A statue of Lady Justice, main image for employment law in Ecuador article

Employment Law in Ecuador: a Guide

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.

Employment law in Ecuador. Statutory Contributions.
Employment law in Ecuador. Statutory Contributions.

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.

  1. 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.
  1. 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.
  1. 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.
Comparison of days granted by law for maternity and paternity leave among Latin American countries by 2023
Comparison of days granted by law for maternity and paternity leave among Latin American countries by 2023

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.

Sick leave
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.

Bereavement leave
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

Employee deductions
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

Employer contributions
Employers must contribute the equivalent of 11.5% of an employee’s salary towards social security.

Profit sharing
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.

1. What are the labor laws in Ecuador?

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.

2. What are the working conditions in Ecuador?

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.

3. How many hours are in a standard work day in Ecuador?

A standard work day in Ecuador typically consists of 8 hours.

4. What is the minimum salary in Ecuador?

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.

5. How is overtime paid in Ecuador?

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.

6. What are the laws regarding employment termination in Ecuador?

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.

7. What are the requirements for terminating an employee in Ecuador?

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.

8. What happens when an employee quits in Ecuador?

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.

Or learn more about our team and expert authors.

Biz Latin Hub’s Snapshot of Employment Law in Ecuador

WORKING HOURS

The working week is a maximum of 40 hours long, with each working day lasting no longer than eight hours. Additional or supplementary hours worked must be paid accordingly.

TYPES OF EMPLOYMENT CONTRACT

There are many different types of contract in Ecuador, however there are three main ones used:

Indefinite contracts
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 contractsTemporary 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 2023 must include a salary of at least $450 per month.

Occasional contracts
An occasional contract 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.
Termination and severance

Under Ecuadorian law, an employee is obliged to provide at least 15 days of advance notice of their intention to vacate their role. In the event that the employer wishes to unilaterally terminate the contract without just cause, they must provide the employee with any outstanding salary, as well as compensation of unused vacation and public holiday allowance. (​​The equivalent of three salaries)

On top of that, the employee must receive a proportion of the two annual bonuses that they are entitled to, based on how much of the year they have worked, as well as indemnification totaling three months of salary. Should the termination of their employment also involve eviction, they are entitled to another payment equal to 25% of a monthly salary.

At the end of the financial year in which their employment was terminated, the employee must also receive a proportion of the profit share they were eligible for, also based on how much of the year they worked.

Only during an employee's probation period, or in the event of them being guilty of misconduct or any other behavior prohibited under the terms of their contract – as proven through a proper process carried out through the Ministry of Labor – can an employee have their contract terminated without compensation.


VACATIONS, LEAVE, AND OTHER ABSENCES

Statutory vacation allowance /  Paid Time Off leave (PTO): 

Workers who have completed one year of work for the same employer are entitled to 15 consecutive days of leave. After five years of service, employees accrue one additional day of PTO per year, with an additional day added for each subsequent year of service. In the event an employee vacates their role before completing a full year of service, they should be paid for the proportionate number of days of vacation that they had accrued. For example, if an employee leaves after eight months (two thirds of a year), they will be entitled to 10 days of pay for vacation accrued.

Maternity and paternity leave: 
New mothers are entitled to 12 weeks of paid maternity leave when they have a child. In the case of multiple births, the period is extended by an additional ten days. New fathers are entitled to 10 days of paid paternity leave. In the case of a multiple birth or birth by caesarean section, the leave is extended by a further five days.


Sick leave: 
Without reduction of remuneration, an employer must grant an employee any time required due to a medical illness, as long as a qualified doctor certifies the recovery time.

Bereavement:
In the event of the death of a spouse or common-law partner, parent, sibling, child, or any relative to the second degree (grandparent, grandchild, aunt, uncle, niece, nephew, or half-sibling), an employee is entitled to three days of paid leave.









STATUTORY CONTRIBUTIONS
Employee Deductions:
A total of 9.45% of an employee’s salary is deducted to contribute to social security. Income tax is imposed progressively, with no income tax applied to salaries of up to $14,400 per year, and the top band seeing a tax rate of approximately 19.6% on the first $115,000 earned per year, and a rate of 35% on any earnings in excess of that figure.
Employer Contributions:
The employer must contribute the equivalent of 11.5% of an employee’s salary towards social security.
Profit Sharing:

Companies must share 15% of net annual profits with eligible employees. This expense is tax deductible when determining the taxable base.
Snapshot of the Employment Law in Ecuador.

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.
Legal Team Ecuador

Legal Team Ecuador

Legal Team Ecuador is the Biz Latin Hub leading experts on doing business in Ecuador The Team writes on the news, doing business, law, and changing regulations. The team are experts in corporate law, Administrative law, Employment law, Immigration law and legal advisory services. Read more about them here. You can contact Legal Team Ecuador via our "contact us page".

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