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What global businesses need to know about payroll in Chile
In the Chilean capital, Santiago, the business district of huge skyscrapers and glistening offices has been nicknamed ‘Sanhattan’. And it’s a symbol of a country that is generally stable and prosperous among those in Latin America. Inflation is low (around 3%), unemployment is low (around 7%) and it’s considered a higher-income economy, thanks to extensive copper mining, and exports of fish and fruit.
Foreign investment into Chile is welcomed, and so if you want to expand your operation into South America, it’s a good place to start and build a stable platform. Like any country, however, it does have its own characteristics from payroll and employment perspectives, and many regulations are currently in the process of being reformed. Read on to get the key facts about payroll in Chile.
Getting Started
Chile has worked hard to simplify and speed up the process of setting up a company, to the point that most of the requirements can be completed online. However, you should still allow around 6-8 weeks to complete all the formalities. The process includes:
- Drafting articles of association, getting them notarized, and obtaining an authentication number
- Registering with the trade register (Registro de Empresas y Sociedades)
- Contact the Internal Revenue Service and obtain a digital certificate
- Obtain a business license from the local municipality
- Register for business accident insurance
For a Sociedad Anonima (limited company), the cost of these requirements is either free or nominal. The exception to this is the business license, which is charged at between 0.25% and 0.5% of the company’s start-up capital (of which there is no minimum requirement). Employers must also publish a social constitution, and set up in-country bank accounts. Bank accounts require official paperwork and documentation, and can take up to four weeks to set up.
Employment Considerations
Written employee contracts are the norm in Chile, and should include information about the type of work, the hours, and the salary. If there is no written contract available, employees can claim the existence of a verbal contract. Collective bargaining is in effect in Chile currently, but the practice is still relatively new.
It’s important to note that any business employing at least 25 people must have at least 85% Chileans in their workforce. Those employing at least 100 people should also reserve at least 1% of their headcount for employees with disabilities.
Chilean working hours have been known for being the longest in the world, but this is gradually changing. In April 2023, the government approved legislation to bring the working week down from 45 hours to 40; this is happening on a gradual basis of one hour per year, and so the transition should be complete by 2028.
Overtime should be agreed in writing, and cannot be for more than two hours each day. Additionally, employees should never work more than 12 hours a day, inclusive of any overtime worked. Overtime should be paid at a minimum of 150% of normal rate. Be aware that fines for violation of working time rules are regularly handed out by Chilean labor authorities.
Standard notice periods are 30 days, and are often paid in lieu of notice at many Chilean businesses. There are no fixed regulations regarding probationary periods, and the terms of them should be set out and mutually agreed in employment contracts.
Compensation, Bonuses and Severance
Chile’s national minimum wage is regularly revised upwards. As of September 2023, the rate was CLP 460,000 per month (approx. £380; $480; €440), but further increases are planned: it will rise to CLP 500,000 per month on July 1 2024, and legislation is already in place to raise it again at the beginning of 2025, in line with inflation. Lower rates apply to employees who are under 18, or who are 65 or over.
Chile does not mandate the payment of a 13th-month bonus, and bonus structures and payments should be agreed in employment contracts.
Severance pay is one month per year of service, with any partial year longer than six months counting as a full year for this calculation. The total amount is capped at 11 months’ pay for employees who have 11 years of service or more.
Tax and Social Security
Taxes are generally withheld at the source, and employers pay monthly contributions between the 10th and 12th of every month. All new employees need to be registered with tax authorities within 60 days of hiring.
Chile levies income tax on a progressive scale. The first CLP 695,250 per year (approx. £570; $720; €670) is exempt, beyond which seven bandings apply. Starting at 4%, the bandings gradually rise to 8%, 13.5%, 23%, 30.4% and 35%. The highest banding of 40% applies to all earnings above CLP 15,965,000 (approx. £13,100; $16,500; €15,300).
Foreign workers in Chile are taxed only on their Chilean-sourced income for their first three years in Chile, and are taxed on worldwide income thereafter. Non-residents are taxed at a flat rate of 15% on technical and professional services, or 35% for other work.
Corporation tax in Chile (known as First Category Tax) is 27%, reduced to 25% for companies that qualify as SMEs. The VAT rate is 19%, with some exemptions in place, including for exports.
Social security contributions in Chile are made across four types:
- Pensions: 10% employee
- Unemployment insurance: 2.4% employer, 0.6% employee
- Health plan: 7% employee
- Occupational accidents: 1.99% employer
Holidays and Leave
Statutory paid leave entitlement is 15 days per year, as long as an employee has completed one year of service. At least ten of these days must be taken consecutively. Once an employee reaches ten years of service, they gain one additional day for every three years they have served. Unused paid leave can be rolled over for a maximum of two years.
There are normally 16 days of public holidays in Chile each year, and employees should be paid for these days. However, additional holidays are added from time to time, for reasons such as elections.
Maternity leave entitlement is a total of 18 weeks, six before the birth and 12 after it. Pay for the mother during this time is covered by social security. Additional leave is granted for multiple births or if there are health complications. Paid paternity leave is five days.
Medically certified illness or injury generates pay for sick leave from the fourth day of absence onwards. However, if an employee is absent for more than ten days, they are entitled to sick pay from the first day of absence. Leave is also granted for getting married (five days) and for a family bereavement (seven days).
In Summary
Chile’s payroll and employment regulations are relatively straightforward compared to many other South American countries, and the amount of bureaucracy is limited. However, this is a time of change within the Chilean business world, with regular increases in minimum wage rates, and decreases in standard working hours. In order to keep up with all the developments in Chile, it’s strongly recommended to team up with a global payroll partner with country-specific expertise, so that you can focus on your expansion plans and core business goals.
This article is for informational purposes only and not intended to convey or constitute legal or any other advice. It is not a substitute for advice from a qualified professional.