Using an employer of record in Chile

Most global companies prefer recruiting Chilean talent and expanding their business into the country owing to a stable economy, skilled workforce, and business-friendly environment. However, hiring and paying employees in Chile can be complicated. 

To avoid falling foul of local labor laws, you need to understand and fulfill your obligations as an employer. 

Using a Chile Employer of Record (EOR), like Payoneer Workforce Management, helps streamline the process with compliance support.

Find out more about how Payoneer Workforce Management can help your business. 

Continue reading to learn what an EOR in Chile does.

How to hire employees in Chile

There are three primary ways to hire employees in Chile:

1. Setting up a local entity: Expensive and time-consuming, this is a good option if you want to establish a long-term local presence in Chile.
2. Hiring independent contractors: This is a flexible way to enlist Chilean talent. However, you need to be confident that you’re not misclassifying employees as contractors, as this incurs fines and penalties.
3. Hiring via a Chile employer of record: Hiring via a Chile Employer of Record helps you comply with local employment laws without the need to set up a local entity.

Partnering with an employer of record in Chile

An employer of record company in Chile onboards local talent on your behalf, so you don’t have to set up registered offices or incorporate a business in the country. 

An EOR in Chile helps navigate employment legalities, payroll, taxes, benefits, and compliance, allowing you to focus on welcoming and managing new team members.

An employer of record company, like Payoneer Workforce Management, helps you hire international talent cost-effectively while reducing the administrative burden.

How to onboard employees in Chile

Onboarding is a key part of welcoming new employees to the team. They should have all the tools they need to complete their tasks and feel supported from day one.

When onboarding a new employee in Chile, you need to:

• Register the employment contract with the Dirección del Trabajo
• Enroll the employee in payroll, social security, and other benefits
• Make introductions to the team and colleagues
• Set up all the devices and workplace software they’ll be using
• Set expectations and objectives
• Assign an onboarding buddy or other onboarding support

An employer of record in Chile can assist with compliant onboarding, and you can focus on welcoming the local employee into the team.

Pay employees in Chile

Fiscal year

The fiscal year in Chile runs from January 1st to December 31^st. Wages must be paid at the intervals stipulated in the employment contract, but agreed periods must not exceed 1 month, usually paid on the last working day of the month.

Bonus payments

The government mandates a bonus program known as Gratificación Legal (or Legal Gratification). According to this system, employers have to share profits with every employee.

Additionally, companies that generate profits are legally required to share 30% of their annual net profits among employees. This profit-sharing obligation is separate from Legal Gratification.

Many employers also give employees a customary 13th-month payment, equivalent to a month’s salary. This bonus, known as Aguinaldo, is often paid in two installments; one in September, around the Independence Day holiday, and one in December.

Taxes

When paying employees in Chile, employers have to withhold the following:

• Income tax: Payments are adjusted based on the tax bands and thresholds stipulated by the Unidad de Fomento (UF).  
• Social security contributions: Workers contribute to a pension fund, along with health, life, and unemployment insurance plans.

Payroll can be complicated for organizations unfamiliar with Chilean labor laws. Using an employer of record in Chile can offer assistance to pay employees.

Employment laws in Chile

When hiring employees in Chile, an employer has to follow the labor laws laid out in the Código del Trabajo. This includes legislation on:

• Working hours: Employees should not work more than 45 hours per week, typically spread over 5-6 days, with an average of 9 hours per day.
• Overtime: Overtime beyond 45 hours per week must be paid at 1.5 times the regular rate.
• Rest days: Employees are entitled to weekly rest days and national holidays as per Chilean labor law.
• Remuneration frequency: Employees are usually paid monthly, typically on the last working day of the month, according to the schedule laid out in their employment contract.

Minimum wage in Chile

There is a mandatory minimum wage in Chile that applies to all workers aged 18 to 65. Currently, the minimum wage is CLP 529,000 per month and CLP394,622 for those under 18 or over 65 years. 

The minimum wage is reviewed and adjusted by the government periodically. To comply with labor laws, it’s important for employers to stay up-to-date with the latest rates.

Employment contracts in Chile

The most common types of employment contracts or agreements in Chile are:

• Individual: A contract between an employer and an individual employee, which can be fixed-term or open-ended
• Collective: A contract that establishes the relationship, terms, and conditions for an employer and all employees

Some organizations also use special employment contracts, like those for apprenticeships and domestic help.

According to Article 9 of Chile’s Código del Trabajo, employment contracts must be in writing, in Spanish, and signed by both parties within 15 working days of hiring (or 5 days for fixed-term employees). Contracts also need to be registered with the Dirección del Trabajo.

Things to include in an employment agreement, at a minimum, are:

• The place and date of the contract
• Identification of both parties, including nationality, address, email address, and birth date
• Employee start date
• A description of the work to be undertaken by the employee
• The place and city in which the work will take place
• The amount, form, and period of payment
• Duration and distribution of the workday
• Duration of the contract

Leave policy in Chile

Employees in Chile are entitled to the following periods of leave.

