Honduras Payroll and Benefits Guide

What global businesses need to know about payroll in Honduras

Honduras is a country with one of the most mixed economies in the Americas, with agriculture and industry collectively contributing around 43% of GDP. Exports are incredibly diverse from knitwear and bananas, to coffee and cigars, and more than one-third of all its exports go to the United States.

However, Honduras is an extremely poor country, and official statistics have found that more than half of the population is living in extreme poverty, despite the fact that unemployment is relatively low. Potentially, this means that an incoming foreign business could play its part in improving Honduran workers’ lives through better wages, while still employing at a lower cost base compared to a developed nation.

This guide gives you all the basic facts about employment law and running payroll in Honduras. You’ll discover that its regulations are relatively straightforward to understand, but that there is still an element of bureaucracy involved.

Getting Started 

Companies operating in Honduras can set up either as a limited liability company (S.R.L) or a public limited company (S.A.), similar to many other Latin American countries. The good news is that there are no restrictions on foreign business ownership, and no requirements for minimum share capital.

The business set-up process generally comprises the following steps:

  • Depositing initial capital in a Honduran bank account (this can take up to a month and require extensive identity and compliance checks)
  • Drafting and registering articles of incorporation
  • Obtaining a National Tax Registry Number
  • Registering with chambers of commerce at local and national levels
  • Applying for an operation permit in the local municipality
  • Registering for an import/export license
  • Registering for the Social Find for Housing, Social Security, and the Hand Labor Training Institute

Many of these processes can take several weeks to complete, so don’t expect to get fully up and running quickly. A local attorney for tax compliance and auditing is mandatory, but in any case, local expertise can make the whole process run smoother.

Branch offices can also be set up in Honduras, but require a named representative permanently situated in the country to take legal responsibility for its affairs.

Employment Considerations

Written contracts are obligatory in Honduras. Although Honduras has strict laws in place preventing discrimination within the workplace or in hiring policies, some hiring restrictions give protections specifically to local labor. Most notably, businesses cannot hire more than 10% foreign workers among their total workforce.

The standard working week in Honduras is 44 hours, and most employees will work six days a week. Employees should not work more than eight hours per day, although this rises to 12 for managers and supervisors. Overtime is limited to 12 additional hours per week, and should be paid at 137.5% of normal salary, or 200% on a rest day. A further 25% premium is added to overtime worked at night.

Notice periods start at just 24 hours for those with less than three months’ service, rising to a week after three months, two weeks after six months, a month after a year’s service, and two months for anyone with at least two years’ service. Probation periods are generally two months.

Compensation, Bonuses and Severance

Minimum wage rates in Honduras vary substantially, depending on the industry involved, and how many employees an individual company has. Making things even more complex is the fact that wage rates have consistently risen year-on-year, and have increased by around two-thirds in the last decade.

The smallest rate applies to those working in agriculture in a company of ten people or less, and is currently HNL 8134.08 per month (approx. £260; $330, €300). The highest rate applies to financial services and real estate employees in companies with a headcount greater than 150, and is currently HNL 15,753.50 per month approx. £500; $640, €590).

Employees are entitled to both 13th and 14th-month bonuses, one paid in July and the other paid in December in time for Christmas. Each should be worth one month of the employee’s salary.

Severance pay rates are ten days’ salary for those with at least three months’ service, rising to 20 days after six months. Employees with at least one full year of service are entitled to one month’s salary per full year served, up to a maximum of 25 months’ salary.

Tax and Social Security

The first HNL 199,039.47 earned per year (approx. £6300; $8000, €7400) is exempt from Honduran income tax, after which the first band of 15% kicks in. There are two higher bands beyond this: 20% applies to earnings beyond HNL 303,499.91 per year (approx. £9700; $12,300, €11,300), and then 25% on earnings above HNL 705,813.77 per year (approx. £22,500; $28,600, €26,400).

Corporation tax in Honduras is levied at 25%, although companies with a taxable income of over HNL 1 million (approx. £31,900; $40,500; €37,400) should pay an extra 5% ‘solidarity contribution’. The VAT rate is 15%, although there are several exemptions, notably including machinery and equipment.

Social security contributions are made in six different areas:

  • Healthcare: 5% employer
  • Sickness and maternity: 2.5% employees (up to a maximum of HNL 9849.70)
  • Disability, old age and death: 3.5% employer, 2.5% employee (up to a maximum of HNL 10,282.37 for each party)
  • Pension: 1.5% employer (if they employ at least ten people), 1.5% employee
  • Labor coverage insurance: 4% employer
  • Collective capitalization: 2.6% employer, 1.6% employee

Holidays and Leave

Paid leave entitlement in Honduras starts at a low level, but gradually increases over time. Employees get ten days off in their first year, 12 in their second, and 15 in each of their third and fourth. Employees with at least four years of service get 20 days off per year. Employees should also be paid for the 11 days of public holidays each year, although this doesn’t apply if the holiday falls at the weekend.

Maternity leave is ten weeks – four before the birth and six after it. The employer pays half the normal salary during this time, and the social security system covers the other half. There is no legal entitlement for paternity or parental leave.

Paid sick leave can run for up to six months, and can be extended to 12 months after a medical observation. Employees receive two-thirds of their normal salary during this time, and again, this is covered equally by employers and social security.

Honduras also has a number of other leave entitlements, including bereavement of a close family member (three days), union-related activities (six days), legal summons (half a day), and a five-day leave period immediately after getting married.

In Summary

A mixed economy and a low wage base mean Honduras can be a great destination for international business. However, it hasn’t quite shaken off all the layers of bureaucracy in the way that many other developing countries have, so there can be a lot to do in order to ensure payroll compliance. We recommend working with a global payroll provider, along with Spanish-speaking experts in the country, who can guide you through all the ins and outs, and keep your business on the right side of the law.

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.

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