Challenges and new legislation in the labor field: How to tackle the trend towards reducing working hours and low productivity levels in Latin America
In this article we look at the current working hours and those under discussion in Chile, Colombia, Peru and Mexico, and their implications on productivity levels.
Latin America has not been left out in the global trends towards reducing working hours, which have even led to countries such as Belgium, the United Kingdom (including Scotland and Wales) and Iceland, among others, implementing, or at least trying out in pilot programs, the four-day week.
All these countries have in common the undertaking to retain the full amount of pay that workers earn, and they hope that more free time and a better work/life balance will increase productivity, and ensure the viability of businesses.
The Organization for Economic Cooperation and Development (OECD) has published reports from which we have been able to understand, globally, that the relationship between productivity and length of working hours is not always directly proportional, since there are cases such as Colombia, Mexico and Chile, where it is concluded that, although they are among the countries with the longest working hours, they have low productivity levels.
Colombia, Peru and Mexico currently have a 48-hour maximum weekly working hour limit, which is around eight hours longer than the maximum working hour limit in place in the most productive countries worldwide, namely, Ireland, Luxembourg and Denmark.
Despite this, in Mexico there is a strong trend and bills are under preparation seeking to reduce the maximum working hour limit, which is already a reality in Colombia and Chile.
Despite the recent approval of a law reducing the maximum weekly working hour limit to 40, Chile currently has a 45-hour maximum weekly working hour limit, and, even so, it is among the countries with the lowest productivity levels worldwide.
How should countries tackle the trend towards reducing working hours or actual reduction of working hours, in comparison with productivity levels?
This question may even fall short in view of the additional challenges faced in Latin America, where higher inflation rates have been recorded, along with higher minimum wages, which are not consistent with productivity levels, for which reason it is worth analyzing in further depth the scenarios arising in Colombia, Mexico, Chile and Peru.
Colombia: how should business models be adapted to the changes in the law on working hours in a way that will ensure stability and growth?
In 2021, the Colombian parliament approved Law 2101, which lowered the maximum weekly working hour limit from 48 to 42.
To mitigate the impact of the reduction, it was proposed to phase in the change to working hours, starting with a first reduction by one hour in July 2023, followed by a further reduction by another hour for 2024. In 2025, the maximum limit was to be reduced by 2 hours, to 44 hours, and lastly, the reduction to a 42-hour maximum weekly working hour limit would be achieved in July 2026.
The two years of transition that have run between the entry into force of the law and the first reduction (where the phased-in reduction option is elected) have allowed companies and businesses to anticipate the impacts, project the costs, and set up pay systems geared towards encouraging productivity.
Under Law 2101, with the reduction to the maximum weekly working hour limit to 42 hours, employers were to be exempt from allowing the six monthly family day provided for in article 3 of Law 1857 of 2017, and from allowing two hours a week at companies with more than 50 workers, for recreational, cultural, sports, or skill-building activities, as provided for in article 21 of Law 50 of 1990.
Now however, just after the first reduction to working hours has become a legal obligation in 2023 (or the option to elect the advanced reduction to 42 hours), a new bill is going through parliament (the Labor Reform), which seeks to remove the exemptions from the two obligations mentioned above, and brings with it an additional burden that Law 2101 had changed, precisely to soften the impacts of the reduction to working hours.
This is in addition to the potential increase in the costs of payments of bonuses for working night shifts and on Sundays and public holidays, the option for workers to request flexible working hours to meet caring responsibilities in their private lives, the 8-hour daily working hour limit, among other new provisions that the Labor Reform puts forward to be discussed in relation to working hours. Although the debates on the reform are at a preliminary stage, it is always recommendable to seek strategies which, in the short, medium and long term, aim to increase companies’ productivity, to make more bearable the changes to the legislation that ultimately affect legal stability.
Therefore, the reply to the question related to how to tackle the reduction of working hours now provided for in the law, and any further change that may arise from the labor reform, lies in productivity. Systems need to be adopted that seek to increase the efficiency with which labor is combined with the other factors of production, to maintain economic activity and enable businesses to survive.
Mexico: working hour reduction initiatives under discussion
Mexico’s situation is no different from that of other countries in the region that aspire to reduce working hours; however, despite the existence of multiple initiatives, in Mexico reform bills have been submitted which have yet to be debated and approved. So far in the term of the current legislature (in other words, between September 1 and February 28 2023), six reform initiatives have been put forward.
Most of the reform initiatives provide for a reduction of between 6 and 12 weekly hours, which would imply a working day of between 6 and 7 hours at most. A few proposals suggest lowering the number of working days so as to have two mandatory weekly rest days for every five working days.
None of these initiatives are expected to go any further, because they would have a strong impact on the cost of labor at legally established companies.
Currently, there are three types of working hours under Mexican law: daytime, nighttime and mixed. Their maximum limits are eight, seven and seven and a half hours, respectively. For every six days worked, one rest day must be given to the employee with the right to receive their full salary.
In extraordinary circumstances, working hours may be extended although never by more than three hours in a day or three times in a week. The hours are paid with an additional percentage on top of the salary relating to the amount of time worked. If the limit equal to three hours three times a week (nine hours) is overstepped, any hours worked over and above that limit are paid with an additional salary payment for the worked hours equal to two hundred percent.
Mexico has ratified ILO Convention 30 on hours of work (commerce and offices), which establishes that hours of work cannot exceed 48 in a week and eight in a day. This convention is supplemented by the Reduction of Hours of Work Recommendation, 1962, which, although it is not binding, provides important application guidelines.
The recommendation determines the principle of the progressive reduction of normal hours of work, according to which the normal hours of work should be reduced progressively, when appropriate, and according to national conditions and practice and to conditions in each industry, without any reduction in the wages of the workers when the hours of work are reduced.
On that basis, to introduce a reduction to working hours, the Mexican government will be required to consult the most representative employer and employee organizations to determine the stages for bringing it into operation, the maximum limit on working hours, exceptions to the reduction and the restriction and, the compensation for overtime.
A dialog between employer and employee representatives will allow the economic impact of a potential reduction to working hours to be known, especially if it is considered that, starting in January this year, the number of vacation days was increased, from six to 12 days in the first year, adding two days for each year worked until the worker reaches 20 days for the fifth year, and after that, adding two days for every five years worked. After adding the vacation bonus (which is at least 25% for each day of vacation) and the need to hire temporary staff to replace employees on vacation, it becomes apparent that there will be a substantial increase to the cost of labor in Mexico starting in 2023, and therefore we believe it is unlikely that the legislature will approve an extra burden for companies in the near future.
Chile: changes to working hours approved by the legislature
On April 11, 2023 the Chilean parliament approved a bill sponsored by the government, which limits the weekly working hours to 40, distributed over at least four and not more than six days.
The approved bill has to be enacted by the Executive and published in the Chilean Official Gazette.
With respect to exemptions from the working hour limits, particularly for workers who are not overseen in their work by an immediate superior, an agreement will be required between the parties and that agreement will have to relate to the needs associated with the nature of the services that are provided, limiting application of the legislation in force on this subject.
The approved bill moreover establishes flexible working hours as alternative working hours in cycles of up to 4 weeks, where the weekly working hours may go up to 45 hours, although the average number of hours in an agreed cycle cannot go above 40. It also allows agreements on the compensation of overtime with extra days of vacation in the year and creates benefits involving additional days of vacation in certain situations.
It also provides the option of agreeing to a four-day working week, followed by three rest days or “4 x 3 working hours”. As an exception, these working hours may be implemented on or after the publication date of the law, for which it is required that the weekly working hours do not exceed 40 hours and the daily working hours do not exceed 10 hours of work.
Moreover, employers will have to implement attendance and time tracking systems in line with the requirements that will be determined by the Labor Directorate in this respect.
Any exceptional working hours authorized by the Labor Directorate may exceed the average 40-hour weekly limit for the cycle, capped at 42 hours. That excess time may be compensated with additional rest days on top of the legal vacation, within an annual period.
The bill will come into force one year after its publication date in the Official Gazette. There is an exception to the above for the “4 x 3 working hours”, which may be implemented from the publication date of the law.
Without prejudice to this, in relation to the weekly working hours and the weekly work cycle system, the approved bill provides for gradual implementation, in which the reduction to 40 weekly hours will be completed in the fifth year following the entry into force of the law, namely, running from the publication date in the Official Gazette (44 hours in 2024 in the first year; 42 hours in 2026 in the third year and 40 hours in 2028 in the fifth year).
Implementation of the bill will come with a significant cost to employers, because the reduction to working hours cannot affect the workers’ pay, and therefore they will have to receive the same wage, although now under a system requiring fewer working hours than at present.
With respect to jobs that have to be covered at all times at the workplace, such as security guards or operators of machinery that has to run continuously, the reduction to working hours will imply an increase in the number of people needed to cover the job on a permanent and continuous basis. Moreover, the changes proposed by the bill will have an impact on the types of working hours currently existing in the Chilean legislation, including exceptional working hours, which could imply the need to increase companies’ costs in respect of having new shifts and more staff.
Peru: potential amendments regarding timetables and working hours
In Peru, the maximum regular daily working hour limit is eight, which is above the average in the region. This limit enshrined in the Constitution entitles the employer to establish, at its choice, daily working hours distributed in timetables within the legally stipulated maximum limits, according to its operational needs.
As a formal obligation under the labor legislation, and for the purpose of monitoring fulfillment of the maximum limits mentioned, employees are required to record the times they enter and leave the workplace. Any excess over the stipulated limits creates for employees the right to receive an extra amount equal to 25% of the hourly wage for the first two hours and to 35% of the hourly wage for the other hours. It needs to be noted that overtime is voluntary with respect to the requirement to work the hours and their payment.
Currently, the trend towards reducing working hours is not unknown in Peru. Recently various legislative proposals have been put forward geared towards including new criteria which would increase the cost of the hourly wage. The Peruvian parliament has been evaluating two bills related to working hours and overtime which, if approved, could have a significant impact on the generation and determination of labor costs by employers.
A first proposal seeks to include the worker’s break time – at least 45 minutes – in working hours, substantially reducing the amount of time of actual work. The inclusion of breaks in working hours, far from meaning a minimum cost for the employer (as reported in the economic analysis in the bill), directly affects workers’ productivity, and with it the labor costs assumed by the employer because it will create a reduction to working hours.
If this proposal is approved, working hours will be reduced by almost 10% without bringing a proportional reduction to the pay level or other associated labor costs.
In this same vein, another of the most recent proposals seeks to include in daily working hours a 20-minute “mini-break”, a period in which workers are exempt from having to perform any work or activities related to work. It is suggested that “mini-breaks” or “active breaks” could have a positive impact on workers’ health by reducing their working hours, breaking up the monotony of physical and mental tasks that this entails, which they consider could have a direct implication for increasing the productivity of companies, according to the promotors of the bill.
However, there are certain “loopholes” in relation to its application and its possible inclusion in operations, due to a lack of clarity over whether the time relating to the “mini-break” may be distributed across their working hours, whether it may be used in blocks or what the supervision mechanisms will be for this mechanism.
As we can see, the debates and legislative proposals seek, primarily, to reduce working hours with the aim - quite well concealed in a few cases – to encourage some form of work/life balance, or provide better conditions for workers’ health.