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If you are interested in doing business in Puerto Rico, but are only planning a short-term or limited-scale operation, or would like to get to know the market better before making a larger commitment, you may find that hiring staff via a professional employer organization, or PEO in Puerto Rico is your best option. These companies will act as local legal employers, meaning you can focus on your core business.
When you take on employees through a PEO in Puerto Rico, you control their schedules and workloads, while handing the administrative burden over to the PEO firm. For non-US investors, that is particularly appealing because it means they can work in the local market before they company formation in Puerto Rico.
Biz Latin Hub can be your PEO in Puerto Rico or help you with company formation if you decide you need a more secure long term presence in the country. With 8 dedicated local offices across the region, we can help you get started and run your business anywhere in Latin America and the Caribbean.
Why invest in Puerto Rico?
Situated in the Caribbean, between the Dominican Republic and the US Virgin Islands, the US territory of Puerto Rico had a population of 3.82 million in 2021. That year, the island registered a gross domestic product (GDP) of USD$105 billion.
The country has seen growing interest among international investors over recent years, with foreign direct investment (FDI) rising over recent years, especially from the likes of Canada, Germany, Mexico, and Spain. Sectors that particularly attract investment include telecommunications, IT and tech services, and manufacturing.
Puerto Rico has a highly industrialized economy, with industry contributing more than 50% of GDP in 2018, and the services sector accounting for slightly less. The agriculture sector generated less than 1% of GDP that year. That means the country has a ready supply of manufacturing workers, while it is also home to a growing startup sector, providing skilled workers for the tech industry.
What is a PEO?
A PEO in Puerto Rico (professional employer organization) is a third-party organization that provides comprehensive HR (human resources) services to businesses. PEOs act as co-employers, sharing employer responsibilities with the client company. They handle various HR functions, including payroll, benefits administration, employee onboarding and offboarding, compliance with employment laws, risk management, and other administrative tasks.
When a company partners with a PEO in Puerto Rico, they enter into a co-employment relationship. This means that the PEO takes on certain employment responsibilities, such as payroll processing and tax filing, while the client company retains control over day-to-day operations and retains ownership of the business.
One of the key advantages of partnering with a PEO is that it allows small and medium-sized businesses to access cost-effective HR services and expertise that they might not have in-house. PEOs often leverage their purchasing power to offer competitive employee benefits packages, which can help attract and retain talented employees.
Additionally, a PEO in Puerto Rico can provide guidance on compliance with employment laws and regulations, which can be complex and time-consuming for businesses to navigate on their own.
In summary, a PEO is a professional organization that helps businesses outsource and streamline their HR functions, enabling them to focus on their core operations while ensuring compliance and providing comprehensive HR support.
Why use a PEO in Puerto Rico?
One of the advantages of hiring through a PEO in Puerto Rico is cost savings. The fees you pay the PEO firm are typically much lower than the expenses involved in forming a company, hiring staff, and managing payroll and compliance obligations.
Avoiding company formation also brings time savings. With a PEO in Puerto Rico, you can quickly find suitable candidates and hire them without the need to establish a legal entity. It takes only a few days after signing the services agreement.
Another advantage of hiring through a PEO in Puerto Rico is the limited commitment it entails. If you choose to discontinue operations, you can swiftly exit the market by offboarding outsourced employees, without the need for company liquidation.
Hiring through a PEO in Puerto Rico provides access to local knowledge and a better understanding of the market, regulatory requirements, and business culture. This allows you to make informed decisions before making a deeper commitment.
Additionally, your PEO in Puerto Rico will have an established recruitment network to assist in finding suitable staff. Moreover, they will have strong connections within the local business community, which can provide additional benefits to your business.
Finally, by signing a service agreement with a PEO in Puerto Rico, you can enjoy the guarantee of compliance with all local regulations and norms. This ensures that your business remains in good standing with local authorities, giving you peace of mind.
