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Legal Gratification in Chile: What Overseas Employers Need to Know

Recently, one of our clients asked how we came up with the monthly salaries for employees on assignment in Chile.  The answer is worth sharing since there are a few unique elements to arriving at the final salary amount.

In Chile. the salary is broken up into two elements: base salary and legal gratification. Those two added together would be the total monthly salary.  The question is how much the legal gratification is, and how it can be factored into the final salary.

What is Legal Gratification?

The Chilean government mandates a profit sharing bonus for all employees in Chile (including expats on assignment).  The amount of legal gratification is calculated based on a cap that is pegged to the minimum wage.  So, each year if the minimum wage changes, so does the amount of the cap.  The current cap on legal gratification bonus is around 100,000 Chilean pesos ($150) per month, so while the amounts are not significant, they still have to be accounted for when running a local payroll.

So How Can the Total Monthly Salary Be Calculated?

In most countries where employees are assigned and payrolled, they are simply paid the compensation as a single amount.  In Chile, the original base salary offered to the assignee has to be reduced by the amount of the legal gratification bonus to avoid overpayment.

For example, if the legal gratification bonus amount is $150, then that amount must be deducted from the original base salary.  A salary of $4000 would be reduced to $3850, and then the legal gratification bonus of $150 would be added to arrive at the total monthly salary originally offered.

How Can Shield GEO Assist with Calculating Legal Gratification and Salary?

Our clients rely on our local employer of record to accurately compute both the legal gratification bonus and base salary to arrive at the monthly payroll.  Because our local partners are experienced with Chilean labor laws, they can easily adjust the salary amount in local currency to avoid any discrepancy.

This becomes more important for long term assignments, since the legal gratification cap will change every time the minimum wage changes.  If that change occurs mid-year, then the legal gratification difference must be paid retroactively to the first of January.  Obviously, this is an accounting headache that most companies want to avoid when assigning employees to Chile.

Fortunately, our clients don’t have to worry about this since we handle it as part of our GEO service.  This is only one example of how Shield GEO supports the employment and payroll challenges for your clients, saving them the time and expense of a DIY approach which may not be in compliance.  We are in a position to employ your workers quickly, obtain work permits and make all statutory and tax withholdings from payroll under Chilean laws.

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