There are many differences in mandatory contributions as a percentage of the payroll across Latin America. While in Argentina over 45% of payroll is composed of social security contributions, in Peru or Venezuela this figure decreases to 22.5%. Mandatory contributions include those for pensions and health insurance and in some countries, for family benefits, work injury and unemployment insurances.
The proportion of the contributions paid by employers or employees is also quite different across these countries. Argentina is the country with the highest percentage of contributions coming from the employer (30%), followed by Brazil (27.8%), Colombia (25.02%), Venezuela (17%) and Peru (9.6%). Chile has the lowest employee contribution at 4.1%. It is worth noting that in Chile, employers do not have to contribute to pensions or health insurance. These are the responsibility of the employees themselves. Similarly, in Peru employers do not have to make pension contributions.
In terms of contributions paid by the employee, Chile shows the highest rate of 20.6%, followed by Argentina (17%), Peru (13%), Brazil (9%), Colombia (8%) and Venezuela (5.5%).
Social security contributions cover pension, health, work injury and unemployment insurances and family benefits.
The actual employer contribution rate depends on the firm’s size and its main activity.
Employer contributions are not capped. Contributions are made by the employer monthly when the employee’s salary is paid. The employer must declare taxable earnings and corresponding contributions to the tax authorities.
The actual employee contribution is unique for all type of workers (17%) and is automatically deducted from the employee’s salary by the employer on a monthly basis and is composed of the following:
The overall monthly salary cap on the employee’s contributions is 81,918.55 Argentine pesos (US$4,746.14).
On 13 November 2017, the Argentine national government sent Congress a series of measures to modify social security contributions, encourage greater investment, promote the creation of employment and fight against tax and labour evasion. One of the proposed measures is a gradual implementation of a minimum non-taxable amount of 12,000 pesos (U$S 701.10). As of 2018, the first 2,400 pesos (US$ 140.22) of gross compensation will not be subject to pension contributions. By January 2022, this amount will reach 12,000, and will be updated in accordance with the consumer price index and in line with inflation.
This measure seeks to reduce the hiring of lower-skilled workers, reducing the implicit incentive of social charges to operate outside the law through unregistered employment.
At the same time, proposals have been put forward for a gradual unification of the applicable rate of the employer’s pension contributions eliminating the current differences on the contributions by a firm’s size and its main activity.
In this regard, the employer’s contributions to the pension system will be unified at 19.5%, (from January 2022 onwards), replacing the current 17% and 21% rates. In practice, this will increase the pension contributions for companies whose main activity consists of primary and secondary production (currently 17%). It will decrease for those engaged in services (currently 21%).
Social security contributions cover allowances for sickness, disability, maternity leave and pensions in Brazil.
The actual employer contribution rate corresponds to approximately 27.8% of the employee’s salary. It can vary, however, between 26.8%, 27.8% or 28.8%.
Employers are legally required to make social security contributions based on the employee’s pay plus all benefits granted as part of their salary.
Contributions are paid to the National Social Security Institute and there is no cap on the contributions payable by employers.
In addition, employees must contribute a percentage of their pay, varying from 8%, 9% and 11% depending on their pay level. It is always capped, however, at a maximum contribution, which varies based on the minimum wage. As of 1 January 2017, this cap is 608.44 Brazilian reais (US$197.14).
The contribution payable by employees is taken from their monthly pay. The employer must pay this amount to the government, together with its own contribution by the 20th day of the following month.
In Chile, social security contributions cover pension, health, work injury and unemployment insurance.
Chile is the only country out of the six included in this article where the employer does not have to contribute to pensions or health insurance.
All employees must pay approximately 13% of their salary into a pension fund, which is paid into an individual account. Employees must also pay 7% of their salary towards health insurance. These contributions are withheld by the employer from the employee´s monthly salary and paid directly to the pension fund administrators and healthcare institutions.
There is a limit on contributions payable from the employee’s income to the pension fund. The monthly income considered for this purpose is equivalent to 75.7 “inflation Indexed Units” (UF), which is comparable to approximately US$3,149.68. In terms of health insurance, the same limit applies, however, employees can purchase a more expensive health plan, in which case they will pay a higher amount.
Regarding the actual employer’s contribution rates, the law states that the employer must provide insurance against labour accidents and professional illness. The contribution rates are as follows:
The law on unemployment insurance establishes that both the employer and the employee must contribute as follows:
There is also a limit on these contributions for unemployment insurance based on the employee’s income. The monthly income considered for this purpose is equivalent to 113.5 UF, equivalent to approximately US$4,719.46.
Social security contributions cover pensions, health and labour risks in Colombia.
Every employer must ensure its employees are affiliated with the General Social Security System and make monthly contributions based on the employees’ monthly wage.
Contributions are calculated as follows:
The minimum earnings used to calculate contributions are one monthly minimum legal wage, and the cap is 25 monthly minimum legal wages. The date of payment of contributions varies according to the employer’s ID number.
Note that if variable pay (non-salary benefits) exceeds 40% of the employee’s take-home pay, the excess must be added to the base salary when calculating social security payments.
Social Security contributions in Peru cover pensions and the National Health System (work injury insurance is mandatory in certain industrial activities).
In relation to pensions, employees are entitled to choose the system into which they will contribute, namely:
Both systems cover disability, retirement and the beneficiary of the employee’s pension.
Employees pay the contributions and the employer must withhold the percentage from the employee’s remuneration. On the other hand, the Peruvian Social Security (EsSalud) is responsible for health services. In this system, the contribution rate payable by the employer is 9% of the employee’s salary.
Contributions also cover allowances for temporary disability and maternity leave.
Regarding the National Health System, the private sector participates in providing medical services through Health Care Providers (EPS). In this system, the employer pays a contribution rate of 9% from the employee’s salary. However, the employer divides the payment as follows: 6.25% corresponds to EsSalud, and 2.75% to the EPS. However, the EPS will only provide certain services, the ones which are most common and at the same time less complex, while the most frequent and more complicated services are provided by EsSalud.
Work Injury Insurance: when the employer’s main activity is considered a high-risk activity, specialist work injury insurance should be provided. The contribution rate is an average of 0.6% of the employee’s salary.
In Venezuela, employers must ensure their employees are affiliated with the social security system, which is mainly composed of:
Employers must pay a portion of the contributions to the Social Security System and also deduct a portion from the employee’s remuneration. An outline is as follows.
As the above will clearly show, social security contributions rates across South America can vary greatly, emphasising the importance of having a clear understanding of the many differences to ensure compliance with the law across each jurisdiction.