Ecuador Payroll and Benefits Guide

Ecuador Payroll and Benefits Guide

What global businesses need to know about payroll in Ecuador

Ecuador is a country of just over 18 million people on the Pacific coast, and although its economy is now more than 60% services by GDP, it perhaps remains best-known economically for being the world’s biggest exporter of bananas.

The country has enjoyed some relative stability financially, thanks in no small part to making the United States dollar its official currency in 2000: its economy by GDP has reached almost six times the size since then. However, politically, it remains a relatively turbulent place, as government authorities continue to battle the threat of organized drug gangs that have blighted some parts of the country.

This is just one of the reasons that understanding the cultural ins and outs of Ecuadorian life is essential to expanding into the country successfully. Discover those that apply from a payroll and employment perspective in this guide.

Getting Started

Local expertise is everything when it comes to starting a business in Ecuador. You will need to hire a registered representative with your power of attorney to help you along the way. The process is straightforward but not necessarily simple, and those who know the culture (not just the language) will be able to navigate the official waters and government agencies much better than an outsider.

On your behalf, they will reserve your company name, and put together all the key documentation including company by-laws and shareholder information. Once this has all been notarized, you will be able to register with the Superintendence of Companies, Mercantile Registry, and the National Office of Tax. 

Companies are not required to open a bank account to conduct their affairs, but a legal rep can help decide if it is in the company’s best interest to establish one. Once you have decided how to register the company, a legal rep will get to work on filing. 

Employment Considerations

Recognized unions will use collective bargaining to ensure fairness for workers, though not every worker will be in a union. Contracts are required in Ecuador and should specify the length of service (even if it is indefinite), and the terms of service.

Ecuador’s standard working week is eight hours a day, Monday to Friday, for a total of 40 hours. Anything beyond this is classed as overtime, which is limited to four hours a day and 12 per week. Overtime should be paid at 150% of the normal rate, rising to 200% between 7pm and 6pm, and at any time on Saturdays, Sundays or on public holidays. Collective bargaining can improve these conditions for employees even further.

Notice periods and probationary periods are entirely down to contractual agreements and collective bargaining; although in the case of the latter, it’s rare for probation to run any longer than three months.

Compensation, Bonuses & Severance

The minimum wage in Ecuador has climbed steadily in recent years. As of 2024, it stands at $460 per month (approx. £360; €420).

If a worker is not in a union, there are no laws regarding raises and bonuses on a year-to-year basis. However, due to the cap on the top executives’ salaries and general customs, workers should receive more consideration based on their hard work for the company. 

The payment of 13th-month and 14th-month bonuses is mandatory in Ecuador. One should be paid in time for Christmas, and the other around Easter.

Severance pay runs at one month’s salary per year of service, with a minimum of three months’ salary and a maximum of 25 months’ salary. Severance pay for any partial years of service should be pro-rated. Employers can offer an extra 25% on top of this for a sudden dismissal.

Tax and Social Security

Income tax in Ecuador is levied progressively, with the first $11,092 earned per year exempt (approx. £8700; €10,200). After that, the first of nine progressive rates kicks in at 5%. Further rates run at 10%, 12%, 15%, 20%, 25%, 30% and 35%, before the highest rate of 37% takes effect on all earnings above $107,199 (approx. £84,200; €98,500).

The standard corporation tax rate is 25%, although this can be reduced to 22% for some new investments, or increased to 28% when some of a company’s shareholders are non-residents based in tax haven jurisdictions. Furthermore, a reduced rate of 15% for sports betting operators was due to take effect in July 2024. VAT in Ecuador is a relatively low 12%, although agricultural goods and machinery, imported fuels for internal consumption, public services, housing rentals and exports are among the many exemptions.

Social security contributions are 12.15% by employers, and 9.45% by employees. Employers also pay a further 8.33% into the social security reserve fund.

Holidays and Leave

Paid leave entitlement in Ecuador starts at 15 days per year, after one year of service. After five years of service, employees receive one further day per year, up to a maximum of 30 days after 19 years of service. There are 11 days of public holidays in Ecuador each year, several of which fall on Fridays.

Maternity leave is 12 weeks: two before the birth and ten after it. Employers cover 25% of salary during this time, with social security covering the rest. For nine months after the end of maternity leave, mothers can shorten their normal working shifts from eight hours to six if they so wish.

Paternity leave entitlement is ten days and is paid in full by employers. All parents are also entitled to up to nine months’ unpaid parental leave within the first 12 months post-birth.

Sick pay is covered by employers at 50% of salary for the first three days, then by social security thereafter, at the same rate, for a collective maximum of two months. There are further leave entitlements for family bereavement (three days, paid), and national service (paid at 100% for the first month, 50% for the second month, and 25% for the third month.

In Summary

Unless you have considerable in-house expertise and a number of employees who are fluent Spanish speakers, it is inadvisable to take on an Ecuadorian business expansion entirely on your own. As well as local legal representation, we would also strongly recommend partnering with a global payroll expert, who can help you navigate a path towards full payroll compliance – and help keep you there.

This article is for informational purposes only and is not intended to convey or constitute legal or any other advice. It is not a substitute for advice from a qualified professional.

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