Understanding Payroll in Nicaragua: What Global Companies Need to Know About Nicaragua’s Payroll
Aug 28, 2018
With its dramatic volcanoes, ruins, and coastlines, the South American nation of Nicaragua is a beautiful country with a fascinating history. The famous Lake Nicaragua covers 8,264 square-kilometers and holds more than 430 volcanic islands as well as unique species of fish that aren’t found anywhere else. Nicaragua has a population of 6.15 million and a GDP of $13.2 billion, with an economy reliant mainly on agriculture, tourism, and foodstuffs.
While Nicaragua may be one of the poorer countries in the Americas, it offers plenty of opportunity for businesses who can offer a stabilizing element to the people. Companies will need to address the country's payroll regulations before establishing themselves, and while many of the steps to set up a business are relatively straightforward, the actual follow-through may be difficult for companies who are unfamiliar with the culture.
The most common type of business is called the Nicaragua Corporation, although many multinationals elect to open a branch of their existing company in Nicaragua instead. A business will need to have at least one director, two shareholders, and an auditor to register as a corporation, or one director and one shareholder if registering as a branch. Companies will also need a tax identification code. Businesses are regulated by the Ministry of Development, Industry, and Trade, with all transactions traditionally done in person.
Commercial bank accounts are required and typically can take 4-6 weeks to establish. Owners may need to account for longer delays when processing the necessary paperwork. The speed and ease of opening up a business in Nicaragua are both heavily dependent on the company’s understanding of the system, meaning it’s easier to miss an important step or make an error in paperwork if your Spanish is limited or you're unaware of local customs.
Employment Law & Employee Rights
The standard workweek in Nicaragua is 48 hours, Monday to Saturday. Overtime hours may not exceed nine per week and are compensated at a rate of 200% of the standard wage. Trial periods are allowed for a maximum of 30 days, with either party allowed to terminate the contract without notice. In the agricultural and housekeeping sectors, employee contracts can be either verbal or written. All other industries require a written contract that states the terms of employment. Nicaraguans are guaranteed the right to collective bargaining, although it is rarely practiced in most industries.
Compensation & Severance
The currency in Nicaragua is the Nicaraguan córdoba. Minimum wage is set by industry sector and ranges from C$7,280.87 ($235) to C$8,884.60 ($287) per month for 2018. Employers are obligated to pay employees a Christmas bonus equivalent to one month's wages, which must be paid within the first 10 days of December. Severance is paid at one month's worth of wages for every year worked up to three years, and 20 days’ worth of wages for every year worked after that. Some employers may add nominal amounts of money to an employee's paycheck in lieu of providing standard benefits. This form of bonus has been deemed legal by the courts.
Tax Requirements & Withholding
The corporate tax rate in Nicaragua is 30%. Employees are taxed on a progressive scale, up to 30% for those in the top pay bracket. The Nicaraguan government gives heavy tax breaks to those in the tourism industry (percentages and benefits are determined by the type of business and its size). Social security tax is set at 6.25% for employees and 19% for employers. The payroll tax is calculated on a progressive scale as well, with a maximum of 30%. Payroll regulations may be difficult to manage, depending on what industry you're in an and how many people you employ. The government may impose or change specific regulations that can be easy to miss.
Time Off & Unpaid Leave
Nicaragua celebrates 10 public holidays, with an additional 3 holidays recognized for the government sector. Employees receive 15 paid days off for every six months of work. These vacation days are generally expected to be taken at once, though it is not a mandated rule. Sick leave may be granted to employees for up to one year (regardless of how the injury occurred), with the worker's salary paid by the Social Security Institute. The first three days of sick leave are typically unpaid, unless otherwise stated by the business. New mothers receive four weeks of leave before the child is born and eight weeks after birth at full pay. The employer typically pays 40% of the salary with the Social Security paying the other 60%.
An Emerging Economy
While Nicaragua may not have a history of a stable economy, incoming businesses have a chance to help turn things around. Considering its motivated workforce and low cost of living, doing business in Nicaragua can be both profitable and rewarding. However, there may be more informal rules in the country than there are formal ones, making it especially necessary to find the right partner to navigate the country's landscape.
A global payroll solution can make it easier for businesses to organize finances and keep authorities happy. Whether it's to help navigate a new tax code or arrange Christmas bonuses, an experienced payroll partner can be invaluable in establishing your organization in the incredible nation of Nicaragua.