What does a PEO in Puerto Rico do?
Managing and ensuring compliance of the legal requirements that come with hiring employees in Puerto Rico is a big part of the responsibility of a PEO. As part of the guaranteed compliance that your PEO in Puerto Rico will provide, some of the legal requirements it will take care of include:
- Drawing up and registering signed employee contracts.
- Managing all aspects of payroll, including paying salaries in a timely manner.
- Adhering to standard daily and weekly working hours as agreed.
- Honoring all national holidays celebrated in Puerto Rico.
- Honoring sick and other personal leave entitlements.
- Meeting statutory employee and employer contributions for social security.
What labor laws will a PEO in Puerto Rico cover?
For employers in Puerto Rico, unique challenges arise compared to other U.S. regions, as local laws prioritize employee rights. Dismissing an employee demands substantial evidence of just cause to avoid the risk of providing substantial compensation, known as “una mesada,” which can resemble an enhanced severance package. This encompasses a minimum of two months’ salary along with additional compensation based on their service duration.
Vacation time: In Puerto Rico, employees receive 15 days of annual leave. Upon completing a minimum of one hundred and thirty (130) hours of work each month, every employee becomes eligible for vacation leave accrual. The rate of vacation leave accrual varies: starting with one-half (1/2) day in the initial year of service, increasing to three-fourths (3/4) of a day from the second to fifth (5) years of service, reaching one (1) day after the fifth year up to the fifteenth (15) year of service, and culminating at one and one-fourth (1 1/4) days after the fifteenth (15) year of service.
Employee Probation Period: The probationary period occurs automatically without requiring a written agreement. It lasts for a duration of up to nine (9) months for non-exempt employees and can be extended to twelve (12) months for exempt employees, including executives, administrators, and professionals as defined by relevant regulations.
Working Hours: In Puerto Rico, a standard workday consists of eight hours, while a regular workweek comprises forty hours.
Overtime in Puerto Rico: If your earnings surpass the minimum wage in Puerto Rico, you have the right to receive a minimum of 1.5 times your standard hourly wage for any overtime hours worked. In Puerto Rico, a unique overtime rate is set at twice the regular hourly wage for any hours worked exceeding 8 in a day or 40 in a week.
Sick Leave: For eligibility to accrue sick leave, employees are obliged to complete a minimum of 115 working hours per month. This translates to an approximate daily average of just under 5.5 hours or around 28 hours per week. Workers who meet this hourly threshold are entitled to earn one day of paid sick leave for each month of employment. Importantly, sick leave utilization contributes to the fulfillment of the 115-hour minimum requirement for subsequent months’ sick leave accrual.
Maternity Leave: According to Act No. 3, a pregnant employee typically has the right to take a maternity leave lasting eight (8) weeks. To initiate this leave, the employee needs to provide a medical certificate confirming her pregnancy and the anticipated childbirth date. The maternity leave is divided into two parts: a four (4) week prenatal leave and a four (4) week postnatal leave.
How to use a payroll calculator
If you want to get an idea of the possible costs involved in payroll outsourcing in Puerto Rico, using a payroll calculator is one way to get a good estimate.
Although a payroll calculator won’t be completely accurate, it will give you the opportunity to evaluate options while varying the salary, the number of employees, the country you want to enter, and the currency you wish to work in. As such, you will be able to understand your likely costs across a range of salaries, while also being able to compare other countries as potential alternative destinations.
You can find the BLH payroll calculator at the bottom of our Hiring & PEO Services page. The calculator will allow you to make good estimations of the costs involved in hiring in Latin America and the Caribbean based on country, currency, and salary, with the calculator factoring in local statutory deductions.
To use the BLH payroll calculator, you will need to undertake the following steps:
Step 1: Select the country
Choose the country where you are doing business, or planning to launch. This feature will be useful when it comes to comparing potential alternative markets.
