chile PEO

How can a PEO in Chile help you enter the market?

The Chilean economy is among the most stable, open and competitive in Latin America. The country is the world’s leading copper producer and has a strong internal market. To enter the market quickly, you may want to consider a PEO in Chile. This will allow you to start operations very quickly and give you the option to put down roots later.

Map of Chile with its main cities and ports.
The main cities for PEO in Chile

The country is ranked as a high-income economy by the World Bank, and is considered to be South America’s most stable and prosperous nation. That explains the appeal of a PEO in Chile – it leads the continent in terms of competitiveness, income per capita, globalization, economic freedom, and low perception of corruption.

But before considering company formation in Chile, it is crucial to understand the local labor laws and to be aware of the different ways to attract and hire local staff. Keep reading and learn about hiring through a professional employer organization, or PEO in Chile; an attractive method to hire local employees, which does not have the economic or administrative burden that forming a local legal entity has.

Why do business in Chile?

  • Chile is ranked 5 in the World Bank’s report on doing business.
  • 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.
Number of software developers involved in offshore development in Latin America in 2021, by country. PEO in Chile
A PEO in Chile means entering a country in the regional top 5 for software development.

What is a PEO in Chile?

A Professional Employer Organization (PEO), also known as an employer of record (EOR), 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. A PEO works through a co-employment arrangement, meaning the PEO contractually shares various employer responsibilities with the company.

Why use a PEO in Chile?

There are many benefits to using a PEO in Chile. By partnering with a company that is an expert in the local legislation, you minimize risk and ensure that your company stays on top of local law and regulation. In addition, you save on time by reducing your amount of administrative tasks, allowing you to focus on growing the company. 

Without increasing your headcount, working with a PEO will allow you to benefit from HR support. 
Moreover, you are able to hire employees quickly, in compliance with Chilean labor laws, and without having to establish and maintain a local Chilean legal entity. This allows you to start doing business quicker and test out the market.

Using a PEO 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 suit them after first operating through an EOR in Chile to get a better understanding of the local market. 

6 Key labor laws in Chile

When establishing a company abroad, it is vital to comply with local labor laws. For most foreign investors, it is a challenge to understand and comply with the local employment standards. For this reason, a PEO in Chile can be a great alternative to hire staff, facilitating the process of complying with local laws. The most important aspects of the Chilean Labor Law are summarized below:

  1. Employment contracts: The employment contract needs to be in writing and completed within 15 days from the initiation of services. 
  2. 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-recognized institution.
  3. Foreign workers: The Labor Code states that at least 85% of employees who work for the same employer must be of Chilean nationality.
  4. 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. The second one, a bipartite training committee, is required whenever the company has more than 15 employees.
  5. Unions: Employees benefit from the constitutional and statutory right to unionize and form labor unions, these represent the employees before the company.
  6. Termination: If an employment relationship is ended due to “company needs”, the employer must send the employee a written communication informing about the labor contract termination one month in advance, unless the employer pays the employee a compensation equivalent to 30 days of work.
Employment Law in Chile: a Guide

If you are interested in entering the Chilean market, or are already doing business there, you need to understand and comply with employment law in Chile.

