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What global businesses need to know about payroll in Peru
Did you know that Peru is responsible for almost 10% of the global commercial fishing catch? And that it’s the second-largest producer of copper and silver in the world? You might think that Peru’s economic growth has been underpinned by tourism, to the likes of the Andes and Machu Picchu, but its agriculture, mining, and heavy industry remain staple sources of income.
The Peruvian economy has a good mix of industries, and so is a top choice for most international businesses looking at expanding into South America. However, some of the payroll and employment regulations are complex, and the risk of audit is high, so compliance is essential. Start off on the front foot with this guide.
Getting Started
Most foreign enterprises will set up in Peru as a limited liability entity called a Sociedad Anonima Cerrada (S.A.C). There is no minimum capital requirement, although the CEO or general manager of the entity must live in Peru, and there cannot be more than 20 shareholders.
Firstly, deeds of incorporation should be prepared and notarized, and you should open a Peruvian bank account (not compulsory, but recommended). After this, you can register the company with the National Superintendences of Public Registries (SUNARP) and Tax Administration (SUNAT). The process is completed by gaining an operational license in the relevant municipality where the business will operate: this tends to be much simpler in the capital city Lima than it is in more rural areas.
It’s essential to seek professional help when starting a business in Peru because of the intricacies of the system there which demand local know-how. Partnering with an expert in Peruvian business can shorten the set-up process from months to weeks.
Employment Considerations
Unions and collective bargaining are rare in Peru, so it falls on the government to protect Peruvian workers. Unlike at-will agreements, Peruvian workers are not allowed to be laid off for just any reason: the employer must show just cause for an employee’s incompetency or inadequacy. Notice periods are generally 30 days, although this can be reduced to six days if the employee is dismissed due to major errors or misconduct.
No more than 20% of a workforce can be made of foreign workers, and there are caps as to how much employees can be paid relative to those on the lowest rung of the compensation ladder.
Working hours in Peru are limited to 48 hours per week (in principle, this would mean six shifts of eight-hours each, Monday to Saturday) – however, unusually, there is no cap on how much overtime can be worked. Overtime is paid at 125% of the normal rate for the first two hours per shift, and 135% beyond that (or if the overtime work is between 10pm and 6am).
Probationary periods are three months for general employees, six months for skilled workers, and a year for management.
Compensation, Bonuses and Severance
Compared to many countries, the minimum wage rate in Peru has remained relatively stable in recent years. Since 2018, it has only been raised once: that was in 2022, when the rate was increased to 1025 Peruvian soles (PEN) per month (approximately £210, $265, €250). On top of this, the payment of travel and housing allowances to employees is commonplace; the latter especially so if an employee has moved to a new city to take a job.
Employees in Peru are entitled to 13th-month and 14th-month bonuses, one in time for Independence Day on July 1, and the other in time for Christmas. Any other discretionary bonus structures should be agreed contractually.
Severance pay generally isn’t paid to employees who have been dismissed, unless they have been dismissed without cause or unlawfully. In these circumstances, the employee is entitled to one and a half months’ salary per year of service, up to a maximum of a year’s salary.
Tax and Social Security
Income tax in Peru is levied progressively: as of 2024, the first PEN 36,050 (approx. £7400; $9300; €8700) are exempt. After this, the first band of 8% kicks in, followed by bands of 14%, 17% and 20%. The highest band of 30% applies to all earnings over and above PEN 267,800 (approx £55,000; $69,000; €64,500).
Non-residents pay taxes only on income earned in Peru, paid at a flat rate of 30%. VAT is 18% and corporate income tax is 29.5%.
Social security contributions are as follows:
- Family allowance: 10% of minimum wage, paid by the employer (only in the case of employees with children)
- Health insurance: 9% employer
- Working compensation: 9.72% employer
- Pension fund: 12.5-13% employee
Holidays and Leave
Annual leave entitlement in Peru is relatively generous at 30 days per year: half of it must be taken in two longer blocks, and the other half can be used on a day-by-day basis. On top of this, employees are also paid for the 12 public holidays observed each year.
Maternity leave entitlement is 14 weeks: seven weeks before the birth and seven after it. The total can be extended by another 30 days for multiple births or those with complications. The national health insurance system covers full pay during this time, as well as ten days of paid paternity leave post-birth (20 days in the case of multiple births or complications).
Sick leave can run for as long as a full year. Employers provide sick pay at full salary for the first 20 days of absence each year. Beyond this, employees are paid at 70-80% of their normal rate, and employers can claim this money back from social security.
In Summary
There are a few idiosyncrasies around running payroll in Peru, although there is nothing insurmountable without the right approach and expertise. However, you should note that audits, including checks for payroll compliance, are commonplace in Peru – so it’s vital that you’re proactive in staying on top of any changes. This is where working with a specialist payroll partner with country-specific expertise can help you keep out of any unintentional trouble.
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.