The Chilean economy is among the most stable, open and competitive in Latin America. The country is the world’s leading copper producer, and exports of minerals, wood, fruit, seafood, and wine. These industries contribute greatly to the country’s continued GDP growth.
Find below some interesting facts about the country:
- Chile is ranked 5 in the “Doing Business” report, carried out by the World Bank.
- Chilean employers must share profits with their employees, by either paying them 25% of their annual remuneration or 30% of annual net profits.
- The nation is the host of various multinational companies.
- The country’s economy is dominated by foreign trade.
- The mining sector in Chile is one of the pillars of its economy and the Chilean government strongly supports foreign investment in the sector and has modified its mining industry laws and regulations to foster a favourable investing environment for foreigners.
The country is ranked as a high-income economy by the World Bank, is considered as South America’s most stable and prosperous nation, leading the continent in terms of competitiveness, income per capita, globalization, economic freedom, and low perception of corruption.
Before establishing operations in Chile, it is crucial to understand and to be aware of the different ways to attract and hire local staff. Keep reading and learn about an attractive method to hire local employees, which does not have the economic or administrative burden that forming a local legal entity has.
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PEO / EOR in Chile? Hiring Staff in Chile?
When establishing a company abroad, it is vital to comply with local labour laws. Key aspects of the Chilean Labour Law have been outlined below:
- Employment contracts: The employment contract needs to be in writing and completed within 15 days from the initiation of services.
- Fixed-term contracts: These contracts can be made for a maximum duration of one year. This limit jumps to two years for managers or individuals who have obtained a professional or technical degree delivered by a state-recognised institution.
- Foreign workers: The Labour Code states that at least 85% of employees who work for the same employer must be of Chilean nationality.
- Committees: Regarding legislation, two committees are required. The first one is a joint health and safety committee which is mandatory whenever more than 25 employees are present in the workplace. It takes care of identifying and assessing the risks of accidents and occupational diseases. The second one, a bipartite training committee, is required whenever the company has more than 15 employees. Its mission is to promote the training of employees in the company.
- Unions: Employees benefit from the constitutional and statutory right to unionise and form labour unions, these represent the employees before the company. Company labour unions, intercompany labour unions, temporary workers labour unions, and independent workers labour unions are the different types of labour unions recognised by the Chilean law.
- Termination: If an employment relationship is ended due to “company needs”, the employer must send the employee a written communication informing about the labour contract termination one month in advance, unless the employer pays the employee a compensation equivalent to 30 days of work.
Employee Benefits in Chile
The following employee benefits are important to keep in mind:
- Working Hours: The Labour Code states that the maximum working schedule per week is 45 hours, distributed in no more than six and no fewer than five days. However, managers, employees with the power to manage, and employees without direct supervision working at home or in another location than the workplace are excluded from the above-mentioned limit. Ordinary work per day cannot exceed 10 hours, and only two hours of overtime are allowed per day.
- Overtime: All employees who are not excluded from the working hours’ limit mentioned previously are entitled overtime pay. It is calculated as one-and-a-half times the ordinary hourly salary.
- Annual Vacation: The annual holiday consists of 15 working days. It is increased by one day for every three years in employment with the current employer after the first 10 years of work for one or different employers.
- Sick Leave: Employees have the right to sick leave following a doctor’s orders. During this time, the employee will receive an amount equivalent to his or her salary paid by the respective health institution. There is no annual limit on the number of days of sick leave an employee can take, as this will depend on the medical licence extended by the doctor.
- Maternity Leave: Female employees are entitled to a paid maternity leave starting 6 weeks prior to the birth of the child and continuing 12 weeks following the birth.
- Probationary Period: The Labour Code does not consider a probationary period.
For most foreign investors, it is a challenge to understand and comply with the local employment laws in Chile. For this reason, a Professional Employer Organization (PEO / EOR) solution can prove to be a great alternative to hire staff, allowing for facilitation in the employee engagement process.
What is a Professional Employer Organization (PEO) / Employer of Record?
A Professional Employer Organization (PEO / EOR), also known as an ’employee of record’, is a company that legally employs workers on behalf of companies who do not have an established office in a given country. As such, the PEO oversees and manages all human resource related functions.
PEOs partner with businesses in order to provide them with complete HR outsourcing to support a company’s human resources management, employee benefits, regulatory compliance, and payroll outsourcing. A PEO / EOR works through a co-employment arrangement, meaning the PEO / EOR contractually shares various employer responsibilities with the company.
Real-life Example: A Canadian company is looking to hire a bi-lingual IT consultant. They decide that a Chilean employee may be a good option (having a high level of education, often being bi-lingual and a lower company cost than a Canadian employee). However, the Canadian company does not want to go through the administrative hassle of forming and maintaining a local company in Chile. Instead, they work with a Chilean PEO service provider who can ‘hire’ the individual, and comply with all local employment requirements. While the employee is technically employed by the PEO, the individual will be managed and tasked by the Canadian company.
Benefits of using a PEO in Chile
- You minimize risk and stay on top of local law and regulation.
- You reduce your amount of administrative HR tasks.
- You benefit from HR support without increasing your headcount.
- You can hire employees quickly, in compliance with Chilean labour laws, and without having to establish and maintain a local Chilean legal entity.
Using a PEO / EOR is an enticing option to begin doing business in Chile. It enables a company to start commercial activities in the first phase of an expansion into the region. Some companies may find that a local entity formation may be a good option after first operating through a PEO / EOR, and once they have a better understanding of the local market.
How to use a payroll calculator
If you are keen to get an idea of the possible costs involved in payroll outsourcing in Chile, using a payroll calculator is one way to get a very good estimate.
Because while a payroll calculator won’t be completely accurate, it will give you the opportunity to search according to 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, based on that which is most convenient to 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 Chile 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.
Common FAQs when hiring through an Employer of Record (EOR) in Chile
Based on our experience these are the common questions and doubts of our clients.
You can hire an employee by incorporating your own legal entity in Chile, 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 Chileby acting as the legal employer. Meaning you do not need a Chilean legal entity to hire local employees.
A standard Chilean 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
– Job/function/responsibilities of the worker
– Working hours
– Agreed remuneration
– Frequency of payment of remuneration
– Health and pension systems; unemployment insurance contribution held by the employee
– Start and end date of employment contract
– Confidentiality clause
– Non-competition clause
The mandatory employment benefits in Chile are the following:
– Employer’s contributions
– Worker’s holidays.
For more information on mandatory employment benefits read our recent article on Employment laws in Chile
The total cost for an employer to hire an employee in Chile may vary depending on the salary; however, as an indication, the cost to the employer of mandatory employment benefits is 29.21% as a percentage of the employee’s gross salary and benefits.
Please use our Payroll Calculator to calculate employment costs.
Interested in Doing Business with a PEO in Chile?
Chile has the best-qualified economy in Latin America and one of the best regarded among the world’s emerging economies, thanks to its sustained economic growth and social progress, along with government changes designed to attract foreign direct investment (FDI). A PEO solution will enable you to maintain day-to-day control of your employees, while the PEO takes care of all risk mitigation, compliance, payroll, and employee benefits.
Contact our Country Manager, Allan here at Biz Latin Hub to learn more about how we assist your hiring and recruitment needs in Chile.
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.