Employment law in Chile, which is overseen by the Ministry of Labor and Social Security, shares many similarities with other countries in the region, but also contains particularities that you will need to navigate when doing business in the market.
If you are planning a short-term or limited-scale operation, hiring staff through an employer of record in Chile could be your best choice -- allowing you to hire staff without going through company formation, and coming with the additional benefit of guaranteed compliance with local employment law. 
If, instead, you are set on making a deeper commitment to the Chilean market, you will need to acquire the services of a reliable corporate lawyer in Chile, in order to guarantee the proper implementation of all laws related to your business.
Below, a guide to some of the essentials related to employment law in Chile is offered, including information on standard working hours, the most frequently used types of contracts, details related to vacations and other leave, and information on tax contributions that employers must oversee.
Contact us today to find out more about how we can assist you in understanding and implementing employment law in Chile, among a host of corporate support options that we can offer.
Working hours according to Chilean employment law
Under employment law in Chile, a standard working week is 45 hours long and divided into no less than five and no more than six days. An average working day is nine hours long.
An employee can be exempted from this provision by being designed as “trusted” in their contract. This provision was originally intended to be applied to managers and executives, but over time has been used for a broader range of employees.
Note that in Chile there are generally between nine and 12 national holidays that fall on weekdays per calendar year.
Employment law in Chile: main contract types
There are three contract types under employment law in Chile that are most commonly used by foreign investors and corporations.
Indefinite-term employment contracts are the most common type of contract used in Chile, and can only be terminated by mutual agreement between the employee and employer, or when one of the parties can act unilaterally, such as in the case of the employee resigning.
Fixed-term employment contracts can last for days, weeks, or months, but they generally do not exceed more than one year. However, in certain cases they can last for up to two years. 
Specific task or project contracts — regarded as an “undetermined contract” — have no specific date for when the contract ends, meaning that clear makers and thresholds must be established in order to eliminate any ambiguities regarding the completion of the project.
Termination & severance
Under Chilean law, an employee is obliged to provide a minimum of 30 days of written notice when they intend to vacate their role. In the event that they provide less notice, the employer is unable to withhold or discount any amount from the final salary or severance payment, however they can file a lawsuit against the employee should they be able to prove that their untimely departure caused the company pecuniary damages.
Should the employer wish to terminate the contract of an employee without just cause, they must also provide 30 days of written notice. While the period of employment can end sooner, the employer must still pay the employee for the entire one month notice period. The employee will also receive additional compensation based on the length of their service, equivalent to one salary per year of service, capped at a maximum of 11 months of salary. In addition, the employer must compensate the employee for any outstanding vacations and public holiday allowance.
An employee can only have their contract terminated without the right to compensation when they are found guilty of misconduct, as laid out in Article 160 of the Chilean Labor Code.
Vacations, leave, and other absences
According to employment law in Chile, after 12 months of service with the same employer, an employee is entitled to 15 days of paid vacation leave. That leave can be accrued for a period of up to two years, meaning an employee can build up 30 days of PTO. 
Under Article 70 of the Chilean labor code, when an employee accrues two periods of PTO allowance, the employer is obliged to grant or instruct the employer to use the allowance from at least one of those allowances (i.e. 15 days of leave) prior to the completion of a third period and accrual of more leave.
 


Sick leave
Employees are entitled to payment for leave due to illness, however when that sick leave lasts for less than 11 days, they do not get paid for the first three days. For example, if an employee is off work sick for five days, they will be entitled to payment for two of those days.
If sick leave lasts for 11 consecutive work days or more, the employee is entitled to payment for all of them. In all cases, sick leave is paid for by the employer’s health insurance provider.
Note that within two working days of returning to work, an employee must present documentation proving their illness that is signed by a registered physician.
Maternity and paternity leave
Maternity leave allowance totals 12 weeks, and begins six weeks before the expected date of birth. Fathers are entitled to five days of paid paternity leave. However, in the event that the mother did not use all of her maternity leave allowance, she is able to transfer it to the father from the seventh week after the birth of the child. 
Maternity and paternity leave are paid for by the government or the company health insurance provider.
Bereavement leave
In the event of the death of a spouse, civil partner, or chile, employees are entitled to bereavement leave totalling seven days. In the event of the death of a parent, they are entitled to paid bereavement leave totalling three days.
Statutory contributions under Chilean employment law
According to employment law in Chile, employers must oversee making the following deductions from employee salaries and contributions from employers must be made:
Employee deductions generally total around 18.6% of the employee’s salary, including an 11% deduction that goes towards the pension fund chosen by the employee. 
Additionally, a 7% deduction goes to the national public health agency FONASA, and a deduction that goes towards unemployment insurance and totals approximately 0.6%.
Note that the minimum wage according to employment law in Chile was set at 337,000 Chilean pesos (approximately US $408) in 2021. 
Employer contributions total around 5.7% of an employee’s salary, with a contribution equal to 2.3% of the salary going towards disability insurance and paid through the employee’s pension fund. 
A further contribution of 2.4%  must also be made for unemployment insurance, and is also paid through the same pension fund.
Accident insurance is based on the level of occupational risk associated with the role being undertaken, however it generally totals around 0.93%.
Profit sharing is obligatory under Chilean employment law and means that any company must share 30% of net profits with its employees. 
The share received by each individual is calculated based on their salary level, and profit shares can be distributed on a monthly or annual basis, based on the preference of the employer.
Biz Latin Hub can assist you doing business in Chile
At Biz Latin Hub, our multilingual team of corporate support specialists is available to help you get to grips with and properly implement employment law in Chile.
We have a comprehensive portfolio of back-office services, including company formation, visa processing, accounting & taxation, legal services, and hiring & PEO,  allowing us to offer tailored packages of integrated services to suit every need.
Beyond Chile, we also have teams operating in 15 other markets around Latin America and the Caribbean, and we specialize in multi-jurisdiction market entry.
Contact us today  to receive more information about how we can support you doing business in Chile.
Or learn more about our team and expert authors.
Snapshot of employment law for a PEO in Chile.

