el salvador peo

Professional Employer Organization (PEO/EOR) El Salvador – Record Services Employer

El Salvador presents many compelling reasons for engaging in business. For those looking to move operations to the region, a Professional Employer Organization in El Salvador (PEO firm) can help your business achieve compliance and streamline operations. 

A Professional Employer Organization in El Salvador (PEO), otherwise known as an ‘Employer of Record’ is an organization that provides and supports companies with their HR functions – from the very first stages of recruitment to the payments of taxes and benefits.

PEOs undertake the fundamental but time-consuming HR tasks, allowing companies to focus their attention on the growth and success of their business. In a region that may fluctuate economically, they allow companies to mitigate risks and complications.

The services of a Professional employer Organization in El Salvador are particularly useful when companies are seeking to hire a local workforce but either do not want to or aren’t able to set up a local legal entity.

After providing an overview of the market in El Salvador, this article will outline why a PEO/EOR firm in El Salvador can be strategic and helpful for your company.

El Salvador has an important group of young people who are active in the labor market. PEO/EOR in El Salvador

Reasons to Do Business in El Salvador

There are several reasons that explain why El Salvador is a popular market for investors. 

El Salvador’s economy has shown resilience and growth. In 2022, the country’s GDP grew by 2.6%. 

Moreover, El Salvador has an investment friendly environment, after the government implemented measures to attract foreign investment. It established the “Proesa” agency, which focuses on promoting exports and attracting investment to the country. El Salvador ranked 96th out of 190 countries in the World Bank’s Ease of Doing Business Index 2020, showcasing improvements in the business environment (source: World Bank).

El Salvador has a young and talented workforce. The country has invested in education and vocational training programs to develop skilled professionals. El Salvador is known for its expertise in industries such as information technology and services, manufacturing, and textiles. A quality Professional Employer Organization in El Salvador can help your business tap into the highly-skilled talent pool the region has to offer.

In addition, El Salvador’s strategic geographic location offers advantages for businesses. It is situated in Central America, providing access to regional markets and is part of the CAFTA-DR free trade agreement with the United States, offering preferential access to the largest consumer market in the world.

El Salvador has been actively promoting digital transformation initiatives. The country puts a strong focus on technology and innovation, with government programs supporting startups and technology-driven businesses. El Salvador is becoming a hub for fintech and digital entrepreneurship. A Professional Employer Organization in El Salvador will be able to keep your company up-to-date with changes in the technology sector.

Finally, El Salvador has embraced renewable energy sources. The country has significant geothermal, solar, and wind energy potential. It aims to generate 100% of its energy from renewable sources by 2025, which has attracted  investments in the renewable energy sector.

These factors, supported by reliable sources, demonstrate why El Salvador offers opportunities for business growth, investment, skilled workforce, strategic location, digital transformation, and renewable energy.

Considering the range of attractive commercial opportunities available in the region, many investors are looking to expand their commercial operations to El Salvador. However, before setting up a local company in El Salvador or a branch office, many companies like to ‘test’ the local market. A local Professional Employer Organization in El Salvador (PEO) solution is a great way to do this. 

Recruit and attract the best talent for your company. If you are looking for entrepreneurship in Latin America, Biz Latin Hub is your ally to hire the human talent you need.
Recruit and attract the best talent for your company. If you are looking for entrepreneurship in Latin America, Biz Latin Hub is your ally to hire the human talent you need. PEO in El Salvador

Benefits of Using a PEO/EOR in El Salvador

A Professional Employer Organization in El Salvador will enable your company to maintain your focus on your business’ development while the HR burdens are outsourced to the PEO/EOR.

  • Cost-effective – Reduces recruitment and administrative expenses and saves you money if you want to hire local staff but do not have a fully incorporated company. 
  • Recruitment – Assists you in finding the most suitable and qualified staff for your company.
  • Limited Liability – Limits your level of liability with respect to tax and labor obligations. 
  • Time-effective – Removes the need for you undertaking the time-consuming but fundamental tasks of processing payrolls, payment of employee benefits and other HR administration.
  • Local expertise – A Professional Employer Organization in El Salvador will ensure that you are in compliance with all El Salvadorian employment laws and regulations, due to their expertise of local laws and regulations.

Foreign nationals who have the intention of registering a business in El Salvador must first take into account the fundamental employment laws and regulations. Companies must ensure 100% compliance with the legal requirements before entering into an employment relationship in El Salvador. This is made easier with the help of a quality Professional Employer Organization in El Salvador.

The labor regulations through the region can be complicated to navigate without the help of a Professional Employer Organization in El Salvador. They will be able to ensure your company is compliant and operating within the legal framework in the country.

In El Salvador, labor laws are more aligned with the protection of the rights and benefits of workers rather than employers. It’s important to take into account what these additional benefits are. A quality Professional Employer Organization in El Salvador will be able to handle these responsibilities in a compliant manner.

