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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.
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.
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.
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