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Principal characteristics of a labour contract in Chile.
In Chile, a labor contract is a legally binding agreement between an employer and an employee that outlines the terms and conditions of employment. It serves as a framework for both parties to understand their rights, obligations, and responsibilities during the employment relationship.
Chilean labor law, primarily governed by the Labor Code (Código del Trabajo), establishes various rules and regulations that apply to labor contracts.
Characteristics of a labor contract in Chile:
Written agreement: While oral agreements are legally valid in Chile, it is highly recommended to have a written labor contract to provide clear evidence of the terms and conditions of employment.
Mandatory clauses: A labor contract in Chile must include specific information, such as:
Names, nationalities, and addresses of both the employer and employee.
A description of the employee's job duties and responsibilities.
The place or city where the work will be performed.
The employee's salary, including any additional benefits or allowances.
The agreed working hours, which cannot exceed the legal maximum of 45 hours per week.
The date the employment relationship begins.
Indefinite and fixed-term contracts: Labor contracts in Chile can be indefinite (contrato a plazo indefinido) or for a fixed-term (contrato a plazo fijo).
Termination clauses: The labor contract should include provisions for termination, specifying the notice period and severance pay applicable under Chilean labor law.
Collective bargaining agreements: If the employee is subject to a collective bargaining agreement, the labor contract must specify any terms and conditions that differ from the agreement.
When should a labor contract be signed?
A labor contract should ideally be signed before the employee starts working. However, Chilean labor law requires that a written labor contract be signed and provided to the employee within 15 days of starting work. If the contract is not provided within this period, the employee has the right to request it in writing. If the employer fails to provide a written contract within five days of the request, the employee can file a complaint with the Labor Directorate (Dirección del Trabajo).
In summary, a labor contract in Chile is an agreement that outlines the terms and conditions of employment, including mandatory clauses specified by the Chilean Labor Code. It is advisable to sign a labor contract before the employee starts working, but it must be provided within 15 days of the employee's start date.
Overview of main characteristics of labor law in Chile
The employment relationship between employers and workers in Chile is regulated by the Labor Code and its complementary laws, which establish the form, terms, rights, obligations, the form of termination, and the consequences that stem from employment contracts.
Compliance with labor legislation is the responsibility of the Labor Directorate (DT), a public service that also aims to ensure its proper interpretation.
Labor causes are known by independent courts with exclusive competence in labor matters, composed of specialized judges, and whose hearings are oral and public.
The individual employment contract is defined in article 7 of the Labor Code.
In Chile, employment contracts can be:
Indefinite contract: It is a type of contract in which no term is established, which offers the employee better job stability. The indefinite-term employment agreement only ends when the worker resigns, is fired or if he dies.
Fixed-term contract: This labor agreement sets a start date and a contract end date. It can be renewed, but cannot be extended for more than 24 months.
Work or Project contract: a contract used to establish the employment relationship between an employer and employee for the completion of specific, time-limited tasks. It is commonly used in construction contracts where temporary labor is required to complete a project within a predetermined time frame. For example, for remodeling an apartment, building a house, or implementing a new software for making payments or processing purchase orders.
The Labor Code states that at least 85% of the workers serving the same employer must be of Chilean nationality unless the company has less than 25 workers.
To determine this proportion, the total number of workers employed by an employer within Chile must be considered, excluding specialist technical personnel that cannot be replaced by Chilean personnel.
Moreover, a foreigner will be considered Chilean if their spouse or civil partner or their children are Chilean, or if they are widowed from a Chilean spouse, as well as foreigners who have resided in the country for more than five years.
In Chile, the monthly minimum wage is set annually by legislative resolution. For the period 2023 the minimum gross income for workers over 18 and up to 65 years of age was $410,000, around $500 USD.
Employees and self-employed individuals are required to pay 7% of their monthly earnings, with a cap of 80.2 UF (equivalent to approximately USD 2,982), adjusted as outlined in previous sections. Employers are only responsible for withholding and paying for insurance. Individuals affiliated with one of the private pension plans have the option to make their contributions to either FONASA or a private health insurance company (Institución de Salud Previsional or ISAPRE).
Most health plans provide coverage for up to 80% of medical and hospital expenses.
Contributing to health insurance also grants access to medical licenses, which is tied to the taxable income of the individual.
All employers must pay a 0.93% premium on earnings capped at 80.2 UF per month, adjusted as indicated in previous sections, for labor-related accident insurance (workmen's compensation).
Additional contributions at varying rates, up to a maximum of 3.4%, may be required based on the employer's risk level and track record. Both contributions are paid by the employer.
Furthermore, Law No. 21,010 requires employers to pay a 0.03% contribution of their taxable wages for workers towards a fund aimed at financing insurance for parents of children with serious health conditions.
