Chilean Labour Laws – Social Security and Benefits.
The most common risk to companies operating in Latin America is related to employment laws and obligations. Over the last 10 years, we have worked with companies of all sizes but even the most sophisticated tend to have issues at some point with Chilean labour laws.
As part of our blogs series on labour considerations, we previously posted on the following topics –
In continuation, this week we will provide information on the types of benefits, social security, and leave that employees have as per Chilean Labour Laws.
Annual Leave
In Chile, employees are entitled to 15 days’ annual leave per annum. However It is important to note that there are also approximately 15 public holidays (or “feridados“) in Chile each year
Sick Leave
In Chile, labour laws do not put a limit on the amount of sick days an employee may take provided they have a medical license / certificate or “licencia médica”.
Overtime
Generally speaking, the maximum working hours are 45 hours a week from Monday to Friday or Saturday depending on the work schedule. The manner in which these hours are divided is decided by the employer, however, no employee can work more than 12 hours a day, this includes overtime hours.
In addition, overtime can only be agreed on a temporary basis, which cannot exceed a total of 3 continuous months. Furthermore, the extra hours must be indicated in writing. These extra hours have a surcharge of 50% over the regular work hours.
Common ‘Ordinary’ Working Hours
The most common labour arrangement is to agree on a daily 9 hour schedule with one hour for lunch starting at 9:00 until 18:00. For companies that work in the mining or industrial sectors where there may be different scheduling such as 7×7 than they are required to get approval from the Chilean labour office.
Tax on Fringe Benefits
Generally speaking, fringe benefits are either taxed as income from the employee or they are not allowed as a deduction for the employer (subject to a 35% penalty tax). Most fringe benefits are considered to be additional taxable remuneration for the employee. The following are some of the more usual fringe benefits:
- Foreign service allowance or differential
- Housing (or rent) allowance
- Housing provided by the employer
- Home leave for the employee and his/her family
- Tax equalization
- Bonuses and profit sharing
- Company car
- Reimbursement of entertainment expenses
Social Security Norms – Social security contributions, health insurance contributions, workers’ accidental injury & professional disease contributions and unemployment insurance contributions are all mandatory discounts applied on the employees’ remuneration.
These amounts must be withheld and remitted by the 12th day of the month following the month the wage is paid. Withholdings and payments are the employers mandatory obligation in all labour/employment contracts.
It is important to note that most social security payments are capped at 73,2 Foment Units (USD $3,027 approx.). If the employee’s salary exceeds this amount the contribution will be only calculated up to this maximum.
These payments are mandatory for Chilean and foreign employees under a labour contract, although there is an exemption. Foreign workers can be exempted from payment of social security as long as: a) the worker has a technical degree and b) the worker needs to be affiliated to a foreign social security system that covers at least sickness, disability, old age and death.
No other specific health benefits have to be provided by the employer.
| Employer social security rates | |
| Work accidents and professional diseases insurance | 0,95% |
| Unemployment insurance | 3% |
| Employee social security rate | |
| Pension Fund contribution | 10% |
| Health contribution | 7% |
| Life and disability insurance | 2% |
| Unemployment insurance | 0,6% |
Pension Funds –
All employees must be affiliated to an Administradora de Fondos de Pensiones – AFP (Pension Fund Administrator). The employer is responsible for deducting the contributions from the employee salary and then making the payment to the corresponding AFP. The formalities for joining an AFP are the responsibility of the employee who is free to choose which AFP to use. The AFP will, in turn, notify the employer of the amount to be paid.
The amount to be paid comprises the following items: 10% of the gross wage which is paid into the contributor’s individual savings account to finance future pension rights and approximately 2% for disability and surviving dependents’ insurance and the AFP’s commission fee. The minimum total deduction is, therefore, approximately 12% of the employee’s gross wage.
Non-payment of this obligation can carry payment of fines by the employer and the loss of certain benefits from public and private institutions. (For example, not being able to participate in tenders)
Health Insurance
For healthcare coverage, there is a minimum legal deduction of 7% of the gross wage, although the employee may agree to a higher amount with the insurer.
Each month, the employer must pay this amount into either the state fund known as the Fondo Nacional de Salud, FONASA (National Health Fund) or the private Institución de Salud Previsional, ISAPRE, (Health Insurance Institution) of the employee’s choice.
As in the case of AFPs, affiliation to a health insurer is the responsibility of the employee. FONASA or the ISAPRE must notify the employer of the amount to be paid monthly.
In general, all employees in Chile should pay social security contributions. However, foreign technical personnel subject to social security in another country can choose to be exempt from Chilean social security, as long as the foreign system provides equivalent coverage at least for illness, disability, old age and death.
Unemployment Insurance
The employer must contribute with 2.4% of monthly salary of the employee and the employee must contribute with 0.6% of his own monthly salary. The maximum monthly salary for these effects is U.F. 90 (USD $3,723 approx.).
Work Accidents and Professional Diseases Insurance
The insurance of occupational accidents and diseases is financed with a general basic contribution of 0.95% of the taxable remunerations of the worker, which is borne by the employer, and with an additional contribution differentiated according to the activity and risk of the company that does not exceed 3.4% of the taxable remuneration, which is also borne by the employer.
Ax legal and business advisory 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 cmm@ax.legal
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