With positive GDP growth of 2.3% in 2017, El Salvador is one of many Latin American nations slowly developing into houses of economic prosperity and stability for those who wish to move their operations abroad. Despite being the smallest nation in all of Central America, its economy is the 3rd largest in the region and is budding with potential – a fact often overlooked by aspiring investors. Also following closely in the steps of Uruguay and Argentina – the Latin American economies with the least income inequality – this small Central American nation boasts some of the lowest income inequality in the region.
El Salvador, similarly to its regional counterparts, still relies relatively heavily on its strained agricultural sector, fighting desperately against the struggles of a changing climate. Resiliency is key to the El Salvadorian path to prosperity, though, proven by the Green Climate Fund’s ‘stubborn’ interest in investing in the sector. In fact, an agricultural project just shy of a USD$130 million investment has been approved in order to transform food systems and make the sector more robust against the problems presented by climate change. If this tells us anything, it’s that the potential is undying – in the face of damaging, uncontrollable factors, El Salvador is still more than capable of being delivering prosperity.
Listed below are some noteworthy facts about El Salvador:
- Member of the Central American Common Market (CACM), the trading bloc set in the region with the aim of facilitating regional economic development by encouraging free trade and integration.
- Becoming more facilitating of international trade, with USD$2.5 billion worth of exports to the USA in 2017, up 20.9% from 2007.
- 60% of its economy is represented by its rather impressive service sector.
- Between 1993 and 2013, the region lowered its inequality most out of all Central American countries alongside Nicaragua.
- Knitted shirts, sweaters and undergarments represented more than USD$1.5billion of exports in 2016.
Considering the range of attractive commercial opportunities available in the region, many willing 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 Professional Employer Organisation (PEO) solution is a great way to do this.
Table of Contents
What is a Professional Employer Organization (PEO) / Employer of Record in El Salvador?
A Professional Employer Organization (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. The services of a PEO 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.
Benefits of Using a PEO in El Salvador
A PEO will enable your company to maintain your focus on your business’ development while the HR burdens are outsourced to the PEO.
- 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 – PEOs ensure that you are in compliance with all El Salvadorian employment 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.
The Hiring of Staff in El Salvador
All companies thinking about engaging staff in El Salvador must take into account compliance with regards to the following labor obligations:
- 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 – This applies the same as the ISSS; all employees under payroll must be registered with a Pension Fund Association (AFP).
Rights and Benefits of Workers in El Salvador
In El Salvador, labor laws are more aligned with the protection of the rights and benefits of workers rather than of employers. It’s important to take into account what these additional benefits are:
Bonus – A premium paid to workers at the end of the year between December 12 and 20, depending on the amount of time the worker has for the same employer must be paid as follows:
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.
- 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 exceeding 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.
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 PEO solution may be the perfect solution, both from a business-growth perspective and a financial one.
Contact our bilingual Team of Biz Latin Hub El Salvador to learn more about how we can support you throughout the hiring and recruitment process in Argentina.
Watch the short video below and learn how our tailored legal and immigration services can assist you in Latin America!