These are some of the regulations and labor obligations your company will have to comply with: 

Work contracts:It is the obligation of every employer that every employee must formalize with them an employment contract, which can be for an indefinite or fixed term. 

Foreign employees:The hiring of foreign personnel in El Salvador is allowed. However, this type of contract has its limitations; within the company, foreign employment cannot exceed 10% and that of the total salaries paid to foreigners cannot exceed 15%. These rules do not apply if the foreign person holds the positions of Director, Administrator or Manager. The person’s position must be registered in the Commercial Registry and may have up to 4 foreign employees under this type of position.

Social Security:All the employees that you have under your payroll must be registered in the Salvadoran Social Security Institute (ISSS). 

Pension Fund: Applies in the same way as it does for the ISSS; all employees under payroll must be registered with a Pension Fund Association (AFP).

Bonus: A premium must be paid to workers at the end of the year between December 12 and 20, depending on the amount of time the worker has worked for the employer:
a) From 1 to 3 years: an employee must be remunerated for 15 days of their standard salary.
b) From 3 to 10 years: an employee should be remunerated for 19 days of their standard salary.
c) 10 or more years: An employee should be remunerated for 21 days of their standard salary.

Minimum salary: The National Minimum Wage Council is the institution responsible for establishing the minimum wage of each sector of economic activity, and each year updates the corresponding values. Currently, the minimum salary for trade and services is USD$302.00 monthly. Because the minimum salary fluctuates, it is important to hire a Professional Employer Organization in El Salvador. They will be able to ensure your company is up-to-date with payroll expectations and remain compliant.

Overtime: The labor laws of El Salvador establish that the maximum number of ordinary working hours that can be performed is 44 hours weekly. Any time that exceeds this period must be remunerated with a 100% surcharge on the employee’s base salary.

Vacation period: Every employee has the right to enjoy vacations annually, the number of days they can enjoy is 15 days, and vacations must be paid with 30% of the base salary.

Sick leave: Employers must pay 75% of the worker’s basic salary for the duration of the illness, not exceeding 60 days a year.

Maternity or paternity leave: Maternity leave consists of 16 weeks, 10 of which must be taken after birth. Paternity leave consists of 3 days counted from birth.

How to Use a Professional Employer Organization in El Salvador to Hire Staff

All companies thinking about hiring staff in El Salvador must take into account compliance with regard to the following labor obligations:

Each legal requirement mentioned below can be completed by a Professional Employer Organization in El Salvador.

  1. Work contracts – It is the obligation of every employer that every employee must formalize with them an employment contract, which can be for an indefinite or fixed term. 
  2. Foreign employees –The hiring of foreign personnel in El Salvador is allowed, however, this type of contract has its limitations; within the company, foreign employment cannot exceed 10% and that of the total salaries paid to foreigners cannot exceed 15%. These rules do not apply if the foreign person holds the positions of Director, Administrator or Manager. The person’s position must be registered in the Commercial Registry and may have up to 4 foreign employees under this type of position.
  3. Social Security – All the employees that you have under your payroll must be registered in the Salvadoran Social Security Institute (ISSS). 
  4. Pension Fund – This applies the same as the ISSS; all employees under payroll must be registered with a Pension Fund Association (AFP).

The labor regulations through the region can be complicated to navigate without the help of a Professional Employer Organization in El Salvador. They will be able to ensure your company is compliant and operating within the legal framework in the country.

How to Use a Payroll Calculator

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

Use Biz Latin Hub Payroll Calculator.
PEO in El Salvador – Use Biz Latin Hub Payroll Calculator.

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, in comparison 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 El Salvador 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 El Salvador

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

1. How to hire employees in El Salvador?

You can hire an employee by incorporating your own legal entity in El Salvador, 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 El Salvador by acting as the legal employer. Meaning you do not need a Salvadoran legal entity to hire local employees.

2.What is in a standard employment contract in El Salvador?

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

  • Name, ID, Tax ID, social benefits numbers of the employee, address of the employer and employee
  • City and Date
  • Job Title
  • Work Hours
  • Location where the service will be provided
  • Salary and payment frequency
  • Social benefits
  • Probation period (Has a maximum of 30 days)
  • Specific agreements with the employer

3. What are the mandatory employment benefits in El Salvador?

The mandatory employment benefits in El Salvador are the following:

  • Social Security and Pensions contributions
  • Vacation
  • Aguinaldo (13th Month Bonus)
  • Severance Pay* Only applies if the employee’s contract is terminated without just cause.

For more information on mandatory employment benefits read our recent article on Employment laws in El Salvador.

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

The total cost for an employer to hire an employee in El Salvador can vary depending on the salary; however, as a rough estimate, the employer’s cost for mandatory employment benefits typically ranges from 25% to 35% of the gross employee salary. This is in addition to the employee’s gross salary.

Please use our Payroll Calculator to calculate employment costs.

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

Forming a legal entity is different to hiring an EOR in the following ways: 

  • 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. 

