Why Expand with a PEO in Uruguay?

When entering the Uruguayan market, a Professional Employer Organization (PEO) or payroll company can provide noteworthy benefits. Uruguay’s secure and peaceful environment has attracted entrepreneurs from various regions worldwide to conduct business in the country. Furthermore, its favorable business climate and lower production costs relative to neighboring nations have encouraged foreign direct investment (FDI) in Uruguay. A PEO in Uruguay is an undisputed benefit when conducting operations in the region.

A BLH map of Uruguay to accompany article on reasons to invest in the country.
A PEO in Uruguay can be found wherever you decide to establish your company in the country.

Uruguay’s impressive and sustained GDP growth since the turn of the millennium is noteworthy. The country achieved growth of 4.4% in 2022 and has maintained positive growth since 2003, reaching peaks of over 7% in 2005 and between 2008-2010 despite the global recession. Additionally, Uruguay boasts a very high level of Human Development compared to other countries in the region. This not only provides investors with an abundance of excellent human capital but also offers inhabitants a pleasant, flourishing society to live in. A quality PEO in Uruguay can assist your company in taking advantage of the highly skilled talent pool in the country.

If you are looking to expand abroad, incorporating your business with a PEO in Uruguay can help with the process of hiring local staff without needing to formally consolidate a company. A PEO can support your business with multiple aspects of hiring employees in Uruguay, including employee payroll.

How does a PEO in Uruguay support business expansion?

A Professional Employer Organization (PEO) provides comprehensive assistance to companies with HR including recruitment, tax, and benefits payment. By using a PEO in Uruguay, the company outsources local staff recruitment, payroll, and social security management, allowing you to concentrate on growing your business activities.

PEOs can help by hiring staff on behalf of your business, creating a ‘co-employment’ relationship. This makes the PEO the Employer of Record in the eyes of the government.

Benefits of working with a PEO in Uruguay

Expanding into the region with an existing PEO in Uruguay enables companies to make a smaller-scale investment in their market entry process. Hiring one or two employees in Uruguay is cheaper than setting up a permanent location through company incorporation.

Other benefits of hiring a Professional Employer Organisation in Uruguay include:

  • Hiring the right people according to the profile required by the client.
  • Apply and implement institutional policies in employment contracts.
  • Pay staff in accordance with local law.
  • Payment of national taxes and taking out compulsory employment insurance.
  • Perform due diligence.

Simply put, a PEO in Uruguay can help foreign businesses navigate the complexities of hiring and managing staff in a new market, removing the burden of legal obligations and procedures that may be unfamiliar to them.

Key obligations when hiring employees in Uruguay

In 2016, the International Trade Union Confederation (ITUC) rated Uruguay as one of the best countries in terms of workers’ rights. Uruguay was the only country in Latin America to receive the best possible rating by ITUC, and is in the same category as Germany, Finland, Iceland, or the Netherlands.

Even if you hire staff through a PEO in Uruguay, you should be informed about the key aspects of Uruguayan labor legislation, such as:

employment law in uruguay an infographic by biz latin hub.
Learn about the benefits of hiring through a PEO in Uruguay.

Employment contracts

  • Indefinite duration contracts: There is no legal requirement to have a written agreement. However, we recommend signing a contract in order to clarify the terms and conditions of the employment relationship.
  • Term contracts: It is mandatory to have a written contract when engaging in an indefinite employment relationship.
  • Temporary or seasonal contracts: The law requires a written employment contract.

Termination of the employment relationship

In Uruguay, if an employer terminates an employee’s contract without a valid reason, it is called ‘dismissal,’ and compensation must be paid to the employee. There is no formal requirement for prior notice of dismissal under Uruguayan labor law. Generally, the employer is required to compensate the employee for dismissal unless the employee has engaged in notorious misconduct. A PEO in Uruguay can help your company conduct dismissals within compliance standards.

Resignation is the expressed wish of an employee to end the contractual relationship. The employer must pay severance pay, exempting themselves from payment of compensation for dismissal. On the other hand, abandonment is the tacit wish of the worker not to continue with the labor relationship. Similar to what was mentioned above, a PEO in Uruguay will be able to effectively handle employee terminations and within legal frameworks to maintain compliance.

