If you are interested in starting a business in Ecuador, or are already operating in the market, comprehending and steering your way through Ecuadorian employment law will be critical to establishing and maintaining a strong reputation with local authorities and ensuring the success of your business.
Employment law in Ecuador is overseen by the Ministry of Labour, and although it shares similarities with many other countries in the region, you will also encounter a number of particularities in the regulations.
For that reason, you will need to find a reliable corporate lawyer in Ecuador with experience working with foreign investors and overseeing market entries.
This brief guide to employment law in Ecuador provides an overview of the regulations that you will need to adhere to when operating in this South American market, including rules regarding working hours, an overview of some of the most common types of employment contracts, statutory leave allowances under different circumstances, and taxes related to employment for both companies and their employees.
If you are interested in knowing more about how we can help your company understand and comply with Ecuadorian employment law, or would like to know more about the wide range of back-office services we offer, contact us today.
Table of Contents
Working hours under Ecuadorian employment law
Employment law in Ecuador stipulates that an employee should work no more than 40 hours as part of a standard working week, with each working day lasting no longer than eight hours.
Supplementary hours are permitted, however they must be additionally remunerated in proportion to the time worked.
Note that there are generally between 11 and 12 national holidays that fall on weekdays per calendar year in Ecuador.
Employment law in Ecuador: most common types of contract
While there are at least 16 different types of contract that can be used in different circumstances under employment law in Ecuador, there are three main ones that companies and foreign investors tend to use when operating in the market.
- Indefinite contracts are the most commonly used type of contract in Ecuador, running until both parties mutually agree to termination. To unilaterally terminate such a contract an employer must demonstrate just cause to the relevant authorities or pay the employee compensation. Indefinite contracts must be in writing, and in 2023 must pay a wage of at least $450 per month, while any stipulated trial period cannot last longer than 90 days.
- Temporary contracts may be provided in circumstances that warrant them, such as for maternity leave or extended sick leave cover. A temporary contract may only last a maximum of 180 days within a 365 day period, and should the employee continue to work beyond that, the contract is automatically converted into an indefinite contract. The employer must be able to provide documentation to demonstrate the need for employing someone on a temporary basis, according to employment law in Ecuador. Termination occurs when the period of employment stated in the contract comes to an end. Temporary contracts must be in writing and in 2023 must include a salary of at least $450 per month. Temporary contracts are subject to a 35% surcharge on the contribution base.
- Occasional contracts can be provided to cover emerging or extraordinary needs that are not linked to a company’s core business activities. An occasional contract may only last a maximum of 30 days with a 365 day period, and should the employee continue to work beyond that, the contract is automatically converted into an indefinite contract. The employer must be able to provide evidence to demonstrate the need for employing someone on an occasional basis. Termination occurs when the period of employment stated in the contract comes to an end. Occasional contracts must be in writing and in 2023 must include a salary of at least $450 per month.
Vacations, leave, and other absences
According to employment law in Ecuador, workers who have completed one year of work for the same employer are entitled to 15 consecutive calendar days of leave. After five years of service, employees accrue one additional day of leave, and continue to accrue an additional day for each subsequent year they work.
Should an employee leave a company before they have completed a year, they will be entitled to payment for the proportionate number of days of vacation accrued during the time worked.
For example, an employee who has completed eight months of service will be entitled to payment for two-thirds of a year’s leave allowance, meaning 10 days of pay, protected by the employment law in Ecuador.
An employer must grant an employee any leave required to recover from sickness, as long as it has been authorized by a registered doctor.
Maternity and paternity leave
Under employment law in Ecuador, women are entitled to 12 weeks of paid maternity leave when they have a child. In the event of multiple births, the period is extended by an additional 10 working days, meaning a total of 14 weeks of paid leave.
For fathers, 10 days of paid paternity leave are granted, which is extended by an additional five days in the event of multiple births or a birth by cesarean section.
