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How to Hire Employees in Chile: A Guide for Overseas Employers

As with other South American countries, Chile is home to many skilled professionals that may offer the type of talent that your company is looking for.  Hiring remote employees abroad is a growing trend for that reason, as cross-border work has been enhanced by technology and a willingness to overcome communication and cultural differences to build the ideal team.

What you need to know about hiring employees in Chile

Hiring employees in Chile will entail meeting an entirely new set of regulations surrounding employment, payroll, tax, and social security.  Many of these may be quite different than in your home country, so we have put together this guide as an overview.  At some point, you will need to engage a third party or local experts to assist you, especially if you don’t plan on having a legal business presence in the country.

Employment in Chile

Employment Contracts:  Fixed-term contracts can only be 12 months in duration (extendable), except for professional or technical positions which can be 24 months.  The employee must receive a copy of the contract translated into Spanish.

Employee Entitlements

  • Vacation leave: 15 days per year, after a year of service
  • Sick leave: unlimited number of days paid by social security, with a medical certificate
  • Maternity leave: 30 weeks, 6 weeks prior, 12 weeks after, and 12 additional weeks that can be transferred to the other parent.

Work Permits: Expats will need a work visa, and there is special ‘Visa Tech’  for IT professionals, with fast processing of 15 days, while it is normally 30 days for others.

Collective Bargaining Agreements: Employees have a right to be a part of a union, but cant be represented unless they choose to.  Any CBAs may affect entitlements or other employment rules.

Termination and Severance: There is a required 30 days-notice for termination, but that can be paid in lieu. Termination without ’cause’ is only permitted for upper management employees. Cause will include reasons such as the economic need of the company, lack of performance, and non-attendance. 

Terminations without cause can be valid but will require a severance payment equal to 30 days salary for each year of service, plus potential court damages if a claim is filed.  Post-termination restraints such as non-competes can be included in the employment contract, but due to the Chilean constitutional protection of the ‘right to work’, courts are unlikely to enforce them.

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Payroll and Taxes in Chile

Minimum Wage: The minimum wage in Chile is US$450, although salaries for most professional and technical positions will be much higher. There is also a mandatory employee profit-sharing (capped at a percentage of the minimum wage), or an annual bonus of 25% of the yearly salary in lieu.

Average Monthly Salary: The average monthly salary in Chile is 1,870,000 CLP (USD$2500), which is approximately what would be paid to positions such as IT specialists or human resource managers.  While this is not as low as in some countries, it may be a significant cost reduction from salaries in your home country.

Payroll and Social Security Contributions: In Chile, the majority of social security costs are shouldered by the employee, with the employer only contributing a total of 3.35%. The following table shows the rates for each contribution, broken down by the employee’s and employer’s portion. 

Type of Contribution

Employer’s Contribution

Employee’s Contribution

Pension

0%

10%

Unemployment 

2.4%

.6%

Health Plan

0%

7%

Occupational

.95%

0%

Total

3.35%

17.6%

 

Tax Rates: The tax rates in Chile are progressive based on income level, ranging from 0-40%. There is a flat tax rate of 15% for non-residents in certain positions.

Legal Gratification: The amount of the profit-sharing bonus mentioned is usually deducted from the base salary, which is known as legal gratification to avoid overpayment of employees.

Aguinaldo – 13th Month Payment: A 13th month bonus payment in December is customary in Chile, but not mandatory. 

How to hire your overseas employees in Chile

You do have several choices of how to hire employees in Chile, and it will depend on your business commitment to the country, the number of employees being hired, and the need to secure the worker’s skill set.

Setup your own entity in Chile

Companies with business interests in Chile may decide to set up their own entity in Chile, such as a branch or subsidiary.  This can be costly and time-consuming, but it does give the company complete control over the employment relationship, rather than using a third party.

If you are hiring 10 or more Chilean employees, that may be worthwhile, but otherwise, there are better alternatives for hiring only a few remote employees.

Use an employer of record to hire your employee

If hiring specialized remote talent is your goal, then you could use an employer of record (EOR).  The EOR is an established legal entity in Chile, ready to onboard your new employee quickly and place them on a compliant payroll.

The EOR will set up the local contract, run payroll, withhold taxes and make social contributions to ensure that all local regulations are met and the employee receives the correct compensation.

Hire them as a contractor instead

At times, hiring a foreign employee may seem like too big a step, and in that case, there is the option of hiring a worker as an independent contractor.  This can work well for short-term projects, or to give a worker a ‘trial period’ before going the full employment route.

You have to keep in mind that there are risks involved such as misclassification, where the worker claims at some point that they are actually an employee, and entitled to benefits and full employment rights.  Then, you would have to hire them as an employee or end the relationship.

Compliance risks when hiring in Chile

Compliance is the number one risk when you are hiring in Chile, and one way to offset that risk is to have a local partner who can take over the complexity of employment administration.  Shield GEO offers your company a local employer of record in Chile, who is already set up and ready to onboard your new employees. 

We know how to work with the EOR to see that the employee is receiving all local benefits and entitlements, to secure their loyalty and avoid any complaints or issues.  Our regional account manager will be a single point of contact between you and the EOR, to make sure that your employees are meeting all payroll and tax withholding requirements while working in their new positions with your company.  We make international employment simple.

Looking to hire employees in Chile? Get in touch.

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