Public holidays

There are 17 public holidays in Chile.

Holiday	Date
New Year’s Day	January 1st
Good Friday	March or April (date changes yearly)
Holy Saturday	March or April (date changes yearly)
Labor Day	May 1st
Naval Glories Day	May 21st
National Day of the Indigenous Peoples in Chile	June 21st
The Feast of Saints Peter and Paul	June 27th
The Feast of Our Lady of Mount Carmel	July 16th
Assumption of Mary	August 15th
Independence Day	September 18th
The Day of the Glories of the Army	September 19th
Day of the Races	October 12th
National Day of the Evangelical and Protestant Churches	October 31st
All Saints Day	November 11th
The Feast of the Immaculate Conception	December 8th
Christmas Day	December 25th

Paid time off

Beyond public holidays, employees with over 1 year of service are entitled to 15 vacation days per year at full pay. Employees with more than 10 years of service, whether continuous or not, are entitled to 1 additional day of holiday for every 3 additional years worked.

Employees working in specified regions are entitled to 20 vacation days as standard.

Sick leave

Employees who provide a doctor’s note are entitled to sick pay, paid for by insurance.

Length of sick leave (in days)	Sick pay entitlement
1 to 3	No entitlement
4 to 10	Full salary for days 4 to 10
11+	Full salary from day 1

Maternity leave

Female employees are entitled to 18 weeks of maternity leave. They take 6 weeks before the birth of their child and 12 weeks afterward. Maternity is paid in full by social security.

Women can also extend their maternity leave for another 12 weeks full-time or 18 weeks part-time. They can choose to share this parental leave with the father of the child.

Paternity leave

Male employees are entitled to 5 days of paternity leave, to be taken within 1 month of their child’s birth. Paternity leave is paid by the employer at 100% of the employee’s usual salary.

When hiring employees in Chile, familiarity with these policies is essential. An EOR in Chile can assist with managing local leave obligations.

Background check in Chile

When running background checks on employees in Chile, you need to adhere to the country’s data protection laws. 

These state that you must gain explicit, written authorization from a candidate before running any checks. 

Discrimination based on race, gender, religion, political views, union affiliation, and any other protected characteristics is also strictly prohibited. 

Data protection laws also stipulate rules around the protection and secure storage of personal data.

When deciding which background checks to run, it’s important to ensure that the checks are relevant to the role. Some common background checks in Chile include:

• Criminal record
• Employment verification
• Education verification
• References

Credit checks and drug tests are less common but may be relevant depending on the role you’re hiring for.

Employment termination in Chile

Both the employer and employee can end an employment contract by giving 1 month’s notice. If the employer terminates the contract, they have to provide severance pay for employees who have worked for at least 1 year. For each year of service, up to 11 years, they get 1 month’s salary. 

An employer can also end an employment contract without providing severance pay if an employee is found guilty of gross misconduct or breach of contract. However, if an employee is found to have been wrongly dismissed, they are entitled to severance pay plus a 30% to 100% severance pay surcharge.

Company registration in Chile

Registering a company in Chile is a big undertaking, but it may be the right choice for your organization if you want to develop a significant presence in Chile.

To register a business in Chile, you need to:

• Choose your business structure
• Appoint a legal representative
• Establish and register a fiscal address within the borders of Chile
• Register with the commercial registry
• Publish an official statement in the Official Gazette
• Obtain the Rolnico Tributario (RUT): a Taxpayer Identification Number
• Open a business bank account with a Chilean bank

However, using a Chile EOR is a simpler and quicker option for most U.S.-based companies.

PEO in Chile

Looking to work with international talent? Then you’re likely to come across two options: an EOR and a Professional Employer Organization (PEO).

1. A PEO co-employs local workers, offers third-party HR and administrative support via your local entity, allowing your company to outsource payroll, benefits, and legal support.
2. An EOR in Chile can hire local workers on your behalf, without the need to set up a legal entity in the country.

Partner with an employer of record in Chile to hire employees compliantly without establishing a local entity.

Payoneer Workforce Management’s EOR service in Chile

An Employer of Record in Chile enables compliant hiring without the need to establish a local entity.

Payoneer Workforce Management helps you onboard, pay, and manage global talent with compliance support in 160+ countries.

Book a demo today to learn more.

FAQs 

1) What is an employer of record in Chile?

An Employer of Record in Chile helps you employ Chilean nationals and adhere to local labor laws without setting up a legal entity in the country.

2) How much does an EOR cost in Chile?

The cost of an EOR in Chile varies by provider and scope of services. It eliminates the need for establishing a local entity, which can involve additional administrative steps.

3) Is an EOR better than a PEO in Chile?

A PEO provides HR and administrative support, but requires your company to have a local entity. An EOR legally employs workers on your behalf without requiring a local entity.