Common FAQs when hiring through an Employer of Record (EOR) in Uruguay

Based on our experience these are the common questions and doubts of our clients.

1. How to hire employees in Uruguay?

You can hire an employee by incorporating your own legal entity in Uruguay, and then using your own entity to hire employees or you can hire through an Employer of Record (EOR), which is a third party organization that allows you to hire employees in Uruguay by acting as the legal employer. Meaning you do not need an Uruguayan legal entity to hire local employees.

2. What is in a standard employment contract in Uruguay?

A standard Uruguayan employment contract should be written in Spanish (and can also be in English) and contain the following information:

-ID and address of the employer and employee
-City and date
-The location where the service will be provided.
-Employee position and responsibilities
-Payment frequency.
-Social benefits.
-Probation period
-Work hours
-Specific agreements or pacts.

3. What are the mandatory employment benefits in Uruguay?

The mandatory employment benefits in Uruguay are the following:

-Social Security Contributions (health, pension, reconversion fund, and IRPF)
-Holidays Bonus
-Christmas Bonus

For more information on mandatory employment benefits read our recent article on Employment laws in Uruguay

4. What is the total cost for an employer to hire an employee in Uruguay?

The total cost for an employer to hire an employee in Uruguay can vary based on the salary; however, indicatively the employer cost for mandatory employment benefits is 12.7% of the gross employee salary, which is additonal to the employee’s gross salary.

Please use our Payroll Calculator to calculate employment costs.

Benefits and Rights of Employees in Uruguay

When expanding your company and hiring local employees through a PEO in Uruguay, it’s important to consider the benefits and rights entitled to employees in the country, including:

Working hours: Employees may work no longer than 8 hours a day. Employees may work between 44-48 hours a week,

Overtime in Uruguay refers to work exceeding the legal or conventional limit set for the employee’s activity and category. Payment for overtime is 100% of the regular hourly rate on working days and 150% on holidays. Less than 30 minutes of work is counted as half an hour, while more than 30 minutes is counted as one full hour.

Additionally, decree 611/80 establishes the cases in which overtime is exempted, e.g. “senior personnel of commercial, industrial and service establishments. Senior personnel are considered to be employees who hold positions above that of a section chief”.

A PEO in Uruguay is an expert in these functions and will be able to handle tasks related to the employee’s wages.

Holidays and bonuses

Paid holidays/leave of absence: All employees working for private individuals or private companies of any kind, including domestic service, are entitled to at least 20 days’ paid annual leave.

Vacation Salary: All workers engaging in a private commercial activity receive a sum equivalent to 100% of the liquid vacation day. The employer must pay this before the beginning of the leave and in proportion to the corresponding days. A PEO in Uruguay can make sure your company compensates employees correctly and mitigates potential issues related to salary concerns.

Bonuses: Employees receive two installments of an annual bonus, known as the Annual Complementary Salary (SAC) or Aguinaldo, equivalent to 50% of their best monthly salary.

Biz Latin Hub’s Snapshot of Employment Law in Uruguay

Working hours

The standard working week ranges from 44 to 48 hours long, based on the nature of the work, while a standard working day should be no longer than eight (8) hours long. In all cases, it is mandatory to have at least one rest day per week.  

Timeliness of salary payments

Weekly salaries should be paid at the end of the week of work for which payment is due, while fortnightly and monthly salaries should be paid within five working days of the end of the period for which payment is due.

Types of employment contracts:
There are three (3) main types of employment contract in Uruguay:

Fixed-term employment contract:
Last for a period of time specified in the contract, which can be days, weeks, months, or years. Generally such contracts do not exceed one (1) year.

Indefinite-term employment contract:
This is the most common type of contract in Uruguay. These contracts will only terminate when both parties agree or when one can legally act unilaterally, such as in the case of a resignation or termination by just cause. 

Specific task or project employment contract:
This is regarded as an “undetermined contract” as there is no specific or clear date for when the task or project will be completed. It is key to determine a priori clear objective markers or thresholds so there are no ambiguities regarding when a project will be completed.

Termination and severance

Under Uruguayan law, there is no mandatory notice period that an employee must provide when they intend to vacate a job, however it is generally recommended that a period of 30 days notice is established in the company’s internal guidelines or the employment contract, especially in the case of managerial roles.

