Understanding Payroll in Chile: What Global Companies Need to Know About Chile Payroll

Jun 20, 2017  | Topic: Country Payroll

Chile's geographic diversity has provided the country with opportunities to invest in a large number of industries. As a result, Chile is considered to be South America's most stable and prosperous nation. Those looking to do business here will be pleased to learn that the government is open to attracting foreign entities who are interested in investing in Chile.

Chile's population is about 17 million and it has a GDP of around $240 billion. The country stays afloat through its main exports of copper, fruit, and fish. A payroll solution in the country needs to account for the many tax laws of Chile, as well as the business customs. For example, beyond the usual taxes all companies must pay, there may be an additional tax for high-risk work. Without someone who understands the full scope of payroll, global companies with a workforce in Chile may find themselves burdened by penalties and late fees. 

Getting Started

Companies need to register with the proper authorities, known in Chile as Registro Publico de Comercio and Servicio de Impuestos Internos. This typically takes between 15 and 20 days to fully complete, though the government is working on speeding up the process. Smaller companies typically register as an LLC, while those raising capital in-country will choose joint status. Branch offices must be registered if businesses have a parent company in another part of the world. Employers must publish a social constitution, and set up in-country bank accounts. Bank accounts require official paperwork and documentation, and can take up to 4 weeks to set up. 

Payroll Assessment

Employment Laws/Employee Rights

The work week in Chile is between Monday and Friday, and is typically 45 hours. Anything over 45 hours will be billed as overtime, which is typically time and a half. For most industries, the limit for overtime is two extra hours a day. Collective bargaining is in effect in Chile currently, but the practice is still relatively new. 

Written employee contracts are the norm in Chile, and should include information about the type of work, the hours, and the salary. If there is no written contract available though, then employees can claim there was a verbal contract. Probationary periods are allowed, and there are no set terms for them. If you do have a probationary period though, this will typically fall under a fixed-term contract. The exact length will be determined between employee and employer. 

Compensation, Bonuses, Severance 

The monthly minimum wage will be $269,560 Chilean Peso ($409 USD, £320, 363) starting on January 1, 2018. Terms for bonuses are typically agreed upon in the employee contract. Employers should consider raising an employee's salary based on their performance at least once a year. Terminations must fall under the acceptable reasons set by the country, which is typically either downsizing or a serious conduct breach on the part of the employee. Contracts must be drawn up within 10 days of notifying the employee of termination, and should stipulate the final date of the working relationship and the payment structure. Every employee needs at least 30 days notice before exiting the job, or full payment in lieu of notice. 

Tax Requirements/Collection/Withholding

Payroll regulations require all businesses to register with Social Security, which typically accounts for about 20% of an employee's salary. All new employees need to be registered with tax authorities within 60 days of hiring. Income tax is dependent upon salary, and can range between 4 to 40%. Taxes are generally withheld at the source, and employers pay monthly contributions between the 10th and 12th of every month. Corporate business tax is a flat 24%, though it should be noted that the tax rate for corporations has fluctuated widely in the past few years. 

Leave – Sick, Maternity, Vacation, Absence, Holidays

Chile has genereous sick and maternity leave programs at full pay. If employers contribute to these funds in any way, it's generally worked out on a case-by-case basis in their contracts. If an employee is sick longer than 10 days, they are not entitled to sick pay for the first three days they were out. However, if they are out less than 10 days, then they are paid from the first day. There are no set time limits for sick leave, but maternity leave is generally six weeks before birth and 12 weeks after birth. Paternity leave is five days. Vacation time is 15 days paid leave after one year of service, and few employers give anything above this number.

Date Chile's Public Holiday Schedule
 January 1st  New Years' Day
 Friday before Easter Sunday  Good Friday
 Saturday after Good Friday  Holy Saturday
 May 1st  May Day
 May 21st  Navy Day
 June 26th  St. Peter and St. Paul Holiday
 July 16th  Our Lady of Mount Carmel
 August 15th  Assumption Day
 September 18th  Independene Day of Chile
 September 19th  Army Day
 Second Monday in October  Race Day
 October 27th  Reformation Day
 November 1st  All Saints Day
 December 8th  Immaculate Conception Day
 December 25th  Christmas Day

In Summary 

International payroll will always require a thorough understanding of a country and it's rules, and this is difficult to obtain if you do not have the experience of living and working in the country. A global payroll solution can bridge many of these gaps to allow you more freedom to build up clientele and employees.

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.