Chilean Practical Advice – Hiring your First Employees

Hiring your first employees in Chile is an exciting time. You have spent time identifying the right candidates and now you have narrowed it down to the final one.

Foreign companies hiring their first employees tend to have the same questions and difficulties when going through the hiring process. In order to help you understand some of the most common problem areas we have provided a quick fact sheet to help you through the process.

Negotiating Salary – Chileans negotiate based on the Net amount and not the Gross

In most countries around the world, salaries are generally negotiated on the gross amount.  Chile is a little different since it is common practice to negotiate based on the net amount. This can create issues early on in the negotiating process if you are not aware of this. We have seen companies get to the point of signing the contract only to realize that there was a misunderstanding regarding whether it was NET or Gross.  Be clear with the candidate that you are negotiating in the gross amount. 

Legal Gratification – Mandatory Annual Bonus

Chilean companies by law need to provide all employees with a statutory bonus in addition to the employee’s base salary.  This is known as a “legal gratification” and there are two methods available to pay this bonus –

1. 30% of the total net income of the company is divided out among all the employees, proportionate to their income; or
2. Pay the employee 25% of wages earned during the year, regardless of the total net income obtained by the company. This bonus is capped at 4.75 Minimum Monthly Income (IMM) which currently corresponds to a maximum bonus of CLP$83,125 per month (approximately US$160).

Companies often show concern when they see an employment agreement for the first time as there is a clause that directly deals with Legal Gratification. In practical terms, there is no reason for foreign companies to be worried. In almost all cases, companies will choose the second option which is a fixed amount provided each month to the employee.

Furthermore, we generally work it into the salary so that it has no effect on the salary amount negotiated. That is, if you agreed on a gross salary of USD$5000 then the USD$160 bonus is simply calculated within the gross salary amount.

Probationary Periods – Chilean Law does not allow for it.

It is common for clients to ask about probationary periods and whether they can be added to employment agreements. This is not possible in Chile since local labor laws only consider strict causes for terminating an employment contract. Not having a satisfactory performance during a probation period is not one of them. The best way to proceed should you require a probationary period is to hire the person under a temporary fixed term contract and then move them to an indefinite contract.

The downside to a temporary fixed term contact is that if it is terminated early then the company is required to pay the employee the remaining amount left in the the contract. Our recommendation is to keep the contract short enough that you can actually evaluate the employee but not long enough that if you do terminate it then it would have a negative effect on the business.

Ax Legal is located in Chile with partners throughout the Latin American Region. Our team of legal and commercial advisors has a distinguished track record of helping foreign technology and services companies with their growth and operations in Latin America.

To better understand how we can support you in the Region, please contact Cody Mcfarlane at cmm@ax.legal