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What global businesses need to know about payroll in Paraguay
Paraguay is one of only two countries in South America that has no coastline (Bolivia being the other). For that reason, it’s often referred to as the ‘Corazón de Sudamérica’ (Heart of South America), and it is a major exporter to the rest of the continent, especially in soybeans and cotton.
You may not know that Paraguay is also a major generator and exporter of hydroelectric power, and this has helped its economy grow to six times the size it was in the early 2000s (admittedly from a very low starting point). With services accounting for 54% of GDP, industry and agriculture are still big economic drivers, while there is also a young, motivated workforce to tap into.
One of the reasons Paraguay is such a popular option for foreign investment is its tax regime, which not only runs at relatively low rates but is also very clear and easy to understand. Paraguay also has a reputation as a country where officials are keen to help foreign enterprises expand into the country, and facilitate economic growth as a result. Here’s what you need to know from the perspectives of employment law, and running payroll in Paraguay.
Getting Started
If setting up a limited liability company in Paraguay, local legal representation is a must (especially as they can help you draft all your documents in Spanish). While the setup process isn’t overly complicated, you should allow several weeks for it to be completed.
Your legal representative will help you draft and sign relevant powers of attorney, reserve your company name, and draft your company by-laws. With this, you’ll be able to register with the General Public Registry, the Treasury Attorney Office, and the Sistema Unificado de Apertura de Empresas (SUAE).
Companies also need to register with the Tax Authority and can begin hiring employees after registering with Social Security. In-country bank accounts are not required to do business, but working with a large, well-established bank in the country is strongly recommended if you choose to do so. As banks are eager to cater to businesses, the process of opening an account is neither difficult nor time-consuming.
Employment Considerations
Written contracts are not explicitly required in Paraguay, but are used in most cases. The influence of collective bargaining is relatively minimal and covers a few specific industries and companies.
Employees in Paraguay generally work eight hours a day, six days a week, for a relatively long working week of 48 hours. Those who habitually work at night (between 8pm and 6am) are limited to a 42-hour week and should receive a 30% premium on their standard pay. Overtime is limited to three hours a day and nine a week; it should be paid at 150% of normal salary, or 200% if at night or on a public holiday.
Probation periods are one month, rising to two months for qualified employees and apprentices. Interestingly, the statutory minimum notice period is just one day.
Compensation, Bonuses and Severance
As of early 2024, the national minimum wage in Paraguay is PYG 2,680,370 per month (approx. £290; $370; €335), which represents a rise of nearly 50% in the space of just eight years. Further upward revisions of the rate tend to take effect on July 1 each year, so it’s worth staying abreast of local activity in this area. Employees should be paid at least once a month but can be paid every week or fortnight.
Wage growth in Paraguay is typically slow for most employees, and any raise or bonus expectations should be agreed during contract negotiations. There is, however, the requirement to pay a 13th-month bonus each December in time for Christmas, as is the case in many Latin American countries.
Severance pay is 15 days’ salary per year of service, up to a maximum of six months’ salary. Employees with more than ten years’ of service who are dismissed without just cause may be able to claim double severance pay.
Tax and Social Security
Paraguay benefits from a very straightforward approach to tax, that is extremely easy to understand and to administer.
Income tax in Paraguay only applies to employees who earn at least three times the minimum salary over the course of the year, and even then, they are only taxed at 10%. Corporation tax and VAT are also levied at 10%. Social security contributions are 16.5% by the employer, and 9% by the employee.
Taxes are automatically withheld from employee paychecks and paid to the relevant authorities by the employer.
Holidays and Leave
Paid leave entitlement in Paraguay starts at 12 working days per year, rising to 18 days after five years of service, and a generous 30 days after ten years. There are 11 days of public holidays in Paraguay each year.
Maternity leave entitlement is 18 weeks, while paternity leave is two weeks. Both are paid at full salary by social security.
Paid sick leave is up to 26 weeks per year, provided employees have made at least four weeks of social security payments prior. Employers and social security each cover half of the employee’s salary during this time.
Employees also receive three days’ paid leave if they’re getting married, or in the event of a family bereavement.
In Summary
Running payroll in Paraguay is refreshingly simple, especially when compared to many of the other countries in the Latin American region. Clear and straightforward tax regulations, and similarly easy-to-understand rules around leave make it less of a burden getting up to speed here than most. But that doesn’t mean things won’t change in the future, or that there aren’t cultural considerations to bear in mind. Working with a global payroll provider can help ensure your compliance in the long term.
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.