Paying employees in Chile reliably, on time, and in line with local payroll laws is essential to attracting and retaining talent in this South American hub. You also need to offer benefits and bonuses that align with employee expectations.

For companies in the U.S.,  an Employer of Record (EOR) offers a streamlined solution for managing a Chile payroll system. 

An EOR like Payoneer Workforce Management offers payroll services in Chile that can help you comply with payroll regulations, taxes, and social security contributions.

Payroll in Chile: Wages and other payments

To successfully manage payroll processing in Chile, you need to understand the payroll cycle, benefits, bonuses, minimum wage, and more. Here, we take a look at the salary payments and any additional payments you’ll need to make to Chilean employees.

Chile’s payroll cycle

The Chile payroll cycle is outlined in the country’s labor code, the Código del Trabajo. It stipulates that wages should be paid at the intervals stated in the employment contract and that agreed payment periods can’t exceed 1 month.  

Typically, wages are paid on the last working day of the month, unless otherwise agreed by the employer and employee.

Minimum wage

You have to pay employees in Chile between the ages of 18 and 65 the mandatory minimum wage. Currently, the minimum wage is CLP 529,000 per month. 

For employees aged under 18 and over 65, the minimum wage is CLP 394,622 per month.

Overtime

Overtime is any work that exceeds the legal maximum hours of work or the contractually agreed hours of work.

You must pay employees in Chile 150% of their standard salary for overtime work. This must be paid with the regular wages for the period in which the overtime was worked.

Sick pay

An employee who provides a doctor’s note within 2 working days of being sick is entitled to sick leave, paid for by health insurance. The employer has to forward the doctor’s note to the health insurer within 3 working days.

If an employee takes 1 to 3 days of sick leave, they don’t receive any sick pay. If an employee takes 4 to 10 days of sick leave, they receive their full salary for days 4 to 10. If an employee takes 11 or more days of sick leave, they receive their full salary from the first day of illness.

Maternity pay

Female employees are entitled to a minimum of 18 weeks of maternity leave. They can take 6 weeks before the birth of their child and 12 weeks afterward. Maternity pay is paid in full by social security at the employee’s full salary.

Following the end of maternity leave, female employees are entitled to an additional 12 weeks of parental leave, paid by social security at the same rate as maternity leave.

Mothers can choose to share this parental leave with the father of their child. They can also decide whether to take 12 full weeks off or work part-time for 18 weeks. 

In the latter case, parental leave pay from social security is reduced to 50% after the 12th week. The employer then pays the employee at least 50% of their usual salary until the end of the 18th week.

Severance packages

If an employer ends an employment contract at no fault of the employee, they have to pay the employee in Chile a severance package. Employees are entitled to a payment equivalent to 1 month’s salary for every year of service, up to 11 years.

If an employee is wrongfully dismissed, they are entitled to compensation. An employer has to pay severance pay plus a 30% to 100% severance pay surcharge.

Bonuses

Another important consideration when establishing your Chile payroll system is employee bonuses.

There is a mandatory bonus program in Chile known as Gratificación Legal (or Legal Gratification). According to this program, employers are required under Chilean law to share profits with all employees.

There are two options for calculating the bonus amount:

1. Divide 30% of the company’s total net income among all employees proportionately to their salaries
2. Pay the employee 25% of their base salary, up to a limit of 4.75 times the Chilean minimum wage

Whichever way they calculate it, most employers adjust the base salary they offer to employees and pay the bonus as part of their monthly paycheck.

There’s another bonus, called the Aguinaldo, that isn’t mandated. Nevertheless, many employers choose to offer it. The Aguinaldo is a 13th-month payment, equivalent to 1 month’s salary. It’s usually paid in 2 installments: 1 in September, around the Independence Day holiday, and 1 in December.

Chile payroll: Contributions and deductions

When you pay employees in Chile, you also need to take into account the contributions and deductions you need to make. These include income tax in Chile, employer payroll taxes, and social security contributions.

Income tax

Income tax in Chile is charged at a progressive rate, but tax bands and thresholds are not fixed in the local currency. Instead, they are based on a monthly tax unit called the Unidad de Fomento (also known as UF).

The UF is constantly adjusted for inflation. It is valued at CLP 36,733 with tax bands as follows:

Income bracket (in monthly tax units)	Tax rate
0 to 13.5	0%
13.5 to 30	4%
30 to 50	8%
50 to 70	13.5%
70 to 90	23%
90 to 120	30.4%
120 to 310	35%

Employers are responsible for withholding an employee’s income tax contributions.

​Chile employer payroll taxes and social contributions

In Chile, employer payroll taxes and social contributions total around 7% of an employee’s salary. They are as follows:

Chile Employer payroll taxes

New mixed pension system

Unemployment insurance, capped at 131.8 times the monthly UF rate

Death and disability insurance (SIS), capped at 87.8 times the monthly UF rate

Mutual – Work Accident Insurance, capped at 87.8 times the monthly UF rate (this rate can increase for high-risk industries)

Employee social contributions

As part of their Chile payroll​ duties, employers are responsible for withholding employee social contributions. These are as follows:

Employee contribution	Rate
Pension, capped at 87.8 times the monthly UF rate	10%
Unemployment insurance, capped at 131.8 times the monthly UF rate (there is no contribution for fixed-term contracts)	0.6%
Public health insurance, capped at 87.8 times the monthly UF rate (employees have the option to enrol in private health insurance instead)	7%

Chile payroll compliance best practices

When managing payroll in Chile, you need to stay compliant with local laws. Here are some best practices that will help you stay on the right side of regulations:

• Monitor tax law changes, labor laws, and statutory requirements
• Maintain accurate and detailed payroll reports
• Perform occasional payroll audits to identify any errors
• Provide ongoing payroll training to staff

Sticking to best practices may require specialist knowledge and a dedicated Chile payroll team. If you don’t have the resources in-house, you can use a global payroll provider, like Payoneer Workforce Management.

As an EOR provider that offers payroll services in Chile, Payoneer Workforce Management helps you manage your payroll cycle with compliance support. We can also support your company with hiring and onboarding Chilean talent.

Your options for payroll services in Chile

There are three ways to pay employees in Chile:

• Set up a legal entity: This allows you to hire employees and run payroll internally, but it’s a complicated and time-consuming process.
• Pay workers as contractors: You don’t need a legal entity, but you have to ensure you aren’t misclassifying employees as contractors to avoid fines and penalties.
• Pay employees through an EOR: An EOR has the knowledge and systems you need to pay employees in Chile reliably and compliantly.

With Payoneer Workforce Management, you can pay in 70 currencies, managing a global workforce and international payroll processes with ease.

Book a demo today.

FAQs

1) What is the payroll system in Chile?

Employers are obliged to pay employees in Chile at least once per month. Employees are entitled to overtime payments at a rate of 150% of their salary. They are also entitled to sick pay, maternity pay, and bonuses. Employers are responsible for withholding income tax and social security contributions. 

2) What is the payroll tax in Chile?

Income tax in Chile is based on a progressive system. There are 8 tax brackets, ranging from rates of 0% to 40%.

3) What are ​Chile’s employer payroll taxes?

Employers in Chile contribute approximately 7% of an employee’s salary toward mandatory social security and payroll-related obligations. These contributions cover areas such as unemployment insurance, disability and survival coverage, and work accident insurance. Employers are also responsible for pension contributions, which are part of the overall social security system.

Note: Contribution rates are based on current regulations and may change over time.