Employment laws in Chile

Chile’s economy is one of the most competitive in Latin America. 

The country has a transparent business environment and a highly skilled workforce. In addition, it has a legal framework that provides protection to both employees and employers. The Codigo del Trabajo (Labor Code) is the primary legislation that outlines the various aspects of employment laws in Chile.

When planning to do business in Latin American countries, it is important to get an overview of the labor law compliance in Chile and the neighboring countries, such as Argentina or Colombia.

This guide provides an overview of the various aspects of statutory employee rights in Chile. However, it is advisable to use an Employer of Record in Chile, like Payoneer Workforce Management, for support with onboarding, payroll, time-off management, and local compliance.

Key employment laws in Chile

Here are the core areas covered by employment laws in Chile that you, as an employer, should be familiar with:

• Employment contracts, working hours, overtime, and termination procedures are governed by the Código del Trabajo (Labor Code)
• Probation and notice period rules enforced by the Direccion del Trabajo (Labor Directorate)
• Mandatory health insurance enrollment through FONASA (public) or a private ISAPRE
• Social security contributions covering pension, health, and unemployment insurance
• Profit-sharing obligations for all employees under the legal gratification framework
• Payroll and wage compliance administered in Chilean Pesos (CLP), overseen by the Servicio de Impuestos Internos (SII)

Contract employment laws in Chile

The Labor Code sets rules on what goes into the agreement, when it needs to be signed, and how different contract types work. 

Let’s first understand the types of employment contracts in Chile: 

Types of contracts

Chilean labor law typically recognizes three main contract types:

1. Indefinite contract: It has no predetermined end date and continues until either party terminates it per the procedures laid out in the Labor Code.

2. Fixed-term contract: This type of contract has a set start and end date. The maximum duration for one such contract is one year. For managers or professionals with a recognized technical degree, the cap extends to two years. If renewed twice, or if the employee keeps working past the end date with the employer’s knowledge, the contract automatically becomes indefinite.

3. Part-time work contract: Tied to a specific hourly task or project. It ends when the project is done. Different stages of the same project typically can’t be split into separate contracts; doing so means the arrangement gets treated as indefinite.

Beyond these, Chilean law also recognizes collective labor agreements, which are negotiated between employers and groups of employees or unions. 

Further, contract structures vary across Latin America. 

In Mexico, for example, a contract without an end date is treated as permanent by default, and fixed-term agreements need a documented justification. Each market has its own rules, so what works in Chile won’t necessarily translate elsewhere.

Essential contract terms

The Labor Code requires employers to formalize the contract no later than 15 calendar days after the employee’s start date. All contracts must specify the following: 

• Name and legal identity of both parties 
• Job role and responsibilities
• Work locations
• Salary and its components 
• Working hours
• Contract duration

Minimum wage in Chile

The minimum wage in Chile stands at CLP 529,000 per month for workers between 18 and 65. For workers under 18 or over 65, the minimum drops to CLP 394,622. 

Moreover, salaries are paid in Chilean Pesos (CLP), with the standard pay date being the last day of the month. 

Working hours in Chile

The standard workweek is 45 hours, spread across no fewer than five and no more than six consecutive days. An average workday runs about 9 hours.

Employees are typically entitled to at least a half-hour lunch break, which doesn’t count toward the workday.

Furthermore, as per overtime laws in Chile, extra hours are allowed but regulated. Each extra hour is valued at 1.5x the regular hourly rate. 

Mandatory benefits

Before budgeting for a hire in Chile, factor in mandatory benefits. 

Employer costs in Chile sit at roughly 3.53% of annual salary, with an additional 7% (approximately) going toward social security and other mandatory contributions. 

For a breakdown of employment costs, you can use our employee cost calculator.

A look at employer contributions, in detail: 

• Insurance: Health insurance is mandatory for all employees. They must be enrolled in either FONASA (the public health fund) with 7% contribution or a private ISAPRE.
  
