Why a Professional Employer Organization (PEO) in Chile Can Help Your Market Entry

A Professional Employer Organization (PEO) in Chile is an excellent tool for testing market entry and setting your business up for success. By handling essential HR tasks, a PEO allows you to focus on growth while navigating the legal and operational nuances of the country. Partnering with a trusted local expert is key, and Biz Latin Hub offers unparalleled support with its extensive experience across Latin America. From market entry to company formation in Chile, we provide the services you need to thrive in Argentina and beyond.

Key Takeaways On Using A PEO In Chile

What is a Professional Employer Organization (PEO) in Chile?

A Professional Employer Organization (PEO), 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. It is also possible to have an agreement with employer of record (EOR) in Chile, acting in a similar manner to a PEO, but it typically used more by clients that have no physical operations in a country.

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 to Hire Employees?

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. 

What is The Process for Hiring Through a Professional Employer Organization (PEO) in Chile?

A quality Professional Employment Organization (PEO) in Chile can navigate and manage the complexities of employment contracts available in the country. While similar to an Employer of Record (EOR) in Chile, there are distinct differences in how the employment relationship is legally structured. Based on our experience, the process typically follows these steps:

• Assess the Need to Hire in Chile – Analyze your business needs and determine the necessity of hiring locally.
• Source Local Talent – Identify skilled candidates through direct search or with assistance from local recruitment agencies.
• Select a Professional Employment Organization (PEO) – Choose a dependable PEO partner and review their services and pricing.
• Approve the Offer Letter – Finalize the employment terms, including compensation, benefits, and compliance with Chilean labor laws.
• Onboard the Employee via the PEO – Facilitate a seamless onboarding process, with the PEO managing legal and administrative requirements.

EOR vs. PEO in Chile – What’s the Difference?

When expanding into Chile, businesses often choose between an Employer of Record (EOR) or a Professional Employer Organization (PEO) to hire and manage employees.

• EOR (Employer of Record): A third-party provider that legally hires employees for companies, handling payroll, taxes, and compliance. It enables quick market entry without a local entity but may have limitations for long-term operations. Hiring through an EOR in Chile is legal and ensures compliance with Chilean labor laws.
• PEO (Professional Employer Organization): A service provider that supports companies with a local entity establishment and then managing payroll, benefits, and HR compliance. While entity setup requires initial time and investment, it offers greater stability, talent attraction, ability to build a long company culture and reduced permanent establishment risks.

Note that EOR and PEO are often used interchangeably and, in some cases, may even mean the same thing, as their meanings can vary depending on context, local legal frameworks, and business local norms. In Chile specifically, a PEO works through a co-employment arrangement, while an EOR is the legal employer of your employees.

Important Tip: While an EOR provides a quick-entry solution for the Chilean market, establishing a legal entity and working with a PEO typically offers greater control, long-term cost efficiency, reduced permanent establishment risk, stronger legal standing, and better talent attraction in Chile. Biz Latin Hub offers both EOR and PEO solutions, helping businesses navigate Chile’s regulations, establish entities, and ensure full HR compliance with the country’s labor laws. Whether you need a fast market entry or a stable long-term presence in Chile, we can guide you through the process.

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.

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.

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:

Why do business in Chile?

Chile, classified as a high-income economy by the World Bank, is South America’s most stable and prosperous nation. It leads the region in competitiveness, income per capita, globalization, economic freedom, and low corruption levels, making it an attractive destination for businesses seeking Professional Employment Organization (PEO) services. The World Bank ranks Chile fifth in its “Ease of Doing Business” report, further highlighting its favorable business climate.

Employers in Chile are required to share profits with their employees. This can be done by paying either 25% of the employee’s annual remuneration or 30% of the company’s annual net profits. This legal framework promotes equitable income distribution and strengthens the employer-employee relationship.

Chile’s economy thrives on foreign trade and a robust mining sector, supported by government policies encouraging international investment. The nation hosts several multinational companies, reflecting its global business appeal and strategic importance in the South American market.

Biz Latin Hub can help with a Professional Employment Organization (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.