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 Works Ministry, 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.
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 2021 must pay a wage of at least $400 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. Termination occurs when the period of employment stated in the contract comes to an end. Temporary contracts must be in writing and in 2021 must include a salary of at least $400 per month.
- 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 2021 must include a salary of at least $400 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.
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 $14,400 per year incurring no income tax. The top band of income tax is 35% and applied to salaries over $115,000 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.
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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