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8 January 2024

Employment Law In Chile: A Quick Guide

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Biz Latin Hub Group

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If you are interested in entering the Chilean market or are already doing business there, you need to understand and comply with employment law in Chile.
Chile Employment and HR
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If you are interested in entering the Chilean market or are already doing business there, you need to understand and comply with employment law in Chile.

Employment law in Chile, which is overseen by the Ministry of Labor and Social Security, shares many similarities with other countries in the region, but also contains particularities that you will need to navigate when doing business in the market.

If you are planning a short-term or limited-scale operation, hiring staff through an employer of record in Chile could be your best choice — allowing you to hire staff without going through company formation, and coming with the additional benefit of guaranteed compliance with local employment law.

If, instead, you are set on making a deeper commitment to the Chilean market, you will need to acquire the services of a reliable corporate lawyer in Chile, in order to guarantee the proper implementation of all laws related to your business.

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Below, a guide to some of the essentials related to employment law in Chile is offered, including information on standard working hours, the most frequently used types of contracts, details related to vacations and other leave, and information on tax contributions that employers must oversee.

Working hours according to Chilean employment law

Under employment law in Chile, a standard working week is 45 hours long and divided into no less than five and no more than six days. An average working day is nine hours long.

An employee can be exempted from this provision by being designed as "trusted" in their contract. This provision was originally intended to be applied to managers and executives, but over time has been used for a broader range of employees.

Note that in Chile there are generally between nine and 12 national holidays that fall on weekdays per calendar year.

Employment law in Chile: main contract types

There are three main types of employment contract

There are three contract types under employment law in Chile that are most commonly used by foreign investors and corporations.

  1. Indefinite-term employment contracts are the most common type of contract used in Chile, and can only be terminated by mutual agreement between the employee and employer, or when one of the parties can act unilaterally, such as in the case of the employee resigning.
  2. Fixed-term employment contracts can last for days, weeks, or months, but they generally do not exceed more than one year. However, in certain cases they can last for up to two years.
  3. Specific task or project contracts — regarded as an "undetermined contract" — have no specific date for when the contract ends, meaning that clear makers and thresholds must be established in order to eliminate any ambiguities regarding the completion of the project.

Vacations, leave, and other absences

According to employment law in Chile, after 12 months of service with the same employer, an employee is entitled to 15 days of paid vacation leave. That leave can be accrued for a period of up to two years, meaning an employee can build up 30 days of PTO.

Under Article 70 of the Chilean labor code, when an employee accrues two periods of PTO allowance, the employer is obliged to grant or instruct the employee to use the allowance from at least one of those allowances (i.e. 15 days of leave) prior to the completion of a third period and accrual of more leave.

Sick leave
Employees are entitled to payment for leave due to illness, however, when that sick leave lasts for less than 11 days, they do not get paid for the first three days. For example, if an employee is off work sick for five days, they will be entitled to payment for two of those days.

If sick leave lasts for 11 consecutive work days or more, the employee is entitled to payment for all of them. In all cases, sick leave is paid for by the employer's health insurance provider.

Note that within two working days of returning to work, an employee must present documentation proving their illness that is signed by a registered physician.

Maternity and paternity leave
According to employment law in Chile, maternity leave allowance totals 12 weeks and begins six weeks before the expected date of birth. Fathers are entitled to five days of paid paternity leave. However, in the event that the mother does not use all of her maternity leave allowance, she is able to transfer it to the father from the seventh week after the birth of the child.

Maternity and paternity leave are paid for by the government or the company health insurance provider.

Bereavement leave
In the event of the death of a spouse, civil partner, or child, employees are entitled to bereavement leave totaling seven days. In the event of the death of a parent, they are entitled to paid bereavement leave totaling three days.

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Statutory contributions under Chilean employment law

According to employment law in Chile, employers must oversee making the following deductions from employee salaries and contributions from employers must be made:

Employee deductions generally total around 18.6% of the employee's salary, including an 11% deduction that goes toward the pension fund chosen by the employee.

Additionally, a 7% deduction goes to the national public health agency FONASA, and a deduction goes towards unemployment insurance and totals approximately 0.6%.Note that the minimum wage according to employment law in Chile was set at 337,000 Chilean pesos (approximately US $408) in 2021.

Employer contributions total around 5.7% of an employee's salary, with a contribution equal to 2.3% of the salary going towards disability insurance and paid through the employee's pension fund.

A further contribution of 2.4% must also be made for unemployment insurance and is also paid through the same pension fund.

Accident insurance is based on the level of occupational risk associated with the role being undertaken, however, it generally totals around 0.93%.

Profit sharing is obligatory under Chilean employment law and means that any company must share 30% of net profits with its employees.

The share received by each individual is calculated based on their salary level, and profit shares can be distributed on a monthly or annual basis, based on the preference of the employer.

Frequently Asked Questions about Labor Laws in Chile

In our experience, these are the common questions and doubtful points of our Clients.

1. What are the labor laws in Chile?

Chile's labor regulations establish a standard 45-hour workweek, offering flexibility through the availability of fixed-term or indefinite employment contracts. The nation enforces a national minimum wage, ensuring fair compensation, and guarantees annual paid leave for employees. Maternity leave is provided with full pay, and comprehensive social security contributions extend coverage to health and retirement benefits. Notably, Chile's labor laws recognize and emphasize collective bargaining, safety regulations, and the fundamental right to strike as integral components of the workforce framework.

2. What are the working conditions in Chile?

The working conditions in Chile are regulated by labor laws. According to these laws, employees are allowed to work for a maximum of 10 hours a day, for no more than six days a week or no fewer than five days a week.

This means that the total working hours in Chile are limited to 45 hours per week. It is important to note that the standard working time is typically divided into no less than five and no more than six days a week.

Additionally, employees are entitled to a one-hour lunch break and can only work a maximum of two hours of overtime per day. Furthermore, all workers are guaranteed at least one 24-hour rest period during the workweek. While employers have the option to schedule employees to work six days a week, including Saturdays, they are not allowed to require work on Sundays.

It is also worth mentioning that the minimum age requirement for employment in Chile is 18 years old, except for those who are at least 15 years old and have written permission from their parents.

Lastly, probationary periods are not recognized in Chile, and companies often hire employees on fixed-term contracts for a maximum of 12 months, which can serve as a probationary period before transitioning into a permanent contract.

3. How many hours are in a standard work day in Chile?

A standard work day in Chile typically consists of 9 hours, from 8:30 a.m. to 6:30 p.m., with one hour allocated for lunch. This adds up to a total of 45 hours per week, which is considered one of the longest working weeks globally. Employers may also require employees to work six days a week, including Saturdays, but not Sundays

4. What is the minimum salary in Chile?

The minimum salary in Chile is set to gradually increase to $500,000 pesos (US$622.50) as approved by the Chamber of Deputies.

5. How is overtime paid in Chile?

Overtime in Chile is paid with a 50% surcharge over the regular work hours. The Chilean employment rules limit working time to 12 hours a day, including overtime hours. Overtime can only be agreed on temporarily and cannot exceed three continuous months. It is important for employees' extra working hours to be documented in writing.

6. What are the laws regarding employment termination in Chile?

Employment termination in Chile requires employers to obtain prior authorization from a labor court. The process of a labor trial in Chile typically takes between 8 months to 2 years. It is important to note that retirement is not considered a legal reason for termination in Chile.

7. What are the requirements for terminating an employee in Chile?

To terminate an employee in Chile, the employer must follow these requirements:

– Inform the employee in writing about the date and cause of termination.
– The termination letter should specify the legally determined cause for ending the contract.

8. What happens when an employee quits in Chile?

When an employee quits in Chile, the employer is required to pay severance pay. The amount of severance pay is determined by the contractual agreement, but it cannot exceed 11 months. Additionally, the employer must provide a letter of notification to the employee, stating the cause of the resignation and the effective date. The employee can either sign the letter in person at the office or receive it by certified mail at their home address.

Biz Latin Hub can assist you doing business in Chile

At Biz Latin Hub, our multilingual team of corporate support specialists is available to help you get to grips with and properly implement employment law in Chile.

We have a comprehensive portfolio of back-office services, including company formation, visa processing, accounting & taxation, legal services, and hiring & PEO, allowing us to offer tailored packages of integrated services to suit every need.

Beyond Chile, we also have teams operating in 15 other markets around Latin America and the Caribbean, and we specialize in multi-jurisdiction market entry.

Download : Employment Law in Chile: a Quick Guide

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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