For anyone looking to register a business in El Salvador or already active in this Central American market, getting to grips with and properly implementing employment law is critical to maintaining your company’s good standing and maximizing its chances of success.
Employment law in El Salvador is overseen by the Ministry of Labor and Social Welfare, and while many aspects of regulations are similar to those seen elsewhere, the Salvadoran system has its particularities to understand. This is important before learning about employment law in El Salvador.
Anyone who is planning a limited-scale engagement with the market — be that the employment of a small number of local executives, or an operation that will only last for a short period of time — hiring through an employer of record (EOR) in El Salvador could be the best option.
When you hire through an EOR, you avoid the need to establish and later liquify a local entity, while also operating safely in the knowledge that the EOR provider guarantees compliance with local norms as part of the agreement you sign with them. It is important to understand the local code before engaging with labor law in El Salvador.
A basic guide to employment law in El Salvador is provided below, covering standard working hours, common types of contracts used, details on termination and severance, information regarding leave allowances, and guidance on salary-related contributions and deductions that must be overseen by the employer.
If you would like to find out more about how we can assist you in negotiating employment law in El Salvador, as well as the other support that we can provide, contact us today.
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Employment Law in El Salvador – Why conduct business in El Salvador?
El Salvador presents a compelling environment for conducting business due to various factors. Employment law in El Salvador ensures a balanced and business-friendly framework that promotes growth. The nation’s strategic location within the Americas facilitates trade and connectivity. Companies benefit from a skilled and cost-effective workforce, reinforced by the Employment law in El Salvador, which provides clarity and security for both employers and employees.
Moreover, the country’s proactive efforts to attract foreign investment, including streamlined procedures and incentives, make it an enticing destination for entrepreneurs. Employment law in El Salvador consistently prioritizes fairness and productivity, contributing to a stable labor environment. Overall, El Salvador’s advantageous business climate, guided by sound Employment law, positions it as an attractive choice for those seeking growth and success in Central America.
Employment law in El Salvador: standard working hours
Under employment law in El Salvador, a standard working week lasts for 44 hours, with a normal shift lasting no longer than eight hours.
For employees who work at night (specified as being standard hours that fall between 19:00 and 06:00 the following day) the maximum work week is 39 hours long, based on seven-hour shifts.
Note that in El Salvador, there are generally between 10 and 11 national holidays that fall on weekdays each calendar year, as well as two or three regional holidays.
Common contracts under employment law in El Salvador
There are two types of contract allowed under labor law in El Salvador that are most commonly used by foreign investors:
- Indefinite-term employment contracts are the most common type of contract and only end when both the employer and employee come to a mutual agreement, or when one of the parties has the right to act unilaterally.
Examples of such circumstances include the employee resigning from their role, or an instance of employee misconduct that warrants dismissal as set out by the contract. This is the first common contract under labor law in El Salvador. - Fixed-term employment contracts typically last for a period of days, weeks, or months, and generally for no longer than one year, however, they can last for up to two years when the employee holds a professional or technical qualification, or when the task at hands warrants such a contract duration.
Such contracts must properly outline the tasks being undertaken and include explicit mention of the conditions under which employment can be terminated, including how the designated task will be deemed complete. This is the second common contract under labor law in El Salvador.
Labor Law: Termination and severance
An employee can have their contract terminated without notice within the probation period laid out in their contract, which will usually last for 30 days, however for certain types of employees it can extend for longer. This is one vital aspect of labor law in El Salvador.
Once the probation period has been served, an employee must be guilty of one of a number of actions or behaviors listed under Article 50 of the Salvadoran Labor Code in order to be dismissed with just cause. This is a second important code within employment law in El Salvador.
They include the likes of negligence, failure to properly fulfill duties for two consecutive days, intoxication in the workplace, and disrespectful behavior towards the employer or a fellow employee.
In the event of an employee’s contract being terminated without cause, they will receive a liquidation payment totaling 15 days of standard pay for every year of service they have provided the company. This is standard within labor law in El Salvador.
This benefit is similarly conferred to employees when they resign, and the employer is obliged to provide the payment within 15 days of the employee’s final day of employment.
Departing employees under both circumstances are also entitled to receive a proportion of their statutory end of year bonus and payment for outstanding vacations based on the amount of the corresponding year they have worked.
Note that under employment law in El Salvador, most employees are not required to give a notice period when they resign, however, they must provide notification of their resignation in written form.
However, if they are in a management position or undertaking a specialized task, they are obliged to provide 30 days of written “advanced notice” of their intention to resign.
Employment law in El Salvador: Vacations, leave, and other absences
After completing one year of employment — during which they have worked at least 200 days — an employee is entitled to 15 days of paid vacation leave. That leave is paid at a rate of 130% of their standard daily earnings and must be paid prior to the employee commencing the vacation period. This is standard under employment law in El Salvador.
Note that vacation allowance cannot be exchanged for additional pay unless the employee is leaving their role. For jobs that include room and board allowance, the vacation pay rate is increased by an additional 25%.
Maternity and paternity leave
A total of 12 weeks of paid maternity leave are granted to new mothers, of which at least six weeks must be taken after the due date of the birth. Maternity leave is paid by the state social security fund at a rate of 100% of any salary up to $514.40 per month.
Note that during pregnancy a worker cannot be dismissed and cannot be assigned tasks that pose any sort of risk to the unborn child. This is usual under the labor law in El Salvador.
Under employment law in El Salvador, paternity leave totals three days, both in the case of a birth or adoption, and that leave must be taken within 15 days of the birth or adoption date.
Sick leave
Employees are entitled to leave due to sickness based on the length of service they have provided the company. In the case of employees who have served between one and five months, an entitlement of 20 days of paid sick leave paid at 75% of base salary is given.
For employees who have served between five and 12 months, that leave allowance is extended to 40 days at the same 75% pay rate, while those who have served more than one year are entitled to 60 days of paid sick leave. This is normal under labor law in El Salvador.
Note that, following a reform of the labor code that came into force in June 2020, an employee who has been diagnosed with a chronic illness cannot be dismissed once that diagnosis has been issued and until three months after the conclusion of related medical treatment.
Bereavement leave
Bereavement leave is granted in the event of the loss of a parent, child, partner, or other dependant, and lasts for as long as required. However, the employer is only obliged to provide payment equivalent to two days of salary for each calendar month, and a maximum of 15 days of bereavement leave pay in the course of a calendar year.
Employment law in El Salvador: statutory contributions
Employee deductions:
Under employment law in El Salvador, deductions are made from employee salaries for both social security and the national death and pension fund, with deductions totaling 10.25% on any salary up to $1,000.
In the case of social security, a 3% deduction is made, however, that deduction is only taken from the first $1,000 earned, meaning that it cannot exceed more than $30.
For the pension fund, a 7.25% deduction is taken from any salary up to $7,029 per month, meaning that in effect the maximum deduction is $509.60. This is standard under labor law in El Salvador.
Employer contributions
Employer contributions to social security and the pension fund total the equivalent of 15.25% of any salary up to $1,000 per month. That is based on a 7.5% contribution to social security, and a 7.75% contribution to the pension fund, with those contributions similarly limited on higher salaries.
Companies that have more than 10 employees must also contribute the equivalent of an additional 1% of salaries to the Salvadoran Institute for Professional Education (INSAFORP). This is standard under employment law in El Salvador.
Annual bonus
Any employee who has provided at least one year of continuous service by December 12 of a given year is entitled to an annual bonus. Those who have worked for less than a year are entitled to a proportional bonus.
According to employment law in El Salvador, that bonus must be paid between December 12 and 20 of the year to which it corresponds and is based on the length of service.
For anyone who has worked for the company for at least three years, the bonus must equal at least 10 days of base salary, while for those who have worked for between three and ten years must receive at least 15 days of base salary. Anyone who has worked for more than ten years must receive at least 18 days of base salary.
Note that an employee loses their right to the annual bonus if they have two unexcused absences from work within a two month period during the 12 months prior to the bonus being issued.
Frequently Asked Questions about Labor Laws in El Salvador
In our experience, these are the common questions and doubtful points of our Clients.
In El Salvador, the typical workweek spans 44 hours, providing flexibility through both fixed-term and indefinite employment contracts. The nation establishes a mandated minimum wage, and employees enjoy the privilege of annual paid leave. Maternity leave is generously granted with full compensation and social security contributions ensure comprehensive health and retirement benefits. The labor laws in place acknowledge the importance of collective bargaining and uphold the right to strike.
The working conditions in El Salvador are characterized by a minimum wage that does not meet the basic needs of individuals and their families. Workers are expected to work 6 days a week, with each day consisting of 8 hours. Interestingly, they are compensated for 7 days (56 hours) of work per week. Additionally, it is mandated that minors between the ages of 14 and 18 should not exceed 6 hours of work per day.
In El Salvador, a standard work day consists of 8 hours. This adds up to a total of 44 hours per week. The work week usually spans five and a half days. It is important to note that employees are given 30 minute breaks, which are already included in the working time. However, it is worth mentioning that minors aged 14 to 18 are only allowed to work for a maximum of 6 hours per day. Additionally, any overtime work is compensated at a rate of 200% of the basic salary.
The minimum wage in El Salvador varies depending on the industry. For retail employees, the minimum wage is US$242.40 per month. Industrial laborers earn a minimum wage of US$237.00 per month. Apparel assembly workers have a minimum wage of US$202.80 per month, while agriculture industry workers earn a minimum wage of US$113.70 per month.
Overtime in El Salvador is typically paid at a rate of 200.00% of the employee’s regular salary for any hours worked beyond 44 hours per week.
Compensation is only required in cases of unjustified dismissal in El Salvador. If a labor court determines that a dismissal is unfair, the employee is entitled to receive pay from the date of dismissal and severance pay. The amount of severance pay is equivalent to 30 days’ salary for each year worked. Additionally, employers must provide 13th month pay in El Salvador.
– Valid grounds for terminating an employee in El Salvador include economic reasons, the worker’s conduct, and the worker’s capacity.
– In the case of unjustified dismissal, the employer is legally obligated to pay compensation of 30 days of pay for each year of work under the employer.
– It is good practice to give notice of termination, although it is not a legal requirement in El Salvador.
– The notice period is specified in the employee’s employment contract.
– Severance payments are common and typically amount to one month of salary for every year of service.
– It is common practice to request that an employee provide a minimum of 7 days’ notice after completing their probation.
When an employee quits in El Salvador, they are not required to give notice, but they must provide written notification. Upon employment termination, employees are entitled to receive their final pay, which includes wages and other payment entitlements. It is important to note that severance pay is not provided when an employee resigns or when the employment contract’s duration term has ended. However, if a labor court determines that the dismissal was unfair, the employee is entitled to receive pay from the date of dismissal and severance pay. The amount of severance pay is calculated as 30 days’ salary for each year worked.
Biz Latin Hub can assist you when doing business in El Salvador
At Biz Latin Hub, our team of bilingual corporate support experts is available to help you understand and properly implement employment law in El Salvador, as well as many other aspects of doing business in the country.
Our comprehensive portfolio of back-office services includes company formation, accounting & taxation, corporate legal services, visa processing, and hiring & PEO, and we offer tailored packages of integrated services to suit every need.
We also have teams in place in 15 other markets around Latin America and the Caribbean and trusted partners that extend our coverage to almost every corner of the region.
Contact us today to find out more about how we can support you in doing business in El Salvador.
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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.
