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What global businesses need to know about payroll in Uruguay
With a population of around 3.5 million, Uruguay is one of the smaller countries in South America, and one perhaps best known for hosting and winning the very first FIFA World Cup in 1930. But a relatively stable political and economic situation makes it a more attractive proposition for foreign investment than perhaps meets the eye.
The Uruguayan economy has recovered well from a banking crisis in 2002 which practically halved GDP in the space of just a few years. Like its larger neighbor, Argentina, beef is one of its prime exports, but Uruguay has a strong service-led economy (accounting for around 70% of GDP) largely based around the bustling capital, Montevideo.
The Uruguayan workforce is well-educated and highly skilled, while the tax regime is fairly straightforward, so there’s much to love about the country as a business destination. This guide tells you all you need to know about employment law and running payroll in Uruguay.
Getting Started
Uruguay has worked hard in recent years to make the process of setting up a new business entity much simpler. To that end, a new public limited company type called ‘Sociedad Anonima Simplificada’ was created by the Uruguayan government in 2019 to reduce incorporation costs, and enable more set-up functions to be done online.
The first step is to appoint a local agent or legal professional who can take care of the registration process for you, and will give you the benefit of their local experience and expertise. They will help you get registered on the ‘Empresa en el dia’ one-stop shop platform online, and then draft your certificate of incorporation for notarizing. This can then be submitted to the National Registry of Commerce, after which tax registration can be completed.
The final step is to set up a Uruguayan corporate bank account, and deposit at least the minimum share capital of UYU 923,403 (approx. £18,700; $23,600; €21,800) for an SA or SAS, or UYU 20,531 (approx. £415; $525; €485) for an SRL private limited company.
Employment Considerations
While there are no formal requirements for establishing an employment relationship, it is general practice to have a signed, written contract that outlines the role, requirements, responsibilities, and compensation details. Uruguayan culture supports collective negotiation, and Article 57 of the Constitution protects the right of employees to participate in collective action, strike, and organize unions.
The standard working week in Uruguay is 44 hours, rising to 48 hours in heavy industry. Employees normally work eight-hour shifts, which means that it’s normal for employees to work on Saturdays. Overtime is limited to a maximum of eight hours per week and is paid at 200% of normal salary, rising to 250% on days that would normally be rest days or public holidays.
Notice periods are normally a week and a half, while probation periods can run for up to three months.
Compensation, Bonuses & Severance
Uruguay currently has the highest minimum wage rate of any South American country. As of 2024, the rate is UYU 22,268 per month (approx. £450; $570; €525). This is nearly double the rate in 2017, and further increases in the coming years cannot be ruled out.
In line with many other South American countries, employees in Uruguay are entitled to the ‘Aguinaldo’ 13th-month bonus. This is paid in two halves: the first in June, and the second in December in time for Christmas.
Severance pay is one month’s salary per year of service, up to a maximum of six months’ salary for employees with six years’ service or more.
Tax and Social Security
Employers must remit monthly payments and file monthly returns either online or at a DGI office. Due dates for monthly returns and remittances vary based on employers’ RUT numbers, which they receive by registering with the Register for Contributors.
Income tax in Uruguay is levied progressively. The first UYU 475,440 earned per year (approx. £9600; $12,200; €11,200) is exempt, after which the first of seven bands is applied at 10%. Further bands of 15%, 24%, 25%, 27% and 31% kick in as earnings increase. The highest band of 36% applies to earnings above UYU 7,810,800 per year (approx. £158,000; $200,000; €185,000).
Corporation tax runs at 25%. VAT is 22%, with a range of exemptions, as well as a reduced rate of 10% applicable in some cases.
There are four main social security contributions in Uruguay:
- Pension fund: 7.5% employer, 15% employee
- Labor re-conversion fund: 0.1% employee
- Health insurance: 5% employer, 3-8% employee
- Labor credit guarantee: 0.025% employer
Holidays and Leave
Paid leave entitlement in Uruguay starts at 20 days per year, once an employee has completed one year of service. The entitlement increases by one day for every four years of service, reaching the maximum of 25 days after 20 years. Uruguay has 15 days of public holidays every year, but only five are mandated as paid time off: New Year’s Day, Labor Day, Constitution Day, Independence Day, and Christmas Day.
Maternity leave is 14 weeks, six before the birth and eight after it, while paternity leave is 13 days. Both of these are paid at full salary by social security.
Paid sick leave can run for up to a year. Employers cover full salary for the first three days, after which social security compensates employees at 70% of their normal salary. Employees getting married, or who have suffered a family bereavement, are also entitled to three days of paid leave.
In Summary
Uruguay’s approach to payroll and employment is relatively straightforward compared to many other Latin American countries, but that doesn’t mean that there aren’t specific characteristics or cultural considerations to bear in mind. To make sure you start your Uruguayan adventure on the front foot, and to ensure you stay on the right side of compliance in the long term, we recommend partnering with a global payroll expert along the way.
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.