Understanding Payroll in Chile: What Global Companies Need to Know About Chile Payroll
A strip of land on South America’s Pacific coast that’s more than 4000km long, Chile is as diverse geographically as it is for business. Its economy is underpinned by copper mining, fishing, and fruit exports, helping support considerable growth in GDP since the turn of the millennium.
With a population of around 19 million people, Chile is regarded as one of the most stable countries in South America, and therefore is an attractive choice for international businesses looking at places for expansion. What’s more, the Chilean government has a positive attitude towards incoming foreign investment.
However, doing business and running payroll in Chile comes with its own unique set of rules and cultural norms, many of which may be difficult to handle without the help of a partner with local expertise. This guide sets out the most important facts about getting up and running in Chile.
Chile has worked hard to simplify and speed up the process of setting up a company, to the point that most of the requirements can be completed online. This includes:
- Drafting articles of association and obtaining an authentication number
- Registering with the trade register (Registro de Empresas y Sociedades)
- Contact the Internal Revenue Service and obtain a digital certificate
- Obtain a business license from the local municipality
- Register for business accident insurance
For a Sociedad Anonima (limited company), the cost of these requirements is either free or nominal. The exception to this is the business license, which is charged at between 0.25% and 0.5% of the company’s start-up capital (of which there is no minimum requirement). Employers must also publish a social constitution, and set up in-country bank accounts. Bank accounts require official paperwork and documentation, and can take up to four weeks to set up.
Written employee contracts are the norm in Chile, and should include information about the type of work, the hours, and the salary. If there is no written contract available, employees can claim the existence of a verbal contract. Probationary periods are allowed, and there are no set terms for them. If you do have a probationary period though, this will typically fall under a fixed-term contract, the length of which is determined between employee and employer. Collective bargaining is in effect in Chile currently, but the practice is still relatively new.
Chilean working hours are among the longest in the world. The statutory working week is 45 hours, normally spread over five or six days, depending on whether the employer requires Saturdays to be worked. Many employees will work hours in excess of this, however. Overtime should be agreed in writing, and cannot be for more than two hours each day. Additionally, employees should never work more than 12 hours a day, inclusive of any overtime worked. Overtime should be paid at a minimum of 150% of normal rate. Be aware that fines for violation of working time rules are regularly handed out by Chilean labor authorities.
Compensation, Bonuses and Severance
Chile’s national minimum wage is regularly revised upwards. As of the start of 2021, the rate was 326,500 Chilean pesos (approximately £330; $450; €380) per month. A lower rate of CLP 243,561 (approx. £250; $340; €280) applies to workers under 18 or 65 and over. Chile does not mandate the payment of a 13th-month bonus, and bonus structures and payments should be agreed in employment contracts.
The notice period in the event of termination is 30 days, or one month’s pay in lieu of notice. Severance pay is one month per year of service, with any partial year longer than six months counting as a full year for this calculation, up to a maximum of 330 days’ salary.
Tax and Social Security
Taxes are generally withheld at the source, and employers pay monthly contributions between the 10th and 12th of every month. All new employees need to be registered with tax authorities within 60 days of hiring.
Chile levies income tax on a progressive scale. The first CLP 680,022 per year (approx. £700; $950; €800) are exempt, beyond which seven bandings apply:
- Beyond CLP 680,022 up to CLP 1,511,160 (approx. £1500; $2100; €1750): 4%
- Beyond this up to CLP 2,518,600 (approx. £2500; $3500; €2900): 8%
- Beyond this up to CLP 3,526,040 (approx. £3500; $4900; €4100): 13.5%
- Beyond this up to CLP 4,533,480 (approx. £4600; $6300; €5300): 23%
- Beyond this up to CLP 6,044,640 (approx. £6000; $8400; €7100): 30.4%
- Beyond this up to CLP 15,615,320 (approx. £15,700; $21,800; €18,300): 35%
- Beyond CLP 15,615,320: 40%
Additionally, earnings beyond CLP 8,038,926 (approx. £8100; $11,200; €9400) per year are subject to Global Complementary Tax, with separate progressive rates applicable. Foreign workers in Chile are taxed only on their Chilean-sourced income for their first three years in Chile, and are taxed on worldwide income thereafter. Non-residents are taxed at a flat rate of 15% on technical and professional services, or 35% for other work.
Corporation tax in Chile (known as First Category Tax) is 27%, reduced to 25% for companies that qualify as SMEs. The VAT rate is 19%.
Social security contributions in Chile are made across four types:
- Pensions: 10% employee
- Unemployment insurance: 2.4% employer, 0.6% employee
- Health plan: 7% employee
- Occupational accidents: 0.95% employer
Holidays and Leave
Employees with at least one year of service are entitled to 15 working days of paid leave each year; it is uncommon for employers in Chile to offer anything above this statutory minimum. Employees are also entitled to paid time off (or time off in lieu) for the 16 days of public holidays each year.
Maternity leave entitlement is six weeks before the baby is born and 12 weeks after it. Additional parental leave can also be granted, up to 12 weeks off or 18 weeks of part-time work. Mothers receive a subsidy from the state for their maternity leave, although this is not normally at full pay; however, many employers make up the difference voluntarily. Paternity leave is five working days post-birth, although they can also take a share of the parental leave (up to a maximum of six weeks off or 12 weeks of part-time work).
Medically certified illness or injury generates pay for sick leave from the fourth day of absence onwards. However, if an employee is absent for more than ten days, they are entitled to sick pay from the first day of absence.
Generally speaking, Chile doesn’t carry the same level of bureaucracy or complexity in setting up a business as some other South American countries. However, it does still have its own unique traits, many of which need local experience and expertise to fully understand and deal with. A global payroll solution can help by taking the burden of setting up and running payroll away from your in-house team, allowing you to focus on the core tasks of successfully growing your customer base in the country.
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.