Practical Tips when Hiring Chilean Employees
In a previous post, we covered the types of work contracts that could be used in Chile. We also explained how probationary periods do not exist as per Chilean labour law. An alternative was to enter into a short term fixed contract and then move to an indefinite contract.
This week we wanted to take a step back and provide some very practical tips on some key differences that should be considered when negotiating and hiring employees in Chile. These are common questions that have come up frequently over the years regarding a few key points that that are unique to Chile.
Negotiating Salaries – Net not Gross
It is common practice in many countries to negotiate salaries with a prospective employee using the “gross” amount. In Chile, salaries are typically negotiated with employees based on the net amount. The difference between the net and gross amount can be quite a bit when the negotiations involve middle to high seniority positions that command higher salaries.
It is important to take this into consideration when you are discussing salary expectations or providing an offer to a prospective employee. Companies should be clear from the beginning if they are referring to the net or gross amount. Many local employees do not have a good understanding of how personal taxation, social security, and other discounts are calculated so they prefer to negotiate in the net amount.
One of the things that we like to do is to provide our clients with a salary calculation once a candidate has been found. This is so they can understand the full cost of the employee and decide on a remuneration that make sense. This same calculation can be provided to the employee with their offer letter so that they can see the net amount they will recieve.
Mandatory Annual Bonus
Many companies worry when they see a Mandatory Bonus or Profit Share clause in the work contract. Typically, once companies understand what it is and how it is managed then it becomes less concerning.
There are two options to pay out what is supposed to be a profit share – a percentage of the profits or the most common way which is a fixed amount paid with the salary each month. The latter is used 99% of the time in Chilean labour law.
If you pay out each month, then it work like this – The mandatory bonus sums up to 4.75 minimum Chilean wages that is currently equal to approximately $1,700.00 USD. The bonus is paid on a monthly basis meaning that the Employee will receive approx. USD$141.00 each month in addition to the salary. Please bear in mind that the minimum salary is increased each year so the numbers are not exact at the time of reading this.
Typically we will include the bonus as part of the gross salary amount that we negotiate with the employee so it is not additional cost to the company but simply calculated as part of the overall salary. In the most simple terms, if you have a goal of paying the worker USD$3000 then the gross amount is USD$2859 plus the bonus which adds up to the USD$3000.
By Chilean labour law, all employees must have a minimum of 15 days off per year for vacation time. In some countries such as Australia or Europe, more vacation time is provided by law and companies from these countries often want to give the same to employees in Chile.
There is no issue with this but it is important to remember that Chile (similar to other Latin American countries) have approximately 14 days of stat holidays per year. In comparison, Canada has 5 and Australia has 7 federal stat holidays.
Our recommendation is to go with the minimum and provide additional leave on a case by case basis if the employee needs it or deserves it. Unused vacation time must be paid out at the end of the contract so it is another cost for the company which needs to be managed properly by choosing the correct amount of vacation days to put in the work contract when first hiring the employee.
Ax Legal is a legal and business advisory firm that works with foreign companies in Latin America. Our team of legal and commercial advisors have a distinguished track record of helping foreign technology and services companies to grow and operate in Latin America. Over the years, we have worked with starts up, mid-size businesses, and publicly listed companies. The one common factor that connects are clients is that they are leaders in their field, providing innovative technologies and services to the industrial sectors.
To better understand how we can support you in the Region, please contact Cody Mcfarlane at firstname.lastname@example.org