The Elephant in the Room: Contractors, EOR and Worker Misclassification in Argentina

Your best engineer in Buenos Aires has been invoicing you as a contractor for three years. One day they send a message: "I've been behaving like a full-time employee. I should have been one." What do you actually owe them?

That's the scenario Gabriel Benmergui, Silver.dev's founder, walks through in the video. It's the question almost every US founder hiring in Argentina eventually asks, and his answer is more nuanced than either "don't worry about it" or "put everyone on an EOR."

Almost everyone hires contractors

Gabriel starts with how the market really works:

"I would say that about 95% of startups and companies that hire in Argentina do so through contractor relationships, not through EOR."

An EOR (employer of record) is a company that formally employs your engineer in their country on your behalf. That makes them a full-time employee under local law, with payroll taxes and benefits. A contractor invoices you directly, or through a payroll provider, and handles their own taxes.

What worker misclassification means

Founders already know the US version of this, the W-2 versus 1099 split, and they know it has real ramifications. Argentina has its own rules, and it's easy to assume they work the same way.

The idea is the same: "if someone is supposed to be registered as a full-time employee, they should not be a contractor." If you call them a contractor anyway, "you're not representing your legal relationship with the talent correctly," and that can lead to a lawsuit or a compliance issue.

The risk Gabriel describes is specific. A contractor claims they were really an employee all along: "so now all the benefits you haven't paid in the last three years, you should be doing it." That back pay is the liability.

Why a lawyer says EOR, and the market says contractor

If you ask international counsel, the answer is simple. To remove the liability completely, put people on an EOR or set up your own entity and hire them as employees.

Most companies don't, "because simply it's way more expensive. It's just you're paying upfront the potential cost of a lawsuit later on." To see how big that gap is, our contractors vs EOR comparison for Argentina runs the numbers for the same take-home pay.

Here's a way to think about it. An EOR is like buying insurance against a lawsuit by paying the full premium every month. The comparison breaks down in one important way, though: with most insurance, the risk you're covering is one that actually happens to people.

Why these lawsuits rarely happen

Gabriel's point is that the liability "is theoretically correct, but it's not very common to be exercised. These lawsuits do not really exist in software engineers."

The reason is incentives. Contractors in Argentina are tax-advantaged. If an engineer pushed to be reclassified as a full-time employee, "they would also owe back taxes and they will also face like lower compensation." So in practice both sides want the same thing: "contractors and companies want the relationship to be represented as a contractor."

We've written more about how this plays out, including what tends to come up in due diligence when you raise later rounds, in Understanding Worker Misclassification When Hiring Software Engineers Abroad.

The risk is still real

Gabriel isn't saying the risk is zero: "by the letter of the law, there is a compliance issue." A contractor agreement doesn't fully represent what the working relationship really is.

He gives two clear signs that it's time to rethink your setup:

• Team size. "Companies that hire 20, 30, 50 people should go through an [employer] of record deal or just go full-time employees." At that scale, the exposure adds up and investors will notice.
• Tenure. "Companies that have people for like five, eight, 10 years, they need to start considering limiting their liabilities eventually." The longer someone works like an employee, the stronger their case would be.

If you have a handful of engineers and a young company, contractors are the norm and a reasonable choice. If you're past those thresholds, treat it as a real compliance item, not a theoretical one.

Where Silver.dev fits

For most early-stage teams, contractors are the right starting point, as long as they're paid and onboarded properly. Our Agency of Record handles contractor payroll, onboarding, benefits and compliance, and helps reduce misclassification risk without the cost of an EOR.

If you're starting to hire in Argentina, see how we help you build your Argentina hub or talk to us.