Latin America severance calculator

When a US company prices a nearshore hire, it usually looks at the monthly salary and stops there. The salary is the visible cost, and it is what most comparisons lead with. But the full cost of an employment relationship includes how it ends. Across Latin America, the law gives workers a statutory severance when an employer ends an indefinite contract without just cause, and that obligation is a real number you should plan for from the start. Ignore it and a parting that should have been routine becomes a cash surprise, sometimes a large one, and occasionally a labor dispute.

The good news is that severance is knowable in advance. Each country fixes the formula in its labor code, so once you know the rule for a market and the worker’s tenure, you can budget the figure to the dollar. The calculator above does exactly that: choose a country, enter a salary, set a tenure, and it shows the statutory cost in months of salary, in real money, and broken down line by line so you can see what drives it. The sections below explain how the rules differ across the region, where the cost runs highest, and how the way you hire changes who carries the risk.

To complete the picture, pair this guide with the hiring cost calculator for total cost versus a US hire, the 13th month pay tool for the recurring year-end bonus, and the EOR versus contractor guide for how your hiring model decides whether you owe severance at all.

The biggest mistake when comparing severance across the region is assuming the formulas work the same way. They do not, and the differences matter. The most common shape is a per-year rate: Peru pays 1.5 months of salary for each year of service up to a 12 month cap, Argentina and Guatemala pay one month per year, and Chile pays one month per year after the first year, capped at 11. In these markets the cost grows in a straight line with tenure, so a short hire is cheap to end and a long one is not. Argentina and Chile add a notice payment on top, which lifts the total by one to two months.

A second group starts with a flat floor. Mexico owes a constitutional indemnity of three months regardless of tenure, plus 20 days of salary per year, so even a hire who leaves inside the first year is expensive to part with. Ecuador works the same way, with a three month minimum for up to three years of service, then one month per year plus a 25 percent dismissal bonus for each year worked. In flat-floor markets the per-year growth is gentler, but the entry cost is high, which is why hiring well the first time matters most there.

Brazil is the exception that confuses people. It funds severance during employment rather than at the exit. Every month the employer deposits eight percent of salary into the worker’s FGTS account, so the money is set aside as you go. When a no-cause dismissal happens, the termination-specific cost is mainly a 40 percent penalty on that fund balance, plus prior notice. That makes the one-time exit cost in Brazil look low next to its neighbors, even though the worker has been accumulating protection the whole time. When you compare countries, line up the structure first, because a number that looks like a simple severance in one market is a fund penalty, a tabled schedule, or a flat floor in another.

When you employ someone in their home country, that country’s labor code sets the floor, and statutory severance is part of that floor. You cannot pay less than the legal minimum, and getting the calculation or the timing wrong can turn an ordinary parting into a claim. The practical question is who carries the obligation. If you set up your own legal entity in the country, your company runs payroll and owns the severance calculation, the payment, and any dispute that follows. Most teams hiring a handful of people instead work through a partner so they get the talent without standing up foreign payroll and learning ten different termination codes.

With a managed staffing partner or an employer of record, the partner is the legal employer in the country and handles the severance, the notice, the final settlement, and the filings that go with a termination. You direct the work day to day, and the compliance underneath the relationship is the partner’s responsibility. That model is how most US companies hire from Latin America at small scale, and it is what keeps the figures in this guide from turning into a legal project on your side.

LavaStaff works this way. We carry the local employment relationship, including severance and the rules around ending a contract, so you can hire across the region with one point of contact and a clear cost. You focus on the work and the relationship; we make sure the compliance underneath it is sound, including when a role comes to an end.