What employee benefits exist in Chile?

In addition to complying with labor laws, a company must be able to provide all the benefits Chilean workers are entitled to to its employees. Using a PEO in Chile facilitates this process, because they assume responsibility for managing employee benefits. The most important employee benefits are summarized below:

  1. Working hours: The Labor 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.
  2. Overtime: All employees who are not excluded from the working hours’ limit mentioned previously are entitled overtime pay. It is calculated at 150% of the ordinary hourly salary.
  3. 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.
  4. 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.
  5. 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.
  6. Probationary period: The Labor Code does not consider a probationary period.

How to use a payroll calculator

If you want to get an idea of the possible costs involved in payroll outsourcing in Chile, using a payroll calculator is one way to get a good estimate.

Use Biz Latin Hub Payroll Calculator. PEO in Chile
Use the Biz Latin Hub Payroll Calculator for PEO in Chile.

Although a payroll calculator won’t be completely accurate, it will give you the opportunity to look at costs 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 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.

FAQs on a PEO in Chile

Based on our extensive experience,  these are the common questions and doubts of our clients on hiring through a PEO or EOR in Chile:

1. How does one hire employees in Chile?

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 Chile by acting as the legal employer. With an EOR you do not need a Chilean legal entity to hire local employees.

2. What does a standard employment contract contain in Chile?

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

3. What are the mandatory employment benefits in Chile?

The mandatory employment benefits in Chile are the following:

  • Legal gratifications
  • Employer’s contributions
  • Worker’s holidays.
  • Lunchtime.

4. What is the total cost for an employer to hire an employee 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 approximately 29.21% as a percentage of the employee’s gross salary and benefits.

 Please use our Payroll Calculator to calculate employment costs.

5. What is the difference between hiring through an EOR and forming a legal entity?

The best decision depends on the needs of your company. Forming a legal entity  has the following characteristics:

  • Slower to establish. 
  • Permanent presence in the country. 
  • All costs deductible through a local entity. 
  • Ability to sign contracts and agreements locally. 
  • Ability to invoice through local entity. 
  • Legal entity compliance support required. 
  • Hire employees directly. 

6. What is the difference between a PEO and an EOR? 

A PEO works with your company as a co-employer, while a EOR is the legal employer of your employees. An EOR can provide more services than a PEO. 

How can we help you 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.

Biz Latin Hub can help you with a PEO 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.
Legal Team Chile
Legal Team Chile

Legal Team Chile is the Biz Latin Hub leading experts on doing business in Chile 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 Chile via our "contact us page".

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