Employees are entitled to three days of paid bereavement leave in the event of the death of any relative to the first or second degree. That includes spouses and common-law partners, parents, siblings, children, grandparents, grandchildren, aunts, uncles, nieces, nephews, and half-siblings.
Statutory contributions under Ecuadorian employment law
Under employment law in Ecuador, a total of 9.45% of an employee’s salary is deducted to contribute towards social security. Income tax is applied progressively, with salaries up to $11,722 per year incurring no income tax. The top band of income tax is 37% and applied to salaries over $105,580 per year
Employers must contribute the equivalent of 11.5% of an employee’s salary towards social security.
Under Ecuadorian employment law, companies must share 15% of net annual profits with their employees. This expense is tax deductible when calculating the company’s taxable base.
Frequently Asked Questions about Labor Laws in Ecuador
In our experience, these are the common questions and doubtful points of our Clients.
The labor laws in Ecuador include provisions for a 40-hour work week, 15 calendar days of annual paid vacation, restrictions and sanctions for employing child labor, protection of worker health and safety, minimum wages and bonuses, maternity leave, and employer-provided benefits.
Working conditions in Ecuador include a 40-hour work week, 15 calendar days of annual paid vacation, restrictions and sanctions against child labor, protection of worker health and safety, minimum wages and bonuses, maternity leave, and employer-provided benefits.
A standard work day in Ecuador typically consists of 8 hours.
The minimum monthly wage in Ecuador is currently 450 USD, which is a 5.9% increase from the previous rate of 425 USD in 2022.
Overtime in Ecuador is paid at a rate of either 150.00% or 200.00% of the employee’s regular salary. The specific rate depends on the work performed during overtime and the time when the overtime was worked. It is important to note that all overtime hours must be approved by the local labor inspector.
Employment termination laws in Ecuador do not require prior notice. It is permissible to dismiss an employee without justification, but this would necessitate the payment of severance. However, if an employee is dismissed for just cause, there is no obligation to provide severance payment.
To terminate an employee in Ecuador, the employer must meet certain requirements. These include demonstrating just cause to the relevant authorities or providing compensation to the employee. Just cause can be based on reasons such as dishonesty, negligence, fraud, or other work-related offenses. If the employee has a fixed-term contract, the employer must give a 30-day notice before termination. Severance pay is also required, which is equivalent to one month’s salary for each year of service, pro-rated for any part-year worked. Sudden dismissal does not need justification but does require the payment of severance. Additionally, indefinite contracts must be in writing and must pay a minimum wage of $450 per month in 2023. The trial period for such contracts cannot exceed 90 days.
When an employee resigns in Ecuador, they are entitled to a severance payment of 25% of their last monthly salary for each year of service. This severance payment is given in every case of termination of the employment relationship, including employee resignation and termination with a fair cause. Additionally, employees who quit must receive their final paycheck within 72 hours of giving notice. If an employee gives notice more than 72 hours before their final shift, they must receive their paycheck on that day. If no notice is given, the paycheck must be sent within 72 hours of their last day.
Biz Latin Hub can assist you doing business in Ecuador
At Biz Latin Hub, our multilingual team of corporate support experts has the experience and expertise to assist you in navigating employment law in Ecuador. Our portfolio of services includes company formation, accounting, legal services, and tax advisory, among others, and we provide tailored packages of integrated back-office solutions to our clients, acting as a single point of contact for doing business in Ecuador, or any of the other 17 markets around Latin America and the Caribbean where we are able to offer our services.
Contact us now to discuss how we can support your business.
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The information provided here within should not be construed as formal guidance or advice. Please consult a professional for your specific situation. Information provided is for informative purposes only and may not capture all pertinent laws, standards, and best practices. The regulatory landscape is continually evolving; information mentioned may be outdated and/or could undergo changes. The interpretations presented are not official. Some sections are based on the interpretations or views of relevant authorities, but we cannot ensure that these perspectives will be supported in all professional settings.