• Employer contributions: Social security contributions are compulsory and cover pension(11%), health, and unemployment insurance(0.6%).
  
• Profit sharing: Employers must also share profits with every employee.
• Annual leave: 15 days after 1 year of employment, and an additional day off for every 3 years, post 10-year employment.
• Sick leave: Employees can take sick leave if they can provide a medical certificate within 2 days. The social security pays from the 4th day.
• Maternity leave: Mothers are entitled to 18 weeks of paid maternity leave, typically split into 6 weeks before, and 12 weeks after delivery of the child.
• Paternity leave: Fathers get 5 days of paid leave. Seven weeks after the birth, the mother can transfer some or all of their remaining maternity leave to the father.
• Public holidays: Chile observes 12 civil holidays, 9 religious holidays, and 3 special holidays that apply to specific groups or regions.
• Other leave entitlements: The employee can also take childcare leave, bereavement leave, and wedding leave. 

Any unused leaves can carry forward for up to two consecutive years. For a deeper look at each leave type, see our leave policy in Chile guide. 

Termination

The termination laws in Chile require valid grounds, and firing without them can lead to legal consequences. Here are the scenarios where termination is possible:

• Employee resignation
• Mutual agreement between the employee and the employer
• Termination during the probationary period
• Termination by the employer due to misconduct, performance issues, or absence without leave

Notice period in Chile

During probation, the notice period in Chile is just 3 days. After probation, it jumps to 30 days. The employer can also choose to pay a month’s salary instead of serving the notice period.

Severance pay in Chile

Severance pay in Chile only applies when an employer terminates without cause. The calculation works like this:

• One month’s salary for every year worked (or fraction over 6 months)
• Capped at 11 months total
• Plus accrued vacations
• Plus one month’s salary for the notice period
• Plus accrued 13th salary (legal gratification)

When the termination is for cause (misconduct, performance, etc.), no severance is due. But the employer must document and justify the grounds. 

Terminations without valid justification can be challenged in Chilean labor courts, and disputes can take a long time to resolve.

Navigate employment laws in Chile with Payoneer Workforce Management

Between employment contracts, mandatory profit sharing, social security-funded leave, and strict termination rules, labor law compliance in Chile takes real attention to detail. 

Getting any of these wrong can lead to penalties, back payments, and prolonged legal disputes in Chile’s labor courts.

Payoneer Workforce Management helps businesses onboard, pay, and manage talent in 160+ countries without setting up a local entity. 

The platform helps streamline localized contracts, EOR-based workforce & payroll management, mandatory benefits administration, and time-off tracking. 

Need help managing independent contractors? 

Agent of Record (AOR) services and a contractor management system are also available. Payoneer Workforce Management can assist you in mitigating compliance risks while you focus on growing globally.

Book a demo today!

FAQs

1. Is there a probation period in Chile?

Not formally. The Labor Code only recognizes a two-week probation (Article 147). Alternatively, employers typically use short fixed-term contracts as a practical trial period.

2. How much severance must an employer pay in Chile?

Severance only applies to terminations without cause. It’s calculated at one month’s salary per year of service, capped at 11 months. Accrued vacation, notice pay, and accrued 13th salary are added on top.

3. Is profit sharing mandatory in Chile?

Yes. Employers must share profits with every employee; typically, 30% of the employer’s annual net profits must be proportionately shared, based on the employee’s salary. 

4. What’s the risk of misclassifying workers in Chile?

Chilean courts typically look at the actual working relationship, not just the contract. If a contractor is found to be a dependent worker, the employer owes back social security, taxes, penalties, and interest. A contractor management system can help streamline this.

5. How does Payoneer Workforce Management help with hiring in Chile?

Payoneer Workforce Management offers support with onboarding, payroll, employment contracts, benefits, and local administration in Chile without requiring a local entity. The unified platform assists with labor law compliance in Chile across different employment types, from full-time employees to contractors.