Step 2: Select the currency you wish to deal in
You can choose between US dollars (USD), British Sterling (GBP) and Euros, as well as the local currency for the country you are looking at, compared to what is most convenient for you. Note that for Ecuador, El Salvador, and Panama, the local currency is also USD, as they have dollarized economies.
Step 3: Indicate an employees monthly income
Here you can indicate the expected salary you will be paying an employee, in the currency of your choice.
Step 4: Calculate your estimated costs
Based on all of the information you have provided, you will receive results indicating your estimated costs, including a breakdown for estimated statutory benefits you will be liable for.
Step 5: Compare your costs to other options
With a good estimate at hand of how much your staff in Puerto Rico would be, if you are flexible about your expansion into Latin America and the Caribbean, you can use the BLH payroll calculator to compare those costs to other jurisdictions.
FAQs on using a PEO in Puerto Rico
Based on our extensive experience, these are the common questions and doubts of our clients on hiring through an EOR or PEO in Puerto Rico:
1. How does one hire employees in Puerto Rico?
You can hire someone in Puerto Rico by either setting up your own legal entity in the country and using it for recruitment, or by utilizing the services of an employer of record (EOR) or PEO in Puerto Rico. These are third-party entities that allow you to employ individuals in the country while they act as the official employer before the law. When using an EOR or PEO in Puerto Rico, you do not need a local entity to hire employees.
2. What is in a standard employment contract in Puerto Rico?
A standard employment contract in Puerto Rico should be written in Spanish (and can also be in English) and outline the terms and conditions of employment to establish a clear understanding between the employer and the employee. Some elements that are typically included in a standard employment contract in Puerto Rico are:
– Parties to the contract.
– Position and responsibilities.
– Employment status.
– Work schedule.
– Compensation.
– Benefits.
– Probationary period.
– Termination clause.
– Confidentiality and non-compete clauses.
– Intellectual property.
– Code of conduct and policies.
– Governing law and Jurisdiction.
3. What are the mandatory employment benefits in Puerto Rico?
The mandatory employment benefits in Puerto Rico are the following:
-Paid Time Off (PTO)
-Meal and Rest Breaks
-Workers’ Compensation
-Unemployment Benefits
-Disability Benefits
-Parental and Maternity Leave
4. What is the total cost for an employer to hire an employee in Puerto Rico?
The total cost for an employer to hire an employee in Puerto Rico varies depending on the salary. However, as an indication, the employer cost for mandatory employment benefits is approximately 12.2% on top of the employee’s salary.
Please use our Payroll Calculator to calculate employment costs.
5. How does the employment contract work?
When working with an employer of record (EOR), the contractual handling of the employment relationship is crucial. The EOR serves as the legal employer and needs a contract with the worker, which may or may not include your company. The agreement must be compliant with the law and aligned with your company’s practices across all locations the EOR supports.
Contracts vary across territories. Some have detailed tripartite agreements, clearly defining responsibilities, with the EOR handling payments, taxes, and local matters, while you retain policy control. Benefits and statutory requirements should be discussed. When choosing an EOR, examine their template agreements for consistency and consider how they ensure uniformity while complying with local practices.
6. Does the EOR provide payroll compliance and guidance for Puerto Rico?
You do need to ensure that the EOR can provide its services in Puerto Rico. It is also worth checking which other countries they operate in. Not all providers have global advisory services. Hiring one with such services eliminates the need for multiple consultants to manage compliance in all your countries of operation.
Biz Latin Hub can be your PEO in Puerto Rico
At Biz Latin Hub, we can provide the high-quality hiring & PEO services you need to find the right staff and get to work in Puerto Rico in the shortest time possible.
With our comprehensive portfolio of back-office solutions, including legal, accounting, and company formation services, we can be your single point of contact for entering the market and operating in Puerto Rico, or any of the 17 countries around Latin America and the Caribbean where we have local teams in place.
Contact us now for personalized assistance or a free quote.
Learn more about our team of expert authors.
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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