Understanding Payroll in Uruguay: What Global Companies Need to Know About Uruguay Payroll System

Known for its progressive laws, stable government, and well-educated workforce, the Oriental Republic of Uruguay offers an attractive, dynamic South American home for multinational organizations. Bordered by Argentina, Brazil, and the Atlantic Ocean, the small nation is home to more than 10 million cattle but only 3.4 million people, more than half of whom live in the vibrant coastal capital of Montevideo. Uruguay’s strong economy and straightforward tax system help minimize the challenges for international payroll—though you may want an experienced payroll partner to help ensure you meet the country’s strict payroll regulations.

Business Basics

Employers are responsible for calculating and withholding income and social tax from employee salaries, and making those payments as well as additional social tax contributions to the General Tax Directorate (DGI) every month. Organizations can register with the DGI in an office or online, where they can also register with the Institute of Social Security (BPS), which must be done prior to commencing business activity.

The nation’s currency is the Uruguayan Peso (UYU). However, taxable amounts are denominated in Base Contribution Units (BFCs), Base Loan and Contribution Units (BPCs), and Readjustable Units (URs), and the BPS posts the conversion rates for these units every month. Foreign workers are welcome in Uruguay with a proper residence permit (separate work permits are not required), and while foreign workers are subject to the same wage and tax requirements as native Uruguayans, employers may pay foreign residents in any legal currency.

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Employment Law & Employee Rights

Both employers and employees in Uruguay benefit from a straightforward system of nationwide requirements for wages, hours, leave, and social programs. All employers and workers are registered with BPS, and records of employment, compensation, taxes, and the like are generally kept for five years and may be accessed for review by all involved parties.

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 for employees to participate in collective action, strike, and organize unions.

Compensation & Severance

As of January 2017, the minimum monthly wage in Uruguay is 12,265 pesos (~$430, £316, €360). The maximum workday is eight hours, and the maximum workweek is 44 hours for workers in the commerce sector and 48 hours for workers in the industrial sector. The state also mandates minimum rest periods for workers in various sectors. Overtime work is generally compensated at twice the normal wage, and work on public holidays is paid at 2.5 times the regular compensation.

Additionally, workers in Uruguay are entitled to Aguinaldo, which is an annual bonus payment equal to one month’s salary, commonly known as 13th salary. This bonus is payable in two installments, paid in June and December.

Termination practices and requirements vary by work sector and generally include some mandatory compensation for terminated employees, as well as a portion of the Aguinaldo. Employers are required to provide unemployment papers to terminated employees within 10 days.

Tax Requirements & Withholding

Employers are generally required to withhold income tax from employee payroll, at tax rates that range progressively from 10% to 30%, with income below 7 BPC per month exempt from income tax. Taxable income is considered all regular salary, vacation pay, severance, and other payments in kind. 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.

Additionally, employers are required to withhold Social Security contributions from employees and make additional contributions. Employer contributions to pension and medical insurance funds are generally 12.5% of the employee salary, plus an additional 0.125 percent for employees with dependents. For workers with occupations that pose health risks, employers pay an additional 6.9 to 27.5 percent contribution, depending on the level of risk assessed. Employers are required to enroll employees in workers compensation insurance with the State Insurance Bank (BSE).

Time Off & Paid Leave

In their first year of employment, employees are not entitled to paid holidays. After that, every employee in Uruguay receives a minimum of 20 days of paid vacation each year. After five years of work with the same employer, the employee is entitled to an additional paid vacation day for every four years worked.

Five national holidays in Uruguay are mandated paid days off; however, there are additional public holidays that may or may not be compensated time off. An important thing to note about the Uruguayan calendar is that although several dates may coincide with traditional religious celebrations, they have been secularized for this country since 1919. For example, Uruguayans celebrate the Day of the Family on December 25.

While employers are not required to provide paid sick leave, employees are entitled to sick time compensation through BPS. Similarly, BPS pays maternity benefit to new mothers, who are entitled to 12 weeks of paid leave: six prior to the child’s due date and six weeks after. Male works are entitled to three days of leave for the birth of a new baby.

Employers must provide three days of leave for newly married employees (provided the employee gave at least 30 days of notice) and three days bereavement leave. Additionally, employees are entitled to a day off when they give blood and full pay if they are ever called on to testify in a trial.

Progressive for Payroll

Uruguay occupies a unique place in the South American business landscape, enjoying a stable, progressive culture and government, and offering a supportive working environment for both employer and employee. Working with a knowledgable global payroll solution provider can help multinationals make the most of doing business in this strong, welcoming nation. To see how payroll in Uruguay compares to other nations in South American and beyond, browse our other country payroll guides.

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.