract is required by law;
- The specific cause must be clearly described, as the employer must prove the temporary nature of the contract;
- No trial period is applicable;
- Term of this contract is capped at a maximum of 6 months per year and up to 12 months on a 3 year period.