The graphic above highlights when it is best to use a Professional Employer Organization in Chile, or any country. PEO Chile
The graphic above highlights when it is best to use a Professional Employer Organization in El Salvador, or any country. PEO/EOR in El Salvador.

Do you need to hire staff in El Salvador?

El Salvador is a nation full of potential, simply awaiting the investment of those aware of all it has to offer.  The opportunities, especially in services, are more than plentiful for those who are willing to take them. If you want to hire local employees, but do not have an incorporated local entity and want to avoid the administrative burden of establishing and maintaining a local company, then a Professional Employer Organization in El Salvador may be the perfect solution.

Contact our bilingual Team on Biz Latin Hub El Salvador to learn more about how we can support you throughout the hiring and recruitment process.

Biz Latin Hub’s Snapshot of Employment Law in El Salvador


WORKING HOURS

An ordinary working week shall not exceed 44 hours, or 39 hours in the event they are performed at night. An ordinary working day should not exceed eight (8) hours by day or seven (7) hours by night. Daytime shifts are performed between 06:00 and 19:00 on any given day, while night shifts occur between 19:00 and 06:00 the following day. 


TYPES OF EMPLOYMENT CONTRACT

There are two (2) main types of employment contract in El Salvador:

Indefinite-term contracts: 
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.

Fixed-term contracts: 
Can be for a period of days, weeks, months, or years. The general rule is that these types of contracts cannot exceed one (1) year. Exceptionally, they can last up to two (2) years for people with professional or technical qualifications, or who are engaged in a specific task or project.

Such contracts must (i) reflect that the task to be performed by the employee is classified as transient, temporary, or casual, and (ii) include the circumstances or events under which termination of employment is permitted. 


VACATIONS, LEAVE, AND OTHER ABSENCES

Statutory vacation allowance / Paid Time Off leave (PTO)
All employees are entitled to 15 continuous days of paid vacation after one (1) continuous year of service with the same employer, during which the employee must have worked at least 200 days. Those 15 days are paid at a rate of 130% of the employee’s base salary and should be given to the employee prior to the vacation period commencing. Where the employer provides the employee with room and board, holiday payments should be increased by an additional 25%. Vacations cannot be exchanged for additional pay.

Maternity leave: 
During pregnancy, workers cannot be dismissed or be allowed to perform tasks that pose risk to the unborn child. A total of 12 weeks of maternity leave are granted, of which at least six (6) must be taken after the due date. During maternity leave an employee receives 100% of any salary below $514.40 per month, paid for by the Salvadoran Institute of Social Security. To be eligible for such benefits, an employee must have worked for at least six months prior to the due date.

Paternity leave:
Three (3) days of paternity are granted in the case of a birth or adoption, with that leave taken within 15 days of the birth or adoption and distributed at the employee’s discretion

Sick leave: 
Employees who have performed between one (1) and five (5) months of service are entitled to 20 days of paid sick leave at the rate of 75% of base salary.

Employees who have performed between five (5) and 12 months of service are entitled to 40 days of paid sick leave at the rate of 75% of base salary.

Employees with one (1) or more years of service are entitled to 60 days of paid sick leave at a rate of 75% of base salary.

According to a reform of the labor code that came into force in June 2020, an employee cannot be dismissed after being diagnosed with a chronic illness. This guarantee begins after the diagnosis is issued and extends three months after the conclusion of the medical treatment.

Bereavement:
Bereavement leave is granted in the case of the loss of a parent, child, partner, or other dependent, and shall last as long as necessary. However, the employer is only obliged to provide the equivalent of two (2) days of salary for each calendar month, and no more than 15 days of salary in a calendar year. 


STATUTORY CONTRIBUTIONS
Employee Deductions:
For social security, deductions totallying 3% of an employee’s salary are made, based on a salary capped at $1,000 per month, while death and pension fund deductions total 7.25% of a monthly salary, based on a salary capped at $7,029 per month.
Employer Deductions:
An employer must contribute 7.5% of an employee’s monthly salary to the government social security fund,  and 8.75% to the death and pension fund, both based on the same caps applied to employee deductions.  
In addition, employers with 10 or more employees must contribute an additional 1% of salaries to the Salvadoran Institution for Professional Education (INSAFORP). 

Annual Bonuses:

All employees who have provided at least one (1) year of service by December 12 of a given year are entitled to full annual bonus called “aguinaldo” or 13th salary payment. Those who have worked less than a full year are entitled to a proportional bonus. The bonus must be paid between December 12 and December 20th of that year. For employees who have provided up to three (3) years of service, the bonus must total a minimum of 15 days of their base salary. For those who have provided from three (3) to 10 years of service, the bonus must total at least 19 days of base salary. For those who have provided more than 10 years of service, the bonus must total at least 21 days of base salary.

An employee loses the right to their bonus if they have two unexcused absences within two (2) months during the 12 months leading up to December 12 of the year for which the bonus is due.
Snapshot of employment law in El Salvador. PEO in El Salvador.

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 El Salvador
Legal Team El Salvador

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

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