Employer of Record (EOR) Chile

An Employer of Record (EOR) in Chile acts as the official employer for workers, often referred to as a Global Professional Employer Organization (Global PEO). This role encompasses a broad range of employment functions, ensuring full compliance with local labor laws and regulations, managing payroll, administering taxes, providing legally required benefits, and handling employment contracts.

With our Employer of Record (EOR) services, expanding your business into Chile becomes easier and more efficient. Our solution eliminates the need for setting up a local entity, providing a seamless path to establish a legal presence in Chile. We ensure full legal compliance, manage payroll, protect your intellectual property, and handle work permits, so you can focus on growing your business and building your workforce in one of Latin America’s most stable, OECD-member economies.

Things you need to know before hiring in Chile

Chile’s 2025–2026 Labor Reforms: 40-Hour Workweek and Pension Contributions

Chile is mid-way through two of its most significant labor reforms in decades. Under Ley 21.561 (the “40-hour law”), the standard workweek is being phased down from 45 hours: it dropped to 44 hours in April 2024, and drops again to 42 hours from 26 April 2026, before reaching 40 hours in April 2028 — all without any reduction in pay. Separately, the pension reform Ley 21.735, published in March 2025, introduces a new employer-only pension contribution that started at 1% of wages in August 2025 and rises to 3.5% from 1 August 2026, on a path toward a much higher rate by the mid-2030s. Employers hiring in Chile should reconfirm both the applicable weekly hours cap and the current employer pension contribution rate at the start of each cycle, since both are actively phasing in.

Employment Contracts in Chile

Chilean labor relations are governed by the Código del Trabajo, enforced by the Dirección del Trabajo (DT). An indefinite-term contract (contrato indefinido) is the standard form of employment.

Working Hours

The standard legal working week in Chile is being phased down under Ley 21.561: currently 44 hours, dropping to 42 hours from 26 April 2026, and to 40 hours from April 2028.

Notice of Termination

A termination for “necesidades de la empresa” (Art. 161) requires 30 days’ prior written notice, with a copy to the DT, or payment in lieu of notice equal to 30 days’ last salary. Resignation by the employee requires 30 days’ notice. No notice is required for termination for serious misconduct (Art. 160) or other no-fault grounds (Art. 159).

Severance Pay

Beyond the notice (or payment in lieu), employees terminated under Art. 161 are entitled to the years-of-service severance described above. If a labor court later rules the dismissal unjustified, surcharges of 30% (improper Art. 161 grounds), 50% (improper Art. 159 grounds or no cause cited), 80% (improper Art. 160 grounds), or up to 100% (improper invocation of the most serious Art. 160 grounds) apply on top of the base severance.

Protected Categories

Pregnant employees and those on maternity leave benefit from “fuero maternal” — job protection from the start of pregnancy until one year after postnatal leave ends, during which dismissal generally requires prior judicial authorization.

Compensation for Unused Leave

Any accrued but unused annual leave (feriado legal) must be paid out on termination.

Employees vs Independent Contractors

Chilean law applies a subordination-and-dependency test (“vínculo de subordinación y dependencia”): personal, remunerated services rendered under the direction and control of another party are presumed to be an employment relationship, regardless of how the arrangement is labeled (“primacía de la realidad”). Genuine independent contractors instead bill via a boleta de honorarios, governed by civil rather than labor rules.

Misclassifying employees as independent contractors is a recognized enforcement risk: the Dirección del Trabajo or labor courts can reclassify a “boleta” relationship as employment, triggering retroactive social security contributions, severance, and fines. Chile has also extended targeted labor protections to platform workers under Ley 21.431 (the “Uber law”), covering delivery and ride-hailing platform workers with minimum pay guarantees and other rights regardless of their employee or independent classification.

Comparison Table: Employee vs Independent Contractor

Understanding these differences is essential for ensuring compliance and correctly determining entitlements such as leave, severance, and social security contributions.

Social Security Contributions in Chile

Chile operates a privatized, individual-account social security system. Employees contribute to their chosen AFP (pension fund administrator) and health scheme, while employers fund unemployment insurance, work-accident insurance, and a new pension contribution introduced by the 2025 pension reform.

AFP and health contributions are calculated up to a monthly cap of 90 UF; unemployment insurance uses a higher cap of approximately 135.2 UF. The new pension-reform employer contribution is scheduled to keep rising through the mid-2030s — Mercans confirms the current rate and contribution structure for each engagement.

Payroll in Chile

Minimum Wage

Chile’s national minimum wage (ingreso mínimo mensual) is CLP 553,553 per month, effective 1 May 2026, up from CLP 553,553 at the start of the year. A reduced rate of CLP 412,938 applies to workers under 18 or over 65.

Payroll Cycle

Salaries in Chile are paid in Chilean Pesos (CLP) at least monthly, evidenced by an itemized liquidación de sueldo showing gross pay, statutory deductions, and net pay. Many statutory caps and thresholds are indexed to the UF (an inflation-linked unit recalculated daily) or the UTM (a monthly tax unit), so peso amounts should be treated as approximate and reconfirmed each pay period. Employers also owe a gratificación legal (statutory profit-share bonus) of 25% of monthly taxable pay, capped at 4.75 monthly minimum wages per year, payable monthly or annually depending on the method chosen.

The applicable weekly hours cap is itself changing under the phased Ley 21.561 reform, so overtime calculations should be reconfirmed each year through 2028.

Mercans’ payroll capabilities

Personal Income Tax in Chile

Employment income in Chile is taxed monthly through the progressive Impuesto Único de Segunda Categoría, calculated in UTM (Unidad Tributaria Mensual, a monthly tax unit set by the SII). Monthly taxable income up to 13.5 UTM is exempt; above that threshold, 8 progressive brackets apply, rising to a top marginal rate of 40%. Because the UTM value is updated monthly, peso-denominated bracket thresholds change slightly each month.

Chile Employee Hiring Cost

When hiring an employee in Chile, employers must budget for gross salary plus mandatory employer contributions for unemployment insurance, work-accident insurance, and the new pension-reform contribution — AFP pension and health contributions are employee-paid and already reflected in the employee’s gross-to-net calculation.

*Excludes the industry-rated portion of work-accident insurance, which varies by sector; Mercans confirms the full employer cost, including the currently phasing-in pension-reform contribution, for each engagement.

Employee Benefits in Chile

Chilean employees are entitled to a combination of mandatory statutory benefits and, increasingly, supplementary benefits offered at the employer’s discretion.

Work Permit in Chile

Foreign nationals working in Chile require an appropriate residence and work authorization under Ley 21.325 (the Migration and Foreign Nationals Law).

Residencia Temporal (Work-Linked Temporary Residence)

Work-linked residence applications are processed through the Servicio Nacional de Migraciones’ SERMIG digital portal, requiring employer registration and supporting documentation. Processing times have lengthened materially since the 2022 migration law reform, and employers should generally budget for several months rather than weeks.

The 85% Chilean Workforce Rule

Under Article 19 of the Labor Code, employers with more than 25 employees must ensure at least 85% of their workforce are Chilean nationals (foreign nationals resident in Chile for 5+ years count as Chilean for this purpose). Specialized technical personnel who cannot be replaced by local staff are excluded from the ratio.

Important Considerations for Employers

Employer Sponsