Understanding Payroll in Peru: What Global Companies Need to Know About Peru Payroll
Aug 22, 2017
Home to the majestic Andes Mountains and the Incan ruins of Machu Picchu, Peru also boasts nearly 4,000 varieties of potatoes. Alongside those potatoes, you may want to be ready to eat the national dish of roasted guinea pig if you want to do business in the country. With about 32 million people living in Peru and a GDP of $192 billion, the country has a lot to offer in the way of opportunities. Manufacturing, fishing, mining, and tourism services all contribute to the economy.
International payroll in Peru can be complicated. Not only must businesses deal with more paperwork than other countries, but the tax structure in the country can cause more than a few headaches — especially for larger businesses. The likelihood of being audited in this country is quite high, and companies need to be extremely careful with how they manage their finances.
The Peruvian Public Registry is the first step to both check and register the name of your business. You'll need to prepare a deed of incorporation, which must be notarized through the Portal Servicios Ciudadano y Empresas. The minutes and accounting books of the company must be notarized as well. Once you file the deed with the Public Register of Commerce, your next steps are to get a Certificate of Registration and a tax ID number. This can be done through SUNAT (Peru's tax authority).
All businesses need to register through the local authorities as well. Through the District Council, you can get the municipal license required to operate a commercial enterprise. (Costs of the license depend on where you open.) If you're planning to open your business in Lima, the process is fairly simple; however, you may face more restrictions in other parts of the country. The process of setting up a local bank account can take a while, but fortunately, one is not required to do business in Peru.
Employment Laws and Employee Rights
Unions and collective bargaining are rare in Peru, so it falls on the government to protect Peruvian workers. Unlike at-will agreements, Peruvian workers are not allowed to be laid off for just any reason. The employer must show just cause for an employee's incompetency or inadequacy. No more than 20% of a workforce can be made of foreign workers, and there are caps as to how much employees can be paid relative to those on the lowest rung of the compensation ladder.
Peruvians operate on a 48-hour work week from Monday to Saturday. Overtime is more the norm than the exception, and the amount of overtime hours an employee can work is unlimited, billed at 1.25 their regular rate. Probationary periods can last anywhere from three months to a full year, with terms stipulated in the form of a contract. All fixed-term contracts must be in writing and registered with the Labor of Ministry.
Compensation, Bonuses and Severance
Minimum wage in Peru is around 750 PEN (~ $232, £170, €196) a month. While this is low, so too are many of the basic expenses in a country. All employees get two bonuses every year equal to one month's salary: one on Independence Day and one on Christmas. Any other bonuses and raises are generally discussed during the contract signing. An employee terminated with cause is not entitled to severance pay. While there are no official rules regarding severance for other types of dismissal, the custom is to pay the worker based on length of service.
Tax Requirements, Collection and Withholding
Personal income taxes are on a progressive scale at fixed rates of either 15%, 21%, or 30%. Non-residents pay taxes only on income earned in Peru, paid at a flat rate of 30%. VAT is 18%, corporate income tax is 29.5%, and social security is 13%. As mentioned, audits are common in Peru, and compliance to payroll regulations is one of the first places the government will check. To complicate matters, the tax rates change from year to year. It helps to have specialists in your corner to stay on top of it all, especially considering the laws on the amount of Peruvians you need to have working for you.
Leave – Sick, Maternity, Vacation, Absence, Holidays
Peruvian employees receive at least 13 days off per year for vacation time, regardless of how long they've been with a company. Maternity leave is 90 days of paid leave, which is generally paid by the employer. In cases of multiple births, new mothers are entitled to 120 days off. Paternity leave is four days. Employees receive 12 paid national holidays and five days off for sick time each year. Any additional sick leave is not paid for by the employer. It should be noted that Peru is attempting to lobby for more time off for mothers.
|Date||Peru's Public Holiday Schedule|
|January 1st||New Year's Day|
|Thursday before Easter Sunday||Maudy Thursday|
|Friday before Easter Sunday||Good Friday|
|May 1st||Labor Day|
|June 29th||Feasts of Saint Peter and Saint Paul|
|July 28th||Independence Day|
|August 30th||Saint Rosa de Lima|
|October 8th||Battle of Angamos|
|November 1st||All Saints Day|
|December 8th||Immaculate Conception Day|
|December 25th||Christmas Day|
Peru is in a state of flux when it comes to the workforce. Many want more rights and better working conditions for the people. There's a lot of reasons to be a part of this vibrant country, but companies will want to pay extra attention when it comes to getting all their facts and figures straight. A global payroll solution can help bigger companies understand what needs to be done and what should be done in the future to guarantee financial stability. This service can free up an immeasurable amount of time and be especially helpful while a company is getting off the ground.
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.