The Labour Assistance Fund (FAL): How Argentina Finances Severance Now

Argentina has introduced something most employers arriving from Europe or North America will not recognise: a mandatory, privately administered fund into which employers contribute monthly, and from which employment severance is subsequently financed.

The Labour Assistance Fund is one of the more consequential features of the 2026 labour reform and one of the least explained outside Argentina. Two things about it are widely misunderstood: when it actually becomes usable, and what it costs. Neither answer is the obvious one.

What is the Labour Assistance Fund (FAL)?

The Fund, created by Title II of the Labour Modernisation Act and regulated by Decree 408/2026, is a mandatory private fund administered through collective investment vehicles — mutual funds or financial trusts — authorised and supervised by the securities regulator.

The statute is explicit on the point that generates most confusion: the regime does not modify, substitute or alter the severance regime. Article 245 of the Employment Contract Act remains the measure of what is owed. The Fund is a financing mechanism sitting underneath an unchanged obligation — it converts a contingent liability into a periodic contribution.

It should not be confused with the optional cease-of-employment fund introduced by the 2024 reform, which could be adopted through collective agreement but was never implemented.

When it starts — and when you can actually use it

These are two different dates, and the gap between them is the single most important operational feature of the regime.

The regime takes effect on 1 November 2026. It was originally due to start on 1 June 2026; Decree 408/2026 postponed it.

The Fund cannot be drawn on immediately. There is a minimum waiting period of six monthly periods, counted from the calendar month in which the tax authority records the effective integration of the employer’s first contribution, and covering six complete and consecutive accrual and payment periods. In practice, the Fund becomes available from the seventh monthly contribution.

There is a second gate. Coverage reaches only registered workers whose employment was registered at least twelve months before the termination. An employee dismissed at month eight is outside the system entirely, however diligently the employer has been contributing.

The combined effect: an employer starting contributions in November 2026 has no access to the Fund until mid-2027, and even then only for employees with more than a year of registered service. Every termination before that is paid in full from working capital, exactly as before.

What it costs today: nothing extra

This is the part that surprises foreign employers, and it is worth stating precisely.

The contribution rates are calculated on the social security contribution base — 1% for large companies and 2.5% for small and medium enterprises. But the contribution is not layered on top of existing charges. Decree 408/2026 established the mechanism the statute had left undefined: employers detract the Fund contribution monthly from the employer contributions otherwise destined to the social security subsystems — the retirees’ healthcare institute, the national employment fund, the pension system and family allowances — in the same proportion in which those contributions are distributed.

In other words, the money is redirected rather than added. As the regime currently stands, the Fund carries no additional payroll cost. What changes is where a slice of the existing employer contribution goes: into an account bearing the company’s name instead of into the general social security system.

Two qualifications belong here. First, this could change. The statute permits the Executive to raise the rates — to 1.5% for large companies and 3% for SMEs — and the offsetting reduction is set by decree, not by statute. An increase in the rate that is not matched by a corresponding increase in the deduction would turn a cost-neutral mechanism into a real charge. Second, the interaction with the reduced contribution rates available for certain new hires under the formalisation incentive regime needs to be checked case by case, since those relationships already pay well below the general rates.

How it operates

• Each employer holds an individual account, a separate, non-transferable and unattachable estate, identified by a unique code. The account is common to the payroll and is not broken down by employee.
• Before making the first contribution the employer must choose an authorised administering entity, select the investment vehicle and open the account.
• Contributions are declared together with the monthly social security obligations and channelled through the tax authority, which acts as the routing agent.
• If the employer fails to report a valid identifier, the contributions are retained provisionally and an entity may be assigned automatically after a month.
• Fund resources may only be invested in financial instruments issued and traded in Argentina.
• Employers may request suspension of contributions where they can demonstrate that the accumulated balance already covers their potential contingencies, and may transfer their funds between authorised entities.
• The State does not stand behind the Fund. Non-payment, unavailability or insufficiency of the balance generates no liability for the State or the tax authority — the employer remains exclusively liable to the worker.

What the Fund does not close off ⚠️

The most dangerous misreading of this regime is that a severance payment made through the Fund settles the matter. It does not.

The statutory severance is the sole remedy for the dismissal itself. It is not a release from everything that happened during the employment relationship. A former employee who has received a Fund-financed payment can still claim:

• Unpaid overtime, including hours worked outside any properly documented compensation arrangement
• Wage differences — the most common being an employee categorised below the level the applicable collective agreement required, generating a shortfall across the whole relationship and recalculating every derived item
• Differences in the severance calculation itself, where the base was built incorrectly
• Unpaid or incorrectly settled annual bonuses and accrued holidays
• Claims arising from registration irregularities — a late registration date, an understated salary, or a period worked as a contractor before the relationship was formalised. These reopen the analysis of the entire relationship and can carry damages claims of their own

None of these are claims about the dismissal. They are claims about how the relationship was performed, and the Fund neither covers them nor extinguishes them. An employer with a clean Fund balance and a messy payroll file has provisioned for the predictable liability and left the unpredictable one untouched.

Other risks ⚠️

Treating the contribution as the whole provision. The Fund covers a defined list of statutory items for eligible employees. Everything outside that list, and every employee inside the waiting period or below twelve months of registration, is paid from cash.

Assuming the Fund pays automatically. The employee’s claim is against the employer. The Fund’s balance is the employer’s problem, not the employee’s.

The coverage gap on senior staff. An employer terminating a long-serving executive early in the Fund’s life will find the accumulated balance well short of the obligation and will pay the difference.

Choosing an administrator carelessly. The entity holds funds the company will need at moments it cannot control, and an employer may not select an entity in which it holds a participation.

Missing the exclusions. Construction, domestic staff and unregistered workers are outside the regime and must be handled separately.

Constitutional uncertainty. Whether contributions to a private fund can be mandatorily imposed on employers is among the questions raised about the reform.

What to do 📌

• Open the account early. The waiting period runs from the first contribution, so the start date determines when coverage begins. Delay is the only thing that cannot be recovered.
• Confirm your category — large company or SME — since it determines the rate.
• Select an administering entity deliberately, checking the related-party prohibition against your group structure.
• Do not reduce your severance provisioning yet. Until the waiting period closes and your workforce clears twelve months of registered service, the Fund covers nothing.
• Audit the payroll file, not just the balance. Categories against the collective agreement, overtime records, registration dates. That is where the claims the Fund does not cover are generated.
• Model a rate increase as a sensitivity, given that the cost neutrality rests on a mechanism set by decree.
• Track the complementary rules still being issued by the tax authority, the securities regulator and the labour and finance authorities.

The strategic view

For a foreign group, the Fund is best understood as a change in the shape of employment cost rather than in its size — and, as things stand, not even in its size, since the contribution is carved out of charges the employer was already paying. Argentina has taken a liability that arrived unpredictably in large amounts and pre-funded part of it, at no immediate incremental cost. Anyone who has watched an Argentine subsidiary’s cash position after a restructuring will recognise the value in that.

What it does not do is reduce the underlying obligation or close the file on a departing employee. The employer still owes what Article 245 says, still faces every claim arising from how the relationship was actually performed, and still carries the shortfall when the balance falls short. The Fund is a provisioning mechanism, not a settlement.

For a full picture of the underlying obligation the Fund finances, see our note on termination and severance under the 2026 reform.

If you need the Fund modelled into your Argentine employment cost, talk to our team.