Chile – Employer of Record

Globalization Partners provides employer of record services for clients that want to hire employees and run payroll without first establishing a branch office or subsidiary in Chile. Your candidate is hired via Globalization Partners’ Chile PEO in accordance with local labor laws and can be onboarded in days instead of the months it typically takes. The individual is assigned to work on your team, working on your company’s behalf exactly as if he or she were your employee to fulfill your in-country requirements.

Our Global Employer of Record Platform™ and Global PEO service enables clients to run payroll in Chile while HR services, tax, and compliance management matters are lifted from their shoulders onto ours. As a Global PEO expert, we manage employment contract best practices, statutory and market norm benefits, and employee expenses, as well as severance and termination if required. We also keep you apprised of changes to local employment laws in Chile.

Your new employee is productive sooner, has a better hiring experience and is 100% dedicated to your team. You’ll have peace of mind knowing you have a team of dedicated employment experts assisting with every hire. Globalization Partners allows you to harness the talent of the brightest people in 150 countries around the world, quickly and painlessly.

Hiring, Negotiating and Doing Business in Chile

When conducting business in Chile, pay particular attention to establishing close relationships with your local business partners. In many sectors of the Chilean economy, you need to have connections in order to secure agreements, so these relationships become critical. Chileans tend to be non-confrontational and rarely make decisions in meetings. Punctuality is not stressed and meetings frequently run overtime as agendas are neglected. Agreements should be followed up on, especially if achieving established time lines is important.

When extending an offer letter to a Chilean candidate, carefully state whether your offer is a gross or net annual salary. In Chile, it is common practice to negotiate salaries in NET monthly terms and your candidate is likely to interpret your office as a NET salary payment rather than gross unless carefully stated otherwise.

When negotiating terms of an employment contract and offer letter with an employee in Chile, it may be useful to keep the following in mind:

Employment Contracts in Chile

It is best practice to put a strong employment contract in writing in place in Chile, in the local language, which spells out the terms of the employee’s compensation, benefits, and termination requirements. An offer letter and employment contract in Chile should always state the salary and any compensation amounts in pesos rather than a foreign currency. The employment contract template is part of the service with Globalization Partners; no need to draft a separate template if you use our employer of record and PEO service in Chile.

Working Hours in Chile

The Chile work week is 45 hours, with a standard work day of 8:30 am to 6:30 pm. In a typical office setting, many workers may stay late to impress their boss. Workers are entitled to 11 hours between work days and they are not allowed to work on Sundays (with certain exceptions depending on the sector, such as retail for example). Workers are entitled to one rest day a week.

If employees in Chile with contracts subject to a time clock must work overtime, they are entitled to 1.5% of their regular hourly salary, unless the collective bargaining agreement or employment contract indicate a higher amount. Overtime hours should not exceed more than 10 per week, or 2 hours per day.

Vacation Leave in Chile

Employees with more than one year of service have a right to 15 paid working days per year.  Ten days can typically be taken consecutively, and the remaining 5 as agreed by the employee and employer. Vacation time can be accrued for up to 2 consecutive years. Most employers give the statutory minimum.

Sick Leave in Chile

Employees are entitled to sick leave if supported by a medical certificate that is given to the employer within two working days from the date of beginning of the sick leave. The employer then has three working days to forward the medical leave certificate to the health insurance institution (Isapre or Fonasa) who pays for the sick leave, which may be subject to caps.

  1. 3 days or less of sick leave: employees are not entitled to sick pay
  2. Between 4 and 10 days of sick leave: employees are entitled to sick pay
  3. Greater than 10 days of sick leave: employees are entitled to sick pay for all working days during the sick leave period

Maternity and Paternity Leave in Chile

In general, employees are entitled to 6 weeks of maternity leave before childbirth and 12 weeks after childbirth. In addition, parental leave may be granted, at the choice of the new mother, under any of the following options: (a) a 12-week leave following the expiration of maternity leave or (b) 18 weeks of half-day work following the expiration of maternity leave.

Employees are entitled to a subsidy during leave. This is generally less than the employee’s salary and companies will often make up the difference. The employee’s job is protected for one year after maternity leave ends.

