A competitive employee benefits scheme can help support your company’s overall goals for growth in Ecuador. With the right strategy, you can create an approach that fits your company’s unique needs and delivers optimal value for your team. Key factors to consider include compliance, taxes, employee expectations, and local market standards.
Ecuador employee benefits plans
As you establish your business internationally, you’ll need to develop a benefits plan that meets legal regulations and market standards. Although the government of Ecuador outlines mandatory employee benefits, most employers also offer supplemental benefits to attract and retain talent. Some of the most common supplemental benefits include:
- Holiday bonuses
- Telecommuting opportunities
- Transportation stipends
- Teleworking allowance
- Telephone allowance
- Insurance allowance
Required benefits in Ecuador
According to national labor laws, companies in Ecuador need to provide the following mandatory benefits at a minimum:
- 13th remuneration: Also known as a Christmas bonus, workers are entitled to receive a monthly proportional payment of 1/12 of the remuneration they receive during the calendar year.
- 14th remuneration: Also known as a school bonus, workers are entitled to receive a monthly bonus equivalent to 1/12 of the unified basic salary for workers in general (currently USD 450).
- Reserve Fund: After 1 year of service, employees are entitled to a sum equal to 1 month of salary that employers must pay during each year of service thereafter.
- Profit sharing: Employers are required to distribute 15% of net profit for the year to employees. The amount is deductible for income tax calculation.
- Social security: Employers must enroll employees in the IESS. Employers contribute 12.15% and employees 9.45% of the monthly remuneration.
- Employer retirement: An employee who completes 25 years of service with the same employer (unless seniority recognition) is entitled to a lifetime retirement pension, also payable to their heirs for up to 1 year after their death. The worker is also entitled to a proportional employer retirement pension, when they have been dismissed without cause after 20 years of service with the same employer (unless seniority recognition). Both parties may agree to provide a retirement fund, which replaces the monthly retirement pension.
- Global fund payment: This is a one-time payment made by the employer to the employee after the termination of the employment contract (by agreement between the parties). In general, it involves projecting the monthly pensions that a retiree would receive, considering factors such as life expectancy, present value of money, among others.
Designing Ecuador employee benefits plans
While a compliant, competitive benefits program will look different from country to country, you can follow these basic steps to create a successful plan anywhere.
1. Set your budget and priorities.
Evaluate your company’s projected revenue and decide how much you can afford to put toward employee provisions. You’ll want to determine top goals for the region — for example, employee retention rates and team growth — and decide how to support those objectives with your benefits offerings.
2. Explore the local market.
Before you engage with the local market, take time to research economic trends and conditions. It’s wise to investigate what other businesses in the area are offering in their benefits plans. See if your company can match or exceed those provisions.
To better understand what workers want from employers, talk directly with local employees and discuss their needs and benefits preferences.
3. Start designing your program.
Begin creating a benefits plan that fits local market conditions and meets employee needs. Start with the mandatory provisions and use the remainder of your budget for top-priority fringe benefits.
When you calculate final costs, remember to account for employee contributions and any administrative expenses.
Average cost of benefits
Many factors can impact a company’s benefits program expenses, so an average cost might not be a valuable metric. Instead, focus on your company’s budget and requirements to design a sustainable program.
You might consider designating a percentage of total revenue to support your program each year. With this approach, you’ll be able to scale your funding as your company grows.
How to calculate employee benefits
Follow any legal requirements for mandatory benefits payments and standards. Ensure your company can meet or exceed those stipulations. Employers are obligated to provide fully paid annual leave and holiday leave. Some benefits such as a savings fund, are mandatory once they are established in the company’s policies.
When you develop fringe benefit provisions, leverage your research to set competitive rates in the local market. Rates for benefits such as transportation, housing, or variable use benefits will depend on the industry and employee-specific needs.
How are employee benefits taxed in Ecuador?
All income that is not considered personal expenses is taxable. You can expect to include any monetary benefits as part of total employee income calculations.
Employee health benefits
State-sponsored health insurance is mandatory for all employees in Ecuador.
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