Since 1980, all new workers joining the workforce are required to contribute to private pension funds managed by Pension Fund Administrators (AFPs) under an individual capitalization system.
Contributions are deducted from their monthly pay, based on a capped monthly earnings of UF 80.2 and adjusted according to changes in real compensation.
The taxable cap is updated annually by the Superintendence of Pensions and is currently set at UF 80.2 (approximately USD 2,982). Employees can also make additional voluntary contributions with a monthly limit of UF 50 (USD 1,859) or UF 600 (USD 22,311) annually, while employers can make non-taxable deposits of up to UF 900 (USD 33,466) per year. Upon retirement, the worker has the option of receiving a lump sum payment, a pension, or a combination of both, which are based on their contributions.
The lump sum can only be used to buy annuity insurance. As of February 2, 2019, independent workers, those who bill for professional services amounting to 5 or more minimum monthly wages and were under 55 (men) or 50 (women) years old as of January 1, 2018, are also required to contribute.
Pension plan contributions are made exclusively by employees and self-employed individuals. The contributions made by employees are eligible for deductions from their taxable income when computing their personal income tax obligation.
The contributions to a pension plan are calculated based on a monthly basis. Employers are only responsible for withholding and remitting the employees' contributions to the pension plan. No other obligations are imposed on them.
Private pension plan contributions are set at a rate of 10%, in addition to a commission that varies based on each fund (currently around 6.69% and 1.45%).
In addition to the contribution to the pension plan, an employer must also pay a premium to cover the cost of disability and survivorship insurance. The pension fund is required to purchase disability and survivorship insurance from an insurance company.
the duration of fixed-term contracts in Chile depends on the employee's qualifications. The Chilean Labor Code establishes two different maximum durations for fixed-term contracts based on the employee's educational background:
One-year term: If the employee does not hold a technical degree or university degree, the maximum duration of a fixed-term contract is one year. This includes employees with high school education, incomplete higher education, or no formal education.
Two-year term: If the employee holds a technical degree from a technical or professional institute, or a university degree from an accredited institution, the maximum duration of a fixed-term contract is extended to two years. This applies to employees who have completed higher education and obtained a degree or professional title.
It is important to note that these maximum durations apply to the total length of the fixed-term contract, including any renewals. A fixed-term contract can be renewed up to two times, but the total duration, including renewals, cannot exceed the maximum allowed duration (one or two years, depending on the employee's qualifications). After two renewals, the contract automatically becomes an indefinite-term contract.
In summary, the maximum duration of fixed-term contracts in Chile depends on the employee's qualifications. Employees without a technical or university degree are subject to a maximum contract duration of one year, while employees with a technical or university degree can have fixed-term contracts of up to two years.
For permanent contracts, the insurance is funded through a mandatory contribution from the employee of 0.6% and a required contribution from the employer of 2.4%, both calculated based on the employee's taxable income, with a cap of 120.4 UF (approximately USD 4,477) as of January 1st, 2023.
For fixed-term contracts, the employer fully covers the insurance rate at a rate of 3%.
The cap is adjusted annually according to the index of real remunerations determined by the National Statistics Institute or its substitute, between November of the penultimate year and November of the last year, for the upcoming year.
The adjusted taxable cap will be in effect from the first day of each year.
Working contracts in Chile have to be terminated in compliance with a legal cause that is established in the Labour Code.
The causes for termination of an employment contract are contained in Articles 159, 160, 161 and 163 bis of the Labor Code, and they are as follows:
Article 159 causes:
Mutual agreement between the parties.
Resignation of the worker, with at least thirty days' notice to the employer.
Death of the worker.
Expiration of the term agreed upon in the contract.
Conclusion of the work or service that gave rise to the contract.
Act of God or force majeure, meaning a situation beyond the control of the parties and not preventable, such as an earthquake, fire, or flood that destroys the company's premises.
Article 160 causes:
Some serious misconduct, properly proven, as follows: a) Lack of integrity of the worker in the performance of their duties; b) Sexual harassment; c) Physical assaults by the worker against the employer or any other worker employed in the same company; d) Insults made by the worker to the employer; e) Immoral conduct by the worker affecting the company where they work; f) Workplace harassment.
Transactions carried out by the worker within the scope of the business and prohibited in writing in the respective contract by the employer.
Failure of the worker to show up for work without just cause for two consecutive days, two Mondays in the month, or a total of three days in the same period of time; and unjustified or unannounced absence by the worker who is responsible for an activity, task, or machine whose abandonment or stoppage results in serious disruption in the progress of the work.
Abandonment of work by the worker, which is defined as
the untimely and unjustified departure of the worker from the work site and during working hours without the permission of the employer or representative, and
the refusal to work without just cause for the tasks agreed upon in the contract.