Fathers are entitled to 5 continuous working days of paternity leave to be used when they want after the child is born. Fathers can also share the parental leave of up to six weeks of full-time leave or 12 weeks of part-time leave.

Termination and Severance Pay in Chile

An employee is due one month of notice by law.  In most cases this month of notice is paid as opposed to asking the employee to work for one month after being served notice.

Termination of Employment Regulations: In Chile, companies may terminate employment for the following reasons:

  • mutual agreement
  • the conclusion of particular task agreed upon
  • force majeure (e.g. an unexpected event, for example, a natural disaster)
  • the employee’s death
  • the expiration of an agreed upon term or duration of employment
  • resignation by the employee
  • company needs/company reorganization
  • Dismissal due to breach of contract or other serious issue (must be proven by the employer)

In order to initiate the termination of a contract, you must first decide the cause, as per articles 159, 160, 161, and to a limited extent 163 of the Chilean Labor Code. In summary, these causes are:

Article 159: Mutual agreement, resignation, or expiration of the contract

Article 160: Dismissal due to breach of contract or other serious issue (must be proven by the employer)

Article 161: Company needs / company reorganization

In the event of dismissals, Article 161 is the most commonly used cause. If this is the case, the employer would need to prepare a letter of notification to the employee, in which the cause is referenced and the effective date is indicated. This letter is either signed in person by the employee, or sent by certified mail to his home address. In parallel, an original is also filed with the Chilean Labor Ministry (“Inspección de Trabajo”). It is standard for the employee to be formally notified on his last day, with immediate effect.

Once notified, the employer prepares the severance agreement (“finiquito”), in which the cause is detailed and the amounts are specified such as one month of notice, untaken vacation days, and severance (if applicable). This agreement should be signed within 10 days of notification, and this signature should occur either at the Chilean Labor Ministry or at a notary.

In the case of a mutual agreement, a document would be signed on the date of termination indicating that the parties have reached an agreement for the employee to leave, followed by the severance agreement signed in the first or second week following the termination date.

Chileans frequently litigate terminations, so employers need to document the situation carefully. Employers can be liable for attorneys’ fees and costs and other damages if found guilty of wrongful termination.

Termination Payments in Chile

  1. Wages in Lieu of notice
  2. Pending vacation days
  3. Severance, if tenure is 1+ years
  1. Wages, commissions, bonuses that are outstanding
  2. Severance Payment and Long Service Payment:

Severance Payment and Long Service Payment in Chile: In the event that an employee is fired, he/she is due legal severance of one month of gross salary (with a cap of UF 90, about USD 3,630 as of March 2017) for every year worked, up to a total of 11 years.  After one year, the employee accumulates an additional month of severance once he/she has worked for at least half of the following year.  For example, an employee who is fired after having worked one year and five months is due one month of severance + one month notice + unused vacation.  An employee who is fired after having worked one year, six months and a day, is due two months of severance. In the final severance calculation, there are several adjustments made that consider the amounts already paid into the employee’s unemployment insurance account over time. As part of our monthly services, we calculate and accrue for this potential severance payment. Unemployment insurance is paid monthly by both the employee and employer amounting to 3% of the taxable salary with a calculation cap of UF 113.5.

Employee Resignation in Chile: In the event of a resignation, the employee should present us with the resignation letter as soon as the decision to resign is made, indicating the final day. The employer can provide a template resignation letter for the employee to sign. Only pending vacation days are due to be paid to the employee.

Employment Taxes in Chile

When budgeting for payroll in Chile, assume that most social security costs are withheld from the employee rather than paid by the employer. Employer taxes on top of labor costs are quite reasonable for employers in Chile.

Employees are required to contribute a portion of their earnings to a:

  • pension fund (10% of salary)
  • health insurance plan (7%)
  • life insurance plan (2.84% to 3.4%)
  • unemployment insurance plan (0.6%)

Employers must contribute to funds for work-related accidents and illnesses and the unemployment insurance plan. This can range from 0.9% to 4.4% of payroll, depending on the company’s industry.

