Reading Time: 9 minutes
At G-P, our industry leading Global Employment Platform™ helps companies unlock their full potential by building highly skilled global teams in days instead of months. But how does the everywhere workforce work together best? Here we discuss the opportunities – and challenges – in achieving the kind of global growth and success we can all share.
G-P. Global Made Possible.
With its stable, market-oriented economy and breathtaking attractions like Machu Picchu and the majestic Andes mountains, Peru has become an inviting location for many companies looking to expand internationally. A low inflation rate and valuable natural resources also attract significant numbers of international investors, with foreign direct investment (FDI) in the country totaling $6.49 billion in 2018.
As you expand your business in Peru, it’s important to have access to tips for hiring in Peru, as well as an overall familiarity with the country’s hiring processes. Our guide to hiring employees. will delve into the financial details and best practices.
What to know before hiring in Peru
Before you begin, your company will need to become familiar with important factors like taxes, payroll law, contracts, and other employment-related nuances. Here are some of the essential aspects of hiring:
1. Contract employment
In Peru, contract employment rather than at-will employment is the norm. A company generally cannot terminate an employee whenever it wishes to. Instead, employers and employees sign contracts stipulating the length of employment and the terms under which either party may terminate the arrangement.
As you begin to set up your business operations in Peru, you’ll likely be focused much more on hiring than on terminations. Still, it’s wise to plan for the day when you may need to terminate an employee’s contract or an employee wishes to leave a position.
Peruvian law requires a company to provide an employee with a notice period before termination. The notice period should be at least five days to allow the employee to craft a written defense, and up to 30 days if the employee has the option to resign or demonstrate performance improvements. A company that wishes to terminate an employee must also usually show objective grounds or cause for termination with documentation.
If an employee is still in a probationary period, however, these restrictions do not apply. An employer in Peru may set up a probationary period as short as three months or as long as one year.
2. Contract requirements
In Peru, employment contracts are mandatory, though, they may be either written or verbal. In general, written contracts are preferable so that all parties understand the expectations precisely. Most contracts run for an indefinite term. A fixed-term contract is possible as well and may extend for up to five years. It must be a written contract, and the company must register it with the Labour Ministry.
A standard Peruvian contract should be written in the local language and contain the following information:
- Employer name
- Base salary
- Additional compensation, if any
- Work hours
- Paid time off
- Terms of the probationary period, if any
- Termination requirements
3. Payroll and taxes
In Peru, employers contribute 9 percent of their payroll to the National Health System. However, a company can receive a credit for some of those costs if it provides its employees with supplemental health plans.
Employers in Peru also contribute an average of 11.5 percent of their employees’ gross salaries to pension fund administrators (AFPs). These private organizations manage pension funds that supply employees with retirement benefits, disability pensions, and funeral expense coverage.
4. Work hours and wages
In Peru, the standard working hours are eight hours per day, often six days per week. An employee may not work more than 48 hours per week, even if the employer pays overtime. The first two hours of overtime must be 25 percent more than the worker’s regular pay. For every hour afterward, that figure increases to 35 percent.
The country’s minimum wage currently stands at 930 soles per month, a sum equal to about 255 U.S. dollars or 210 euros. Additionally, Peruvian employees must receive specific bonuses throughout the year. Each employee gets a bonus in July and a second bonus in December, each equal to a full month’s pay. Employees also receive extraordinary bonuses equal to 9 percent of the bonuses received in July and December.
Additional bonuses accrue as a worker’s employment extends. Workers in Peru generally receive what’s known as Compensation for Length of Services, which awards an employee extra pay every May and November. The annual amount of this bonus usually totals 1.16 percent of the employee’s monthly wages.
5. Paid leave policies
Peruvian law requires employers to provide their workers with one month of paid leave per year plus five additional days of paid sick leave annually.
Peruvian law additionally requires employers to provide paid maternity and paternity leave. Pregnant employees must receive 14 weeks of paid maternity leave — seven weeks before the birth and an additional seven weeks after. Fathers must receive 10 consecutive working days of paternity leave.
A company should also provide its employees with time off for 12 official national holidays every year. The total holiday leave comes to 13 days off because Independence Day celebrations span two days.
6. Profit sharing and severance pay
In Peru, workers receive a share of the employer’s profits if the employer has more than 20 employees. That share typically ranges from 5 percent to 10 percent of the company’s pre-tax income.
Severance pay is also mandatory under Peruvian law. Even employees terminated without cause are entitled to receive severance pay for up to a year. As you calculate the expenses of hiring, remember to factor these eventual costs into your calculations.
7. Anti-discrimination practices
The Peruvian constitution prohibits discrimination in hiring and in the workplace. Employers may not discriminate against employees or job candidates for any of the following factors:
- National origin
- Physical disability
- Economic status
- Political opinion
Gender inequalities in Peruvian workplaces have historically posed a challenge. In 2015, women in Peru’s workforce earned an average of 60 percent less than men with similar skills, and women were much more likely to have lower-quality jobs. In 2017, in response to this issue, Peru passed a new law codifying specific prohibitions against gender discrimination. The law prohibits wage discrimination and requires detailed record keeping to prevent gender-related inequities. It also forbids terminating or failing to renew contracts for pregnant or breastfeeding employees if the termination relates to those conditions.
Peruvian law also requires employers to provide equal employment conditions for people with disabilities. For this reason, most companies employing more than 50 people must hire employees with disabilities at a rate of at least 3 percent of their payrolls.
