Argentina’s National Executive Branch has formalized regulations for Title II of the Labor Modernization Act No. 27,802, mandating that private-sector employers establish Labour Assistance Funds (FALs) to cover future severance obligations. These funds, managed through National Securities Commission (CNV)-authorized investment vehicles, must be operational by November 1, 2026. According to the government decree, the system aims to standardize severance payments while providing tax-deductible relief for employers, excluding public-sector entities and specific exempted categories from the mandate.
How will Labour Assistance Funds (FALs) function for employers?
Employers are required to maintain an Individual Employer Account for their workforce, which functions as a non-attachable, pooled fund held by a CNV-authorized entity. Under the regulations, these accounts are not tied to specific employees but serve as a reserve for severance liabilities. Employers must report a unique account identifier to the Customs Collection and Control Agency (ARCA). Contributions are processed as part of the Unified Social Security Contribution, and the government explicitly states that the state bears no liability for the fund’s performance or any insufficiency of assets.
What are the tax implications for businesses and employees?
The regulatory framework provides specific tax incentives to encourage compliance. According to Section 60 of Law No. 27,802, employer contributions to the FAL are fully deductible for income tax purposes. Furthermore, investment returns, interest, and dividends generated by these pooled funds are exempt from income tax. For employees, the severance payments received from the FAL are taxed under the same criteria as traditional indemnification payments, ensuring that the transition to this new model does not alter the net tax burden on the worker at the time of termination.
How does the new regime compare to traditional severance?
Unlike the traditional “pay-as-you-go” model of severance, where liabilities are often settled from cash flow at the time of termination, the FAL model requires pre-funding. This shift mirrors international trends in labor flexibility, such as the “severance fund” systems seen in parts of Europe and Latin America. While traditional law required employers to carry the full weight of severance at the moment of exit, the FAL system allows for a gradual, monthly accrual. However, the regulations note that FAL coverage is limited to “registered” employees; if an employer has deficient registrations, they remain liable for the full amount under standard labor law.
Who is responsible for enforcement and oversight?
Compliance oversight is shared among three primary agencies: the Secretariat of Labor, Employment, and Social Security (STEySS), the ARCA, and the CNV. These agencies are tasked with establishing a joint information-sharing mechanism to monitor contributions and detect noncompliance. If an employer fails to meet funding obligations, the STEySS is empowered to assess administrative fines under the framework of Law No. 18,695, with ARCA handling the actual collection through tax enforcement proceedings.
Frequently Asked Questions
Are public-sector employees covered by these funds?
No. The regulations explicitly exclude public-sector employment relationships as defined under section 8 of the Financial Administration Act No. 24,156.
Can FAL contributions be offset against other taxes?
No. FAL contributions cannot be offset against any other tax, customs, or social security obligations, according to the regulatory text.
What happens if a fund has insufficient money to pay severance?
The national government and ARCA have disclaimed any liability for the unavailability or insufficiency of funds. The employer remains responsible for fulfilling severance obligations under the Employment Contract Law.
Is there a cap on management fees for these funds?
Yes. Fees charged by authorized entities for managing the FALs are capped at a global maximum of one percent per year on total assets under management.
Are you preparing your firm for the 2026 labor reforms? Subscribe to our newsletter for ongoing updates on Argentine labor regulations and compliance strategies.