Employers must also contribute 2.4% of payroll to the unemployment fund.

Health Insurance Benefits in Chile

Employees must pay into a private health insurance scheme known as “Isapres” for which the employer is required to withhold up to a ceiling of approximately USD 214 pre-tax on a monthly basis.  Any additional amount offered towards health insurance is considered supplemental and comes out of the employee’s net salary after tax. The employer can decide whether or not it wants to compensate the employee via a taxable bonus for this difference. Many of our clients do offer a small additional taxable “health insurance” bonus along these lines.  To implement this, the employee has two options: 1. contract a better and more expensive plan with their private health insurance company (Isapre), or 2. contract with a very good private supplemental health insurance policy, which we can help arrange, and the employer compensates the employee for all or a portion of the difference due above the legal ceiling of USD 214.

The amount for this additional taxable health insurance bonus would be approximately CLP 100,000 (~ USD 153 as of January 2017) to help cover the out-of-pocket expense for the employee’s additional private health insurance cost. This is considered an excellent supplementary benefit.

Additional Benefits in Chile

There is no obligatory withholding that covers this concept (in case of an employee’s death, the next of kin has access to his/her pension fund, but this is not a life insurance policy per se).  In some cases employers may decide to provide a benefit amounting to life insurance covering two years’ pay. If your company has a global umbrella coverage that can be extended to international colleagues, this may be the best way to provide this benefit. Alternatively, we recommend that you negotiate a taxable cash allowance for the employee to purchase their own coverage which is typically an average premium of USD 60 per month for coverage of USD 70,000 (variations subject to exchange rate fluctuations and inflation).

Allowances: Car allowances are not common in Chile except for executive level positions and for employees required to use their personal cars for business. Company cars cannot be provided to employees without a significant tax penalty.

A monthly commuting allowance subject to certain limits depending on the gross salary is another way to offer tax advantaged compensation to the employee who commutes to work.

Bonuses in Chile

There is no requirement to pay a 13th month salary in Chile.

The Bonus/Commission target amounts should be agreed with the candidate and state in local currency. – Chilean Pesos (CLP)

Legal gratification in Chile: Employees are entitled to an annual “legal gratification” bonus typically paid monthly, with the limit of 4.75 Minimum Monthly Wages.  The amount changes when an increase to the minimum wage is announced. The base salary specified in the work contract can be lowered in order to take into consideration the fact that legal gratification must be added, so that the total cost to the company is not increased. Once a base salary is stipulated and agreed to with the employee, it cannot be lowered without the employee’s consent.

Aguinaldos (13th month payment in Chile): While not required, it is customary to pay “aguinaldos”, which are token bonuses twice a year—once during Chile’s Independence Day holidays (Sep 18th) and once at year end (around Christmas time). Amounts depend on the level of the employee. GP recommends not negotiating this with the candidate as the amounts are typically nominal and inconsequential.

Public Holidays in Chile

The following national holidays are celebrated in Chile:

  • New Year’s Day
  • Good Friday
  • Holy Saturday
  • Labor Day
  • Navy Day
  • Our lady of Mount Carmel
  • Assumption
  • Independence Day in Chile
  • Army Day is on Saturday
  • Discovery of Two Worlds Day (Columbus Day)
  • Reformation day
  • All Saints’ Day
  • Immaculate Conception
  • Christmas Day

In certain cases, when a holiday falls on a weekend, the Chilean government may decide to extend the holiday to either the Friday or Monday.

Why Globalization Partners

Establishing a branch office or subsidiary in Chile to engage a small team is time consuming, expensive and complex. Chilean labor law has strong worker protections, requiring great attention to detail and an understanding of local best practices. Globalization Partners makes it painless and easy to expand into Chile. We can help you hire your candidate of choice, handle HR matters and payroll, and ensure that you’re in compliance with local laws, without the burden of setting up a foreign branch office or subsidiary. Our Chile PEO and Global Employer of Record Platform provides you piece of mind so that you can focus on running your business.

If you would like to discuss how Globalization Partners can provide a seamless employee leasing or PEO solution for hiring employees in Chile, please contact us.