What global businesses need to know about payroll in Nicaragua

Nicaragua is not often high on businesses’ target lists when looking at expansion into Latin America, but there are opportunities there for the right organizations.

The economy of Nicaragua has had its fair share of turbulence over the years, hence the reason that it is considered one of the poorest and least-developed countries in the Americas. But it has gradually grown since the disruption of war in the 1980s; its GDP was barely more than US$1 billion around 1990, whereas it’s closer to US$16 billion today. This beautiful, volcanic country of just over six million people has started to become more appealing to tourists, although agriculture still employs more than 30% of the workforce, thanks to exports as diverse as coffee, beef, sugar, tobacco and even gold. More than half of its exports go to the United States.

Unemployment in Nicaragua is low, but so are wages, meaning that some industries may be able to drive great value from setting up operations there. Find out all you need to know about employment law and running payroll in Nicaragua in this guide, including why local expertise is especially important.

Getting Started

The most common type of business is called the Nicaragua Corporation. A business will need to have at least one director, two shareholders, and an auditor to register as a corporation. The minimum start-up capital is NIO 10,000 (approx. £215; $270; €250).

The set-up process starts by drafting the Act of Incorporation, and submitting it to the Investment Services. This costs either 1% of the company’s start-up capital, or a maximum of NIO 30,000 (approx. £645; $815; €750). Once this has been processed, registrations for trade and accounting can also be done with the same organization. Finally, completing the Single Registration Document generates all the relevant municipal licenses and registrations for tax and social security.

Commercial bank accounts are required and typically can take 4-6 weeks to establish. Owners may need to account for longer delays when processing the necessary paperwork. The speed and ease of opening up a business in Nicaragua are both heavily dependent on the company’s understanding of the system, meaning it’s easier to miss an important step or make an error in paperwork if your Spanish is limited or you’re unaware of local customs.

Employment Considerations

In the agricultural and housekeeping sectors, employee contracts can be either verbal or written. All other industries require a written contract that states the terms of employment. Nicaraguans are guaranteed the right to collective bargaining, although it is rarely practiced in most industries.

The standard working week in Nicaragua is relatively high at 48 hours, with employees working eight hours per day from Monday to Saturday. Employees working night shifts work 45 hours a week, and 7.5 hours per shift. Overtime is limited to three hours per day and nine hours per week, and is paid at 200% of salary. Overtime worked on Sundays or public holidays also entitles the employee to a day off in lieu.

Notice periods are 15 days on the employee’s side once probation has been passed, but employers must get permission from the labor inspection authorities to dismiss employees. Probation periods are 30 days.

Compensation, Bonuses & Severance

Statutory minimum wages for Nicaragua vary from one industry to another, and on March 1 2024, most rates were raised by 10%. The lowest rate applies in agriculture, and stands at NIO 5,721.17 per month (approx. £120; $155; €140). The highest rate is in construction, finance and insurance, and stands at NIO 12,803.47 per month (approx. £275; $350; €320). 

Employees are also entitled to a 13th-month bonus, which should be paid within the first ten days of December, so that employees have the extra money in plenty of time for Christmas. Some employers may add nominal amounts of money to an employee’s paycheck in lieu of providing standard benefits. This form of bonus has been deemed legal by the courts.

Severance pay is one month’s salary per year worked, if an employee has worked for up to three full years. Employees with four to six full years of service get 20 days of salary for each year completed. For employees with at least seven years of service, severance is capped at a maximum of five months’ salary.

Tax and Social Security

Income tax in Nicaragua is levied on a progressive scale, but the bandings make things relatively simple. The first NIO 100,000 earned per year (approx. £2150; $2700; €2500) is exempt, after which a rate of 15% applies. The 20% rate kicks in at NIO 200,000 (approx. £4300; $5400; €5000), then the 25% rate on earnings above NIO 350,000 (approx. £7500; $9500; €8800). The highest rate of 30% applies to all earnings above NIO 500,000 a year (approx. £10,700; $13,500; €12,500).

Corporation tax is levied at a relatively high 30%, while VAT runs at 15% (although exports are zero-rated).

There are five different types of social security contributions in Nicaragua:

• Pension and disability: 12.5% or 13.5% employer (the higher rate applies if the company employs more than 50 people), 4.75% employee
• Health insurance: 6% employer, 2.25% employee
• Labor healthcare: 1.5% employer
• War victims fund: 1.5% employer 
• Training fund: 2% employer

Holidays and Leave

Employees in Nicaragua are entitled to 15 days of paid leave for every six months of employment they complete, making for a relatively generous 30 days per year. This helps balance out the fact that there are only nine public holidays each year. Many employers will expect employees to take all their vacation days in one block, although this is not a legal requirement.

Paid maternity leave is 12 weeks – four weeks before the birth and eight after it. Multiple births generate an extra two weeks post-birth. Employers contribute 40% of salary during this time, and social security covers the rest. Paid paternity leave entitlement is five days.

Sick leave can run for up to 26 weeks per year. The first three days are normally unpaid, unless the employer has voluntarily chosen to offer sick pay during this time. Additionally, the first three days are covered by social security if the employee is in hospital, or has suffered a work-related injury or illness. In any situation, from day four onwards, social security covers sick pay at 60% of salary.

In Summary

One important point to note about doing business in Nicaragua is that only a small minority of the population speak English, and many that do are either expatriates, or work in the tourism sector. It’s for that reason that having access to Spanish-speaking professionals within Nicaragua is essential, as is leveraging the country-specific expertise of a global payroll partner.

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.