Reckless acts, omissions, or imprudence affecting the security or operation of the establishment, the safety or activity of the workers, or their health.
Intentional material damage to the facilities, machinery, tools, work materials, products, or goods.
Serious breach of the obligations imposed by the contract.
Article 161 causes:
The employer may terminate the contract by invoking as the cause the needs of the company, establishment, or service, such as those derived from rationalization or modernization, decreases in productivity, changes in market or economic conditions that make the separation of one or more workers necessary.
In the case of workers who have the power to represent the employer, such as managers, sub-managers, agents, or attorneys-in-fact, provided that they have at least general administrative powers, and in the case of domestic workers, the contract may also be terminated by written eviction from the employer. This rule also applies to positions or jobs of exclusive trust of the employer, whose nature as such arises from the nature of the positions.
The Code of Labor Laws in Chile outlines the employer's responsibility to provide severance payments to an employee terminated due to company needs, such as economic constraints.
This includes a severance payment in lieu of notice of one month's salary (up to UF 90), and a seniority-based severance payment of one month's salary per year of employment, up to a limit of 11 years and UF 90 per month.
The employer and employee can agree to higher payments.
To end a contract, the employer must cite a legal cause in the Code of Labor Laws and the contract cannot include invalid causes.
If the cause is deemed unjustified, the severance payment may increase up to 100%.
The severance payments must be made in full within 10 business days via a settlement agreement and if not paid, the employee can sue the employer.
For executives or high management positions, written dismissal by the employer is the legal cause, and all other legal payments still apply.
Legal or collective severance payments are tax-free for the employee and deductible for the employer, while voluntary severance payments are taxed based on a specific formula.
The labor courts can also order the withholding of the employer's tax returns to ensure the employee receives the proper severance payments.
An indefinite labor contract (contrato a plazo indefinido) in Chile is an employment agreement without a predetermined end date. This type of contract is the most common form of employment relationship and provides both the employer and employee with greater stability compared to fixed-term contracts. Indefinite labor contracts are governed by the Chilean Labor Code, which establishes the rights and obligations of both parties involved.
Key features of an indefinite labor contract in Chile:
No fixed duration: Unlike fixed-term contracts, indefinite labor contracts do not have a predetermined end date. This means that the employment relationship continues until either the employer or employee decides to terminate the contract.
Termination: Both the employer and employee can terminate an indefinite labor contract by providing a written notice. The employer must provide a valid reason for dismissal, as specified in the Labor Code, and give the employee 30 days' notice or pay the equivalent salary in lieu of notice. In cases of unjustified dismissal, the employee may be entitled to severance pay. The employee can also terminate the contract by providing 30 days' notice or paying the equivalent salary in lieu of notice.
Severance pay: If the employer terminates the contract due to business needs (necesidades de la empresa), the employee is entitled to severance pay, which is calculated based on the employee's length of service. For every year of service, the employee is entitled to one month's salary, with a maximum of 11 months.
Trial period: Although the Chilean Labor Code does not formally recognize a trial or probationary period, during the first 30 days of an indefinite contract, either party can terminate the contract without providing a reason or paying severance.
Rights and obligations: Both the employer and employee have rights and obligations under an indefinite labor contract. The employer must provide a safe working environment, pay the agreed salary on time, and comply with all applicable labor laws and regulations. The employee must perform their duties diligently, follow the employer's reasonable instructions, and respect the company's policies and procedures.
Mandatory clauses: Indefinite labor contracts must include specific information, such as the names, nationalities, and addresses of both parties; a description of the employee's job duties and responsibilities; the place or city where the work will be performed; the employee's salary, including any additional benefits or allowances; the agreed working hours; and the date the employment relationship begins.
In summary, an indefinite labor contract in Chile is an employment agreement without a predetermined end date, providing greater stability for both the employer and employee. This type of contract is subject to various rules and regulations under the Chilean Labor Code, which govern the rights, obligations, and termination procedures for both parties involved.
In 2011, Chile passed Law No. 20,545 which extended maternity leave to six months, including a new "post-natal parenting leave" with an added 12 to 18 weeks.
The law also allowed for the transfer of up to six weeks of full-time or 12 weeks of part-time leave to the father and provided labor protection for double the leave taken for full-time leave or up to three months for part-time leave.
The law expanded coverage of maternity and post-natal parenting leave to all women who are not working in the six weeks prior to giving birth, with minimum requirements, effective January 1, 2013.
Adopting parents are entitled to maternity leave for children under six months old and post-natal parenting leave for children between 6 months and 18 years old.
In Chile, payments for participating in company profits are known as gratifications and are required by law.