When an employee vacates their role voluntarily, they must be paid for all hours worked, as well as being compensated for any outstanding vacation they have accrued, as well as a proportion of their annual bonus, based on how much of the year they have worked.

In the case of an employee being dismissed without just cause, they must similarly be paid all outstanding salary and benefits, as well as a severance payment based on their length of service and their type of employment. For salaried employees paid on a monthly basis, severance totals one month of pay for every year of service provided, up to a maximum of six months of pay. 

For those who are paid daily, such as laborers, they will only be eligible for severance pay if they have worked at least 100 days. For such workers, the severance payment is a more complex calculation, but essentially totals 25 days of pay for every year in which they have worked at least 240 days, or two days of pay for every 25 days worked, with a maximum severance equal to 150 days of pay.

In the case of gross misconduct, an employee can have their contract terminated without the right to severance or a proportion of their annual bonus.

Vacations , Leave , and Other Absences

Statutory vacation allowance / paid time off (PTO)

After 12 months of service, an employee receives 15 PTO days per calendar year, which must be taken within a year of being accrued.

Seniority leave:
After five years of employment, one (1) day of seniority leave is granted and added to an employee's annual leave allowance. After that, one (1) day is added after every additional four (4) years of work. 

Maternity and paternity leave
Maternity leave allowance totals 13 weeks, and can be between one and six weeks before the due date, with the remainder taken following the child’s birth. This is paid by the Government social security fund. Paternity leave totals 10 working days.

Sick leave
The employer is obliged to pay the salary for the first two (2) days of an employee's doctor-authorised sick leave, after which it will be covered by the Government social security fund.

Study leave
After six (6) months of service, an employee is eligible for leave to partake in educational courses based on how many hours they work per week. 
Up to 36 hrs per week: six (6) days of leave annually.
Over 36 but under 48 hrs per week: nine (9) days of leave.
Working 48 hrs per week: 12 days of leave.
Such leave can not extend for more than three (3) consecutive days at a time.

Gynecological examination leave:
Female employees are entitled to one (1) day of paid leave per year in order to undertake a gynecological and/or mammary examination, however they must provide evidence of the appointment.

Blood donation
Employees are entitled to one (1) day of paid leave per year for blood donation, for which they must provide evidence.

Marriage leave:
Three (3) days of leave is provided for marriage, one (1) of which must coincide with the date of the marriage itself. Such leave must be requested with at least 30 days of notice and subsequently supported by legal documentation to demonstrate the marriage took place.

Bereavement leave:
Three (3) working days of bereavement leave are provided in the event of a parent, child, spouse/civil partner, or sibling passing away. Legal documentation proving the death must be presented within 30 days of the leave being taken, with failure to do so resulting in that leave being discounted from the employees standard annual allowance.

Employee Deductions:
Pension Fund contribution: Paid to the pension fund previously selected by the employee, at a rate of 15% of their salary
National Health Fund: Paid at a rate of between 3% and 8% of the employee’s salary, based on how much they earn.
Labor retraining fund: Paid by an employee at a rate of 0.125% of their salary
Employer Contributions:
Pension Fund contribution: Paid to the pension fund previously selected by the employee, at a rate of 7.5% of the employee’s salary
National Health Fund: Paid at a rate of between 3% and 8% of the employee’s salary, based on how much they earn
Accident insurance: Calculated based on the level of risk associated with the role the employee is undertaking
PEO in Uruguay: Employment law snapshot

Hire staff through an experienced PEO in Uruguay

Understanding local laws, regulations, processes, and requirements is at the core of what we do at Biz Latin Hub. We help you reduce risk, simplify operations, and ensure a smooth launch into the Uruguayan market. Working with a Professional Employer Organisation (PEO) in Uruguay can be the perfect solution to hiring local staff when expanding your company.

Our team of professionals will help you to keep up to date with the new labor regulations that the government has recently implemented in Uruguay. We help our clients to comply with labour and social security regulations, determine payroll taxes and benefits, and perform labour due diligence among other services.

Contact us today to discuss how we can support you.

Learn more about our team and expert authors.

Key services offered by Biz Latin Hub.

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.

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