Knowing too much about applicants’ backgrounds could directly or indirectly lead to discrimination. To keep discriminatory practices out ofo hiring processes, Peruvian law prohibits employers from running background checks on potential employees.
Cost of hiring an employee in Peru
Hiring a new employee in Peru may not seem expensive at first — the minimum wage is relatively low, and the cost of living and doing business is budget-friendly. However, hiring can incur few hidden expenses, and you’ll need to keep both the direct and indirect costs in mind. Below are a few of the expenses associated with hiring a new employee:
- Position advertisements
- Hours spent reviewing applicants
The insurance costs to hire employees in Peru may depend on your industry. Peruvian employers are not always responsible for providing health insurance for their employees because national health insurance is available. However, they often choose to provide supplementary insurance as an extra benefit. Supplementary insurance becomes mandatory if a company’s business involves hazardous work.
Hiring practices in Peru
Hiring someone in Peru is likely similar to hiring a new employee in your home country, but you may have to modify your usual protocols due to small nuances of the local customs and expectations. Here are a few best practices to follow:
- Learn and deploy the local language: As you develop recruiting materials and delve into hiring, use the local language. Draw up offer letters and contracts in the local language, and state the salary and compensation in Peruvian soles. By doing so, you’ll demonstrate your commitment to a two-way partnership and make candidates and new hires feel more comfortable.
- Adapt to linguistic diversity: In Peru, Spanish is one of the official languages, and the country is also home to more than 90 indigenous languages. In some areas, indigenous languages are more widespread than Spanish and serve as official languages in those regions. For example, Quechua has more than 4 million speakers, and Aymara has more than 2 million speakers. Be sure to research your company’s location so you can write essential materials in the local language or languages.
- Use non-discriminatory language: Be sure to abide by the laws governing equal pay and treatment for men and women. You’ll should also avoid potentially discriminatory language that promotes ageism, particularly against older employees..
- Help employees feel comfortable: Even if your Peruvian employees are highly talented and qualified, they may be nervous on their first day. Use familiar and culturally appropriate references, incorporate the local language if you can, and communicate your enthusiasm for bringing your new hires on board. You may wish to have executives from your home country stop in to demonstrate your investment in your new location and its employees.
What does a company need to hire employees in Peru?
Preparing for hiring new employees in Peru can be a complex process. A company will need to set up a subsidiary or partner with an Employer of Record (EOR), also known as professional employer organization (PEO). Setting up a subsidiary works in some cases, but it can be a lengthy, cumbersome process that sees your company shouldering much of the work. Working with a PEO or EOR is often more convenient because your partner organization will already have an entity established to hire employees and handle onboarding and payroll tasks for you.
If you choose to set up a subsidiary, you’ll need to accomplish the following:
- Register your company’s name with the Peruvian Public Registry and receive a Certificate of Registration.
- Open a bank account and deposit your capital contribution.
- Have your accounting books, deed, and minutes notarized at the Portal Servicios Ciudadano y Empresas.
- Obtain a tax ID number so you can pay your employees.
- Appoint shareholders and directors.
Hiring remote employees in Peru
If you plan to review Peruvian applicants while you remain in your home country, you’ll need to become comfortable with remote interviewing and hiring. Below are a few tips to help you streamline that approach:
- Describe your process ahead of time: When face-to-face meetings are infeasible, laying out clear expectations and guidelines becomes even more crucial. Let your candidates know in advance what your application, interviewing, and hiring processes will look like.
- Communicate about your script: If you deploy a multi-person interviewing team, be sure to communicate ahead of time about what topics and questions each person will be responsible for. Doing so helps you avoid redundancies, balance speaking time, and make a polished, positive impression.
- Consider incorporating test exercises: Getting a good feel for a job candidate’s skill level can be more difficult over a video interview. You may wish to add a written test into the application process, such as having an applicant create a press release or code a web page. Just be sure to keep these tasks relatively short, since the candidates will be performing them without pay, or consider paying the applicants for their extra time.
Additional tips for how to hire in Peru
Though the steps to hiring in Peru are likely similar to what you’re used to, there are bound to be some differences. Below are a few more strategies for implementing effective hiring processes as you expand your business into Peru:
- Check CBAs: The applicable rules may differ from the guidelines outlined above if your industry in Peru has a Collective Bargaining Agreement (CBA). Check with the relevant CBA to learn about additional restrictions and compensation requirements.
- Look through the definitive resource: It’s worth spending time understanding the Ley General del Trabajo, or the General Labor Law. This compendium contains all of Peru’s labor laws and can be an invaluable resource. Though you may still want to partner with experts in Peruvian labor law who can guide you, taking a look at the regulations you’ll need to comply with is always helpful.
- Familiarize yourself with Peruvian business etiquette: Traditional business relationships in Peru are often highly hierarchical. As you work with new hires, you’ll want to observe the appropriate formalities and build relationships on respect and trust. It’s worth seeking trusted advice on business etiquette to demonstrate your willingness to learn and your commitment to integrating into the local culture.
Contact Globalization Partners for help building international teams
When you’re ready to expand your business into Peru, work with Globalization Partners to streamline and expedite the process.
As you strategize to increase your new venture’s profitability, you need to focus on your core business processes. Handling basic tasks like payroll and ensuring legal compliance can eat up much of your focus and energy. As a global EOR, Globalization Partners can shoulder these essential responsibilities for you through our sophisticated technological platform. Our comprehensive solution takes care of managing the details so you can focus on the bigger picture of building your team.