Argentina: Employer-friendly labor reforms under consideration

Employer Action Code: Monitor

The Argentine government recently proposed wide-ranging reforms to the Employment Contract Law (Law No. 20,744 – LCT) and broader employment relations framework. The proposal includes several employer-friendly measures, such as reductions in employer social security contribution rates, more flexible rules on working time arrangements (including the introduction of hour-bank systems for overtime) and clearer rules for calculating severance payments.

Key details

Proposed changes include:

• Reducing employer social security contribution rates for retirement, death and disability benefits from 18.0% or 20.4% (depending on economic sector and annual revenue) to 15.0% or 17.4% of covered pay, respectively. In addition, the employer healthcare contribution rate would be reduced from 6.0% to 5.0%
• Excluding non-recurring pay (e.g., 13th month bonus, vacation pay and annual performance bonus) from the severance calculation basis. Severance would be calculated on the highest normal and recurring monthly salary in the 12 months before termination - capped at three times monthly average pay for employees covered by the applicable collective bargaining agreement (CBA), as currently provided. Recurring variable pay (e.g., overtime and commissions) would be included, averaged over the last six months (12 months if more favorable to the employee) but only if paid monthly for at least six months in the prior year
• Giving employers the option to establish a “Labor Assistance Fund” account to pre-fund termination payments (e.g., pay in lieu of notice, severance). The account would be arranged with financial institutions in the employer’s name, funded by redirecting 3.0% of employer social security contributions to the account. The accumulated balance would be available to cover termination payments, with any shortfall borne by the employer. Investment returns on the accounts would be exempt from corporate income tax. Employers would be able to contribute to the funds at a higher rate but without any further reduction in social security contributions
• Allowing flexible working hours arrangements based on average working time to be established by company-level CBAs, in addition to sectoral-level CBAs (as currently provided). This would be subject to the statutory rest period of at least 12 hours between workdays and weekly rest of at least 35 hours. Moreover, employers would be allowed to introduce time-bank arrangements under which overtime may be compensated with paid time off on another workday in lieu of overtime pay, subject to employee agreement
• Introducing a so-called “dynamic wage” system to allow employers to provide incentive-based, fixed or variable allowances linked to productivity, merit, individual or organizational performance on top of base salary, either unilaterally or through company- or sector‑level CBAs. Currently, minimum wages and pay increases are largely inflation-based and set through sector‑level CBAs, which the government argues limits employers’ ability to adjust pay in line with business conditions. The reform aims to promote performance-based pay increases and to increase employer flexibility and discretion in determining incentive-based pay by giving precedence to company-level CBAs over sector-level agreements
• Permitting employers to pay employees in foreign currency, subject to employee/employer agreement
• Revoking the teleworking/remote work regime provided by Law No. 27,555 of 2021
• Expanding the list of fringe benefits excluded from social security contributions to include subsidies for onsite cafeterias and meal services, uniforms and work tools (e.g., company cellphones, laptops and cars) used solely for business purposes

Employer implications

The reforms would reduce employer labor costs and increase flexibility in the management of employment terms, particularly in relation to social security contributions, working time arrangements, compensation and termination, which have been long-standing concerns among employers. The feasibility and practicality of some of the reforms are, however, inextricably linked to the chronically high rates of consumer price inflation in Argentina. Annual inflation fell to 31.5% in December 2025, the lowest it’s been since 2017, but inflation would need to be much lower and much more stable for the dynamic wage system to work as intended. Similarly, saving 3.0% of payroll to meet future termination costs may be helpful to employers, as long as those savings are not rapidly eroded by inflation. The proposals are controversial and have already prompted opposition from labor unions. The administration needs its conservative allies in congress to agree to the reforms, so prospects for approval are mixed.

Contacts

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Marcela Angeli

Director, Work & Rewards

email Email

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Romina Batistoni

Consultant

email Email phone +54 11 5218 2136

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