Peru has a population of approximately 32 million people and comes after Brazil, Colombia, and Argentina as the fourth largest country in South America.
The population that is between the age of 15 and 64 years old stands at 20 million and represents the number of people who are allowed to work legally in the country. Those between the ages of 15 and 18 must have parental permission to work as well as have approval from the Ministry of Labour in Peru.
Since several free trade agreements in Peru have been signed, the national poverty rate has decreased from 58.7 percent to 21.8 percent.
This is due to President Pedro Pablo Kuczynski’s focus on economic reforms and free-market policies with the goal of boosting investment in the country.
Since then, Peru has become an attractive emerging market for foreign investors and expats. To start a Business in Peru or apply for a working visa in Peru, a profound understanding of the labor law in Peru is essential.
Furthermore, the importance of protecting the local employee’s rights is a major concern for the Peruvian government and therefore it is important to know the restrictions for employing foreign employees.
General rules for Employment Law in Peru:
Below you will find some essential regulations considering employment law in Peru:
- The minimum wage for the year 2017: PEN850 (Peruvian Soles).
- Working days: The maximum working days allowed per week is 6 days. Either 8 hours of working per day or a maximum of 48 hours per week.
- Lunch break: An employee has the right to a minimum break of 45 minutes.
- Overtime: The amount of the surcharge has to be agreed between employee and employer. However, the first 2 hours cannot be less than 25% of the total remuneration of the employee. For every extra hour, the surcharge cannot be less than 35% per hour.
- Weekly rest: An employee has the right to a 24-hour rest time per week- this usually lands on the Sunday for most. Nevertheless, the employee can work on Sunday and take another day off during the week. If the employee works seven days a week, the employer has to pay an extra 100% of the daily salary on the extra day worked.
- Night shift: These begin officially at 10:00 p.m. and end at 6:00 a.m. The employees’ remuneration cannot be lower than the monthly minimum wage, and they have to receive a surcharge of 35%.
- Trial term: A trial of three months period is for regular staff – this trial period can be extended an additional three months. During this term, the employee does not have any rights of the arbitrary dismissal. Trusted or qualified employees can be contracted on an on trial basis for up to 6 months and up to 12 months for trial management positions.
- Part-time Employment: A part-time employer usually works less than four hours a day. But on six days-week, a part-time employee might work up to a maximum of 24 hours. If there are five working days per week, the working hours must be less than 20 hours per week.
- Pension System: The employee may choose to join the National Pension System (SNP) or the Private Pension System (SPP). The applicable rate of the SNP & SPP is approximately 13% and will be paid by the employer, deducted from the employee’s salary and paid directly to the administrator of the pension.
Laws in favour of employees
Vacation: An employee has the right to 30 calendar days of paid vacation per year. The wage is equivalent to the monthly salary. An employee of a small and micro company has the right to 15 calendar days of paid vacation a year.
Bonus: An employee gets two bonuses per year, one on Independence Day of Peru (1st of July) and the second on Christmas. The wage of the bonus is equivalent to the monthly salary.
Healthcare insurance: Employees and their family members are statutory affiliates to the public health service (ESSALUD). To provide healthcare insurance, the employer pays a contribution of 9% of the monthly wage of the employee to the public health system.
Compensation for Time of Service (CTS – Compensacion por Tiempo de Servicios):
This law is a social benefit to protect the existence of the employee after the termination of employment. This amount is accrued over time starting on the first day of work. To assure that the compensation is available, the employer must deposit the CTS twice a year (on the 15th of May and -November) to a bank account that can be elected by the employee.
For each completed calendar month, 1/12 of the wage must be deposited in the bank account. Therefore, at the end of the year, the whole deposit should be approximately equal to one monthly salary. To benefit from the CTS, the employee has to have been in the company for at least a full month.
Household allowance: An employee who has one or more child under the age of 18 is eligible to receive an additional monthly payment of 10% of the monthly minimum wage. These include children above the age of 18 who are pursuing higher education until the age of 24.
Fields of profit sharing: Companies with more than 20 employees have to share their annual pre-tax profits with their employees.
- Mining companies, wholesale entities, retail businesses, and restaurants have to share 8% of their profits.
- Manufacturing, fishery, and telecommunication companies have to share 10% of their profits, and
- companies that do not fall in these categories have to share 5% of their profits with employees.
It is important to note that profit shares for employees represent a deductible tax expense.
Maternity Leave: In total, the length to leave for maternity is 98 days: 49 days for prenatal leave and 49 days of postnatal leave. An exception is given when an additional child is born or if the new child has a disability.
In these cases, the postnatal leave can be extended for another 30 calendar days. After the official 98 days period, the period of the lactation period (Lactancia maternal) begins. Until the new-born is 1 years old, the mother has the right to be away from the workspace for 1 hour per day, to breastfeed the child.
Reasons for Dismissal
In general, there must be a lawful reason to end an employment contract which can be proven by the employer. For example, the incompetent productivity or the incapacity of the employee to complete his job. Another cause to dismiss an employee is based on his behaviour. Some reasons for dismissal include:
- Repeated attendance at work under the influence of alcohol or drugs;
- Deliberately damaging the employer´s or company’s property or goods;
- When acts of violence, serious breaches of discipline, disrespect or insults in any kind is addressed against the employer or other staff members either outside or inside the workspace;
- Any misconduct of the employee including:
- A failure to fulfil his obligations under the employment contract
- Resistance to the relating work orders
- Failure to comply with work rules and regulations or occupational safety or health regulations
- Dissemination of false information to the employer with the intention of causing damage or gaining benefits;
- Serious criminal convictions;
- Failure to appear at the workplace for more than three consecutive days, absence of more than five days without a legal cause over a period of 30 calendar days, or absence of more than fifteen days over a period of 180 days;
- Repeated unpunctuality in which the employee already has been informed by the employer and where disciplinary actions like written warnings and suspension have been carried into execution;
Foreign Employees Laws in Peru
The working contract for foreign employees has a maximum term of 3 years but can be extended for a similar period of time – the labour contract must be approved by the Ministry of Labour. Once a foreign employer is hired, they have the same rights and benefits as local employees.
If you are planning on opening a business in Peru, it is important to remember that foreign employees shouldn´t exceed 20% of the whole workforce, and the total salary received by foreign employees shouldn´t exceed 30% of the total company payroll.
Exceptions regarding a higher salary can be made in the case of technical employees or management positions. Also, the working visa for a foreign employee is valid for one year but can be extended every year from therewithin. The foreign employee may lose his immigration status if he is out of the country for more than 183 days per year (12-month period).
The labour law in Peru has fair agreements on both the employers and employees side. Although the limitations for foreign employees are handled fairly, it is important to remember that within every law there are several exceptions.
We can help you with the employment legislation in Peru
If you would like to get more information regarding labour law in Peru or are interested in investing or forming a company in Peru, please feel free to contact the country manager Karl, at here. Our team of local and foreign experts at Biz Latin Hub offer a wide range of professional multilingual back office services that can help you start your company in Peru today!
If you want to know more about our accounting services and how we can help you do business in Lima, Peru, watch this video:
Learn about our services and how we help businesses enter Latin América!