Demand for many goods and services suffered massively during the COVID-19 pandemic. But three items that people around the world still considered essential needs were knitwear, coffee and bananas. Perhaps that explains why Honduras came through the pandemic relatively well, as these three goods collectively represent more than half of the central American country’s exports.Alongside a strong agricultural industry, Honduras has increasingly become more of a service-heavy economy in recent years, helping its overall GDP increase almost four-fold in just 20 years. However, there are some economic challenges in the country, in particular that it is the fourth-poorest country in the Western hemisphere; living standards can be very low for many of its population of around ten million.
If you’re looking at expanding an international business into Honduras, there’s plenty you need to know from a payroll perspective. This guide covers all the basics.
Companies operating in Honduras can set up either as a limited-liability company (S.R.L) or public-limited company (S.A.), similar to many other Latin American countries.
The business set-up process generally comprises six steps:
- Obtaining a public deed
- Registering with the mercantile registry at the local Chamber of Commerce and Industry
- Obtaining a National Tax Registry Number
- Applying for an operation permit in the local municipality
- Registering for an import/export license
- Registering for the Social Find for Housing, Social Security, and the Hand Labor Training Institute
Many of these processes can take several weeks to complete, so don’t expect to get fully up and running quickly. A local attorney for tax compliance and auditing is mandatory, but in any case, local expertise can make the whole process run smoother.
Branch offices can also be set up in Honduras, but require a named representative permanently situated in the country to take legal responsibility for its affairs.
Opening a bank account in Honduras means going through an extensive ID and compliance procedure, and can take up to a month.
Written contracts are obligatory in Honduras. Although Honduras has strict laws in place preventing discrimination within the workplace or in hiring policies, there are some hiring restrictions that give protections to local labor. At least 90% of a total workforce by number and at least 85% of total payroll value must be Honduran nationals. Probation periods are generally two months.
Working weeks in Honduras are 44 hours, spread over six days and no more than eight hours per day, although managers and supervisors can work up to 12 hours per day. Overtime pay is 137.5% of an employee’s normal hourly rate, 200% for work on a rest day, and 125% for work conducted at night. However, overtime rates can be varied in accordance with collective bargaining agreements.
Compensation, Bonuses and Severance
There are dozens of minimum wage rates in Honduras, that vary depending on the industry the employer is involved in and the size of the company. As of 2022, the lowest rate is for agricultural workers in companies of ten people or less, at 7408 Honduran Lempira per month (approx. £255; $300, €300). The highest rate is for hospital workers in firms employing more than 150 people, at HNL 13,293 per month (approx. £455; $540, €540).
Employees are entitled to both 13th and 14th-month bonuses, one paid in July and the other paid in December in time for Christmas. Each should be worth one month of the employee’s salary.
Notice periods start at just 24 hours for those with less than three months’ service, rising to a week after three months, two weeks after six months, a month after a year’s service, and two months for anyone with at least two years’ service.
Severance pay rates are ten days’ salary for those with at least three months’ service, rising to 20 days after six months. Employees with at least one full year of service are entitled to one month’s salary per full year served, up to a maximum of 25 months’ salary.
Tax and Social Security
Income tax in Honduras is applied progressively across four different bands. The first HNL 172,117.90 (approx. £5900; $7000, €7000) earned per year is exempt, after which earnings up to HNL 262,449.27 (approx. £9000; $10,600, €10,600) are taxed at 15%. The next band of 20% applies to earnings up to HNL 610,347.16 (approx. £21,000; $24,800, €24,700), and all beyond that are subject to the top band of 25%.
Social security contributions are made in six different areas:
- Healthcare: 5% employer
- Sickness and maternity: 2.5% employees (up to a maximum of HNL 9849.70)
- Disability, old age and death: 3.5% employer, 2.5% employee (up to a maximum of HNL 10,282.37 for each party)
- Pension: 1.5% employer (if they employ at least ten people), 1.5% employee
- Labor coverage insurance: 4% employer
- Collective capitalization: 2.6% employer, 1.6% employee
The corporation tax rate in Honduras is 25%, rising to 30% on any net taxable income in excess of HNL 1 million (approx. £34,500; $40,500; €40,500). The standard VAT rate is 15%.
Holidays and Leave
Honduras has 11 days of public holidays each year. Paid leave entitlement starts at ten days for the first year of employment, increasing to 12 days for the second year, 15 for each the third and fourth years, and 20 days per year thereafter.
Maternity leave is ten weeks at full pay, four weeks before the birth and six afterward; the responsibility for payments is shared by the employer and social security equally. There is no legal entitlement for parental or paternity leave.
Paid sick leave entitlement is up to six months, but can be extended for a further six months subject to medical observation. Sick pay runs at 66% of normal salary, and is also shared equally between employer and social security.
Honduras also has a number of other leave entitlements, including bereavement of a close family member (three days), union-related activities (six days), legal summons (half a day), and a five-day leave period immediately after getting married.
Honduras’s lively mix of services and agricultural exports makes it an exciting destination for international expansion. However, it is a relatively poor country with its own cultural characteristics, combined with a very low proportion of the population who speak or understand English. That’s why it’s so important from a payroll perspective to partner with an expert who can help you navigate compliance requirements in Spanish, and understand all the ins and outs of running payroll in Honduras correctly.
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.