There are two systems outlined in the Labor Code and it's laws:
30% of net profits divided among employees based on their annual salary, calculated using the tax netting results from SII, minus 10% of the employer's shareholder equity for interest.
25% of the employee's annual income, with a cap of 4.75 minimum monthly wages (approximately 2,048 USD a year).
Employers and employees can agree to a schedule that exceeds the legal limit as long as it is more favorable to the employee.
These payments are considered taxable income for the employee and deductible expenses for the employer.
According to Article 19 of the Labor Code, a minimum of 85% of employees in a company must be Chilean citizens, but this rule does not apply to those who have lived in Chile for over five years, those married to Chilean citizens, or specialized technical personnel.
Additionally, companies with 25 or fewer employees are exempt from this requirement. To work in Chile, non-citizen workers must have a resident visa that allows them to work for pay.
The most common work visas in Chile are the "subject to contract" visa and the temporary visa, which have validity periods of two years and one year, respectively. These visas can be renewed for similar time frames, and after they expire, a request for permanent residency can be made.
In February of 2021, the first Regulation of the new Migration and Alien Law was issued, which modifies the rules regarding the hiring of foreigners and migration categories. A second Regulation that will establish the subcategories of temporary residency is still pending and will ultimately give full validity to the aforementioned new Migration and Alien Law.
Notwithstanding the above, we consider it necessary to present the following points to consider.
Entry into the country: the following requirements are required:
Enter through an enabled passageway.
With travel documents: Passports, ID cards, safe-conducts or other valid and current documents.
There are no legal prohibitions.
New migration categories:
Transient stay: Authorizes staying in national territory for a limited period. No prior authorization or visa is required, except for exceptions regarding certain countries. Stay for a maximum of 90 days, extendable. Remunerated activities: Only in exceptional cases (Lecturers, consultants, others).
Official residency (diplomats): Residency permit granted to foreigners who are on an official mission recognized by Chile, and to their dependents.
Temporary residency: Residency permit granted to foreigners who intend to establish themselves in Chile for a limited time. It will be granted to those who can demonstrate family ties with Chileans or permanent residents or to those whose stay is consistent with the objectives of the National Migration Policy or in cases qualified by the Ministry of the Interior. Foreigners who currently have a student visa, subject to a work or temporary contract, valid or pending, will be assimilated to this category. The validity is for up to two years, except for seasonal workers, which may be extended up to five years. Remunerated activities: They may be immediately developed by requesting a work permit, which will be valid while the application is being resolved.
Permanent residency: Permit to settle indefinitely in Chile, which authorizes any lawful activity, without other limitations than those established by legal and regulatory provisions. It can only be granted to foreign nationals with a temporary residency permit that expressly allows applying for it and who have resided in the country for at least 24 months.
Temporary Residency Migration Subcategories: The most relevant subcategories for hiring foreigners are:
Foreigners who engage in lawful remunerated activities: Foreigners who wish to establish themselves in Chile for a limited period to carry out remunerated activities under a bond of subordination and dependence. They must present a work contract for no less than 3 months.
Formal job offer: It must be stated in a document previously notarized by a Chilean Notary Public, entered into the SERMIG electronic platform, together with the acceptance of the foreign national contained in a document signed in the competent Consulate.
Seasonal workers: Foreigners who intend to enter Chile to perform specific seasonal work for limited, unique, and interannual periods. It cannot be extended for more than six months in each calendar year of its validity.
Job opportunities: Foreigners who request it, as long as there is availability of permits for the corresponding category.
In conclusion, it is important to have a clear understanding of the new Migration and Alien Law and its regulations, in order to comply with the requirements and procedures established by the authorities.
Both Chilean residents and foreign companies operating in the country may pay wages to specialized foreign employees in a foreign currency, and they will be exempt from Chilean social security obligations.
Wages do not need to be paid in Chile. They can be paid in any location by either the employer or a third party. However, if the wages relate to work performed in Chile, they will be subject to taxation by Chile, regardless of the location of payment, as the income is considered to have originated from a Chilean source.
Typically, all employees are required to make Chilean social security payments. However, foreign technical workers who already pay for similar protection in their home country can opt out of Chilean social security payments if the foreign system provides equivalent coverage for diseases, disabilities, retirement, or death and meets other conditions outlined in Law 18,156.
Chile has signed social security agreements with various countries, including Argentina, Austria, Australia, Belgium, Brazil, Canada, Colombia, Czech Republic, Denmark, Ecuador, Finland, France, Germany, Luxembourg, the Netherlands, Norway, Paraguay, Portugal, Peru, Quebec, South Korea, Spain, Sweden, Switzerland, the United Kingdom, and the United States, as well as the Ibero-American Multilateral Agreement on Social Security. These agreements offer exemptions in social security and other benefits.