Employment Severance Fund Set to Kick Off in Argentina

The Fondo de Asistencia Laboral (or “FAL” as it is known) is a significant aspect of the Milei Administration’s Labor Modernization Law enacted in March of this year.  After a six-month delay, the FAL will become available to Argentine employers beginning December 1, 2026. One year after an employer begins to fund the FAL, those funds will become available to cover employee termination payments. The FAL is mandatory for employers, subject to certain statutory exclusions. The applicable contribution rate is 1% for large companies and 2.5% for micro, small and medium-sized enterprises, calculated on remuneration subject to employer social security contributions. Employers may also make additional voluntary contributions. The following paragraphs summarize the key points every employer should know about the FAL. 

The FAL is a managed investment fund maintained with a bank or other qualified institution, the proceeds of which are earmarked to cover statutory severance (e.g., termination without cause or upon an employee’s death), as well as amounts payable under a mutual separation agreement. The FAL is funded through redirecting part of an employer’s social security contributions, which, until now, have been paid over entirely to the government.  

The FAL allows employers to allocate 1% (large-cap companies) or 2.5% (micro and SMEs) of their social security contributions to the FAL. This allocation avoids any increase in payroll costs. An employer may elect to make additional contributions, but those additional contributions may not come from a reallocation of the social security contributions. The FAL manager will invest the funds in local instruments, including listed securities.  

For more information on how the FAL works, please see our previous articles here and here (the second link in Spanish only).

On October 20, the government issued an executive order to announce two changes to the FAL: 

• New Start Date: The program’s start date was moved back to December 1, 2026. According to the government, this allowed time to implement and test processes and IT systems required to coordinate several government agencies. 

• Longer Funding Period: The time in which an employer can begin to draw on the FAL was extended from 6 to 12 months, beginning with the month of the employer’s first payment.

Each employer must select an institution qualified by the Argentine Securities Commission to manage the funds.  

As of the date of this article, the Commission has not published a complete list of authorized institutions. Nonetheless, many banks and brokerage firms are already competing for the business. Management fees are capped by law at 1% per year over the managed assets.

Your FAL asset manager will assign a FAL ID to link the employer’s tax identification number (CUIT) with the asset manager and the account. The employer must share this FAL ID with its payroll administrator for set-up with the Federal Tax Authority. Thereafter, the monthly contributions can be directed to the managed FAL account. The employer shall be entitled to use those funds for the limited purpose of employee termination payments after the 12-month funding period.  

If the employer fails to select a qualifying asset manager and to obtain the FAL ID, any employer contribution to the FAL will remain temporarily unallocated until corrected. If the employer fails to correct after one month, the Argentine Securities Commission will assign the employer an authorized FAL manager.

No. All principal and any income or interest paid on the funds are reserved for making payments to terminated employees. Employers may seek a halt in their mandatory contributions to the FAL if the accumulated balance is sufficient to cover potential employment obligations for their workforce. Such a request requires approval by the relevant labor authority.