Understanding Payroll in the Dominican Republic

 

What Global Companies Need to Know About Dominican Republic Payroll

 

Sharing the island of Hispaniola with Haiti, the Dominican Republic is the second-largest country in the Caribbean, with a population of approximately 11 million people. Its beautiful beaches and luxury resorts and golf courses mean tourism is a major part of its economy, but major agricultural and mining operations have also contributed to the nation’s growth. Annual GDP ran at around $89billion in 2019, nearly four times greater than it was just two decades previously.


Before exploring expansion into the Dominican Republic, it’s important to understand all the rules and regulations regarding setting up a business and running payroll. Although its tax laws are relatively straightforward, corporate taxes are fairly high, while companies aren’t allowed to employ more than 20% foreign workers. To get a basic understanding of running payroll in the Dominican Republic, this guide sets out the key facts.

 

Getting Started 

As in many other Spanish-speaking countries, the two most common types of foreign business entities are the limited liability company (S.R.L) and the joint-stock company (S.A.). The latter is only really appropriate for the biggest companies as the minimum capital requirement is 30 million Dominican pesos (approximately £380,000; $525,000; €440,000). The S.R.L. minimum capital requirement, on the other hand, is DOP 100,000 (approx. £1250; $1750; €1450)

The set-up process starts by finding and registering an available company name with the National Office of Industrial Property. Within ten days, the company’s name should be published in the register, after which the company can be registered with the Chamber of Commerce. Then a tax identification number can be obtained (at a cost of 1% of minimum share capital) from the Internal Revenue Service, and the company can be registered with the National Taxpayers Registry. Finally, registration with the Department of Labor and with social security (CNSS) completes the process.


Much of this can be completed online and is relatively straightforward. An in-country bank account (while not mandatory) makes things much easier, as does a local lawyer with relevant business knowledge.

 

Employment Considerations 

The Dominican Republic prides itself on taking care of its workers. Unions are encouraged here, and strikes may be held if workers feel their employers are not treating them fairly. Strikes must be coordinated with the Ministry of Labor at least 10 days in advance. Foreign workers are required to have a short-stay permit or temporary residency, which will typically cover about a year.


Contracts are required with employees, though these contracts are allowed to be verbal. Probationary periods are allowed, but cannot last longer than three months. At least 80% of a company’s workforce must be Dominican, and Dominicans collectively must earn at least 80% of the total wages paid by the company (excluding management and technical staff wages).

Maximum working hours are eight per day and 44 per week. Work between 9pm and 7am is paid at 115% of the normal rate. Overtime is paid at 135% of the normal rate for any work between 44 and 68 hours in a week, and 200% beyond 68 hours. The 200% rate also applies for any work an employee does that prevents him/her from getting 36 hours of uninterrupted rest between working weeks. Senior managers are exempt from the working time restrictions, but are not eligible for overtime pay.

 

Compensation, Bonuses, Severance 

The minimum wage in the Dominican Republic varies, depending on the value of the employer, across three bandings:

  • Company value below DOP 2 million (approx. £25,000; $35,000; €29,500): minimum wage of DOP 9,411.60 per month (approx. £120; $165; €140)
  • Company value between DOP 2 million and DOP 4 million (approx. £50,000; $70,000; €59,000): minimum wage of DOP 10,620 per month (approx. £135; $185; €155)
  • Company value above DOP 4 million: minimum wage of DOP 15,447.60 per month (approx. £195; $270; €230)

Other rates apply for field workers and security guards. You will need to check the union and the Ministry of Labor laws before setting your final numbers.
Bonuses in the Dominican Republic are paid in two types. The typical ‘13th-month’ bonus of one month’s salary is paid on or before December 20, in time for Christmas. Employees are also entitled to a share of 10% of the company’s pre-tax profits, capped at 45 days’ salary for workers with less than three years’ service, and 60 days’ salary for those with three years’ service or more.

Dominican companies are able to terminate contracts for any reason except pregnancy. Notice periods start at seven days after three months’ service, rising to 14 days at six months and 28 days after a year. Severance pay rates start at six days’ salary after three months’ service, rising to 13 days after six months, 21 days per year of service after one year, and 23 days per year of service after five years.

 

Tax and Social Security

Income tax in the Dominican Republic is levied on a progressive scale, and is withheld at the source by the employer. The first DOP 416,220 earned per year (approx. £5300; $7300; €6100) is exempt, after which three bandings apply:

  • Beyond DOP 416,220 up to DOP 624,329 (approx. £7900; $10,900; €9200): 15%
  • Beyond this up to DOP 867,123 (approx. £11,000; $15,200; €12,800): 20%
  • Beyond DOP 867,123: 25%

The corporation tax rate is 27%. VAT is levied at 18%, with exemptions applicable to certain goods and services, including sales to Free Trade Zones and exports.

Social security contributions are also withheld by employers and are made in three areas:

  • Pension: 7.1% employer, 2.87% employee
  • Family healthcare: 7.09 employer, 3.04% employee
  • Labor risk insurance: 1.2% employer

 

Holidays and Leave

Paid leave entitlement in the Dominican Republic is 14 working days after one year of service, rising to 18 working days after five years. However, when time off is taken, it must be for at least a week at a time. Employees are also paid for the 13 days of public holidays observed each year.

Paid maternity leave was extended from 12 weeks to 14 weeks in 2018, with at least six weeks falling either side of the birth. Paternity leave is two days. Employees generally use their vacation time as sick time as employees are not entitled to separate sick pay. Extended sick time is covered by the government, and does not include payment from the first day of illness.

Date Dominican Republic's Public Holiday Schedule
 January 1st  New Year's Day
 January 6th   Epiphany
 January 21st   Lady of Altagracia
 January 26th  Juan Pablo Duarte Day
 February 27th  Independence Day
 Friday before Easter Sunday  Good Friday
 A Sunday in March - April (varies each year)  Easter Day
 May 1st   Labor Day
 Second Thursday after Whitsun  Corpus Christi
 August 16th  Restoration Day
 September 24th  Our Lady of Mercedes Day
 November 6th  Constitution Day
 December 25th  Christmas Day

 

In Summary 

The Dominican Republic is a growing, developing nation, and foreign businesses coming into the country will be playing a key role in supporting that development.

Of course, doing so requires businesses to focus strongly on their core business goals, and not be distracted or overburdened by the admin of running payroll and ensuring compliance. It therefore makes sense to team up with a global payroll provider that can apply local expertise and look after payroll in the Dominican Republic, to ensure that you avoid any major hassle or legal issues.


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.