Understand the labor laws in Chile in order to make hires and manage employees in full compliance with local regulations.
Chile is a long and narrow country caught between the Andes Mountains and the Pacific Ocean. It is characterized by its strong, transparent and stable economy with good growth prospects for the future. Labor laws in Chile, alongside the country’s entire legal framework, provides important guarantees for foreign investors looking to enter the diverse
and liquid domestic markets. In addition, Chile has a mature financial market which is quite receptive and dynamic.
We outline the most significant aspect of labor laws in Chile for businesses to be aware of when hiring staff.
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Legislation outlining labor laws in Chile
Labor laws in Chile are outlined in the framework that regulates labor relationships and bonds between employers and employees. In most common law jurisdictions, labor law is a term which usually finds its application in regard to the rights and duties/responsibilities of unionized employees within a company.
Labor laws in Chile come primordially and originally from the Chilean Labor Codex or Código del Trabajo (DFL 1). This codex states on its preliminary articles that it will regulate labor and work relationships between employers and employees. Each of the 5 books in the Codex regulates a specific topic:
- The individual labor or employment contract and training
- Protection for employees
- Unions
- Collective negotiations
- Labor jurisdiction.
Numerous laws make up the Chilean legal labor framework which complements and applies the principles contained within the labor codex. Additionally, it contains extensive binding regulations issued by the Ministry of Labor through the Dirección del Trabajo department.
Types of Labor contracts in Chile
Labor laws in Chile allow for just three types of labor or employment contracts:
Individual labor contracts
The individual labor contract is a written agreement (but it can also exist without one) to which an employee and an employer are bound. In this contract, an employee will provide personal services in favor and benefit the employer. The employer must pay compensation for those services.
In Chile, the existence of a bond of dependence and subordination triggers the existence of a labor contract. Article 10 of the labor codex indicates what minimum clauses this contract needs to have in order to be legally binding. This can be the place of work, duration of the bond, remuneration, and others.
Collective labor agreements
Collective labor agreements in Chile can be sub-classified into Collective Labor Contracts (Contrato Colectivo) or in Collective Labor Agreements (Convenio Colectivo). The first is a contract signed between an employer and one or more unions, or even non-unionized employees acting as a whole. It is in order to negotiate collectively and reach common working conditions and certain remunerations and benefits. This type of contract needs to be agreed written.
The difference between a Collective Labor contract and a Collective Labor Agreement is that the latter does not require a previously regulated collective bargaining process, if negotiations are carried out with a union.
Special contracts
Special contracts are for specific labor relationships in specific sectors and industries such as labor contracts for ship personnel at sea.
Duration of labor contracts in Chile
In general terms, the duration of a labor contract in accordance with labor laws in Chile can be either:
- Indefinite or perpetual
- For a fixed time period
- Until the completion of a certain task or event.
Employee nationality
If the company has 25 or more employees, at least 85% of them need to be Chilean citizens. It is important to note if Chilean nationals cannot replace technicians, the law excludes for these purposes.
If the company has 24 employees or less there is no regulation regarding the proportion of Chilean nationals that employers must hire.
Working hours
For most employees, there is a 45-hour cap per week. The law divides these hours across no less than 5 and no more than 6 consecutive days. On average, an employee should work 9 hours a day.
Without prejudice of the above, by labeling the employee (on their contracts) as “trusted” they can be legally exempt from the caps stated above. This started as a clause for managers and executives but over time, it has been implemented for other kinds of employees.
Leave: Paid Time Off (PTO)
The Chilean labor law accrues 15 PTO days per calendar year. However, this is only the case when the employee has worked at least 1 year with the company.
In addition, the law accrues PTO days only for up to 2 periods; i.e. employees may accrue up to 30 days paid time off.
Article 70 of the Labor Codex states that if an employee has accumulated the two consecutive periods of PTO, the employer must instruct the employee to use at least one 15-day period of leave before the end of the year. In other words, it is the employer’s responsibility to make sure the employee uses at least one of these periods before they accrue a third 15-day period of PTO.
Profit-sharing
If a company experienced profits during the last year, it must share some of them with its employees. Specifically, a company must share 30% of the net profits with its employees in proportion to each of the employee’s salary. This obligation can comply with either monthly or once a year. This depends on the system the employer chooses.
Termination of the Labor Contract
A labor contract in Chile can end by one of the three following ways:
1. Resignation or mutual agreement
In these cases, the employers would typically need to pay unused vacations days accrued by the employee.
2. Termination by cause
Termination by cause applies in serious situations in which the employee performs one or more serious contractual breach. Examples which can cause such termination are material misconduct, being drunk, damaging or destroying company property, stealing, and others. In these cases, the employee has no right to severance compensations.
3. Company needs
The purpose for the ‘company needs’ termination has to be a general cause, such as when the employee is not performing well, or working at a professional level. In this scenario, the employer would typically need to pay:
- One salary month which will substitute the 30 day notice of termination
- Accrued vacation days that were not used
- One month of salary for each year the employee was with the company, with a cap of 11 years/salaries. The term for this payment is “Indemnizaciones por años de Servicio”.
Get support with labor law requirements in Chile from trusted experts
Although Chile is a very favourable business destination, there may arise some complexities when doing business abroad due to legal and cultural regulations.
At Biz Latin Hub, our multilingual team of lawyers and professional accountants has vast experience with labors in Chile and other Latin American countries. Creating tailor-made solutions to any business issue, we support you with legal services, PEO, recruitment and hiring services, due diligence, visa procedures, payroll management, accounting and taxation, and others.
Get in touch with our specialists and lawyers to start your business in Chile. Contact us now.
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