What are statutory or mandatory benefits ?
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Mandatory benefits are crucial components of a company’s compensation package. An employer must abide by the country’s set of requirements and ensure that each employee is provided with minimum employment requirements.
Statutory benefits often differ from country to another. Navigating mandatory and non-statutory employee benefits can be very confusing, especially when the company has a distributed workforce.
The following article will help you understand what is mandatory benefits and what are the typical statutory benefits in LATAM ⬇️
Mandatory benefit meaning
Employee statutory benefits are any forms of compensation, in addition to base salary, which are required by law.
Statutory benefits are non-negotiable employee rights and varies by country, region, economic union membership, industries, or worker categories. They typically are related to basic employee rights as paid time off, leave entitlement, and other contributions to statutory social security schemes.
On top of statutory benefits, the employer can provide their employees with supplemental and fringe benefits. This are often used to address employee needs and improve retention. Unlikely mandatory benefits, employers are not required to provide these benefits.
Learn more about
- Employee Supplemental Benefits
- Employee Fringe Benefits
- Global Employee benefits – Our Guide
Key takeaway
What are the differences between statutory and non-statutory or fringe benefits?
There are several distinctions between mandatory and non-mandatory or fringe benefits. Here are the main differences between both benefits:
Purpose: The main purpose of statutory benefits is to protect employees and ensure they receive certain minimum benefits. On the contrary, supplemental benefits is designed to complement the basic benefits and help the company to foster a positive corporate culture.
Legal: Statutory benefits are a legal requirement and the employer must stay compliant by offering them. Supplemental benefits are optional and provided voluntarily by employers.
Compliance: Non-compliance with mandatory benefits can lead to serious legal consequences for the employer as costly lawsuits and fines. On the other hand, employers does not have any obligation to offer supplemental benefits.
Consistency: Mandatory benefits are consistent for all employee in a country, region, or industry. They may also be governed by collective bargaining agreements and workers’ categories. Supplemental benefits can differ from an employee to another to meet the specific needs of a business.
Common types of mandatory benefits in LATAM
Statutory benefits vary from a country to another. There is no global standard, however there are many similarities between countries of the same region. The following benefits are fairly common in Latin America:
Leave entitlements
Leave entitlement allow employees to take time off work while being paid. Common leave entitlements include vacation, public holidays, parental leave, and sick days. Other forms include time off taken for bereavement, marriage, birth, or adoption of a child.
In Brazil, the law requires the employer to grant 30 days of holidays to employees after completing a year of work. Employees are also entitled with other leave as maternity, paternity or adoption leave. Know more about holidays and leave entitlements in Brazil.
13th-month salary
13th month salary, also called 13th month pay or Christmas Bonus, is an extra paycheck usually paid at the end of the year. In various countries, this benefit is included in the supplemental benefits package. However, in Latin America, most countries legally introduced the 13th month pay as a mandatory benefit.
For instance, in Mexico, the 13th month pay is a fundamental Mexican labor law requirement. This 13th month pay called Aguinaldo is equivalent to a minimum of 15 days of salary. Employees who did not work for an entire year must be compensated based on an amount proportional to their time in the company.
Vacation bonus
Vacation bonus or paid time off bonus is quite common is Latin America. In addition to the time itself, employees receive a bonus when they go on leave. It complements the employee’s regular income.
In both Brazil and Mexico, employees are entitled to a vacation bonus. Calculation are different. For instance, in Mexico, the bonus called Prima is at least 25% of the employee’s pay. In Brazil, the ratio is 1/3 of the employee’s pay and must be paid before the employee goes on leave.
How to effectively manage mandatory benefits on a global scale?
Understand legal requirements
When managing a distributing team, you’ll have to navigate statutory benefits in various countries. This is often confusing and overwhelming but critical as non-compliance can results in fines, penalties or potential legal actions from local employees.
To have a clear and concise understanding of local legal requirements, you can check our benefits guides.
Discover how to manage your global compensation strategy.
Clear communication
Once you have a perfect understanding of what are the mandatory benefits in each country you operates, ensure a clear and transparent communication with your team members. It will help employees to understand their rights and it will help you create unique and fair benefit package for each talent you hired.
Get help from local experts
Managing mandatory benefits in multiple countries is more than tricky for small and medium businesses that do not have a large HR department with local experise. That why, managing mandatory benefits in many countries generally requires the expertise of local employment experts such as an Employer of record.
Handling mandatory benefits for a global team with Europortage
Manage mandatory benefits for a global team is complex especially when it comes to compliance. That’s why we recommend working with a direct and local partner like Europortage.
Our team of local experts is on hand to support you throughout the entire employee lifecycle, including time-off management. We can give you clear advice on mandatory benefits, in addition to handling employment contracts, payroll, and benefits. That way, you can focus on growing a world-class team and business.
Get in touch to find out more and start hiring top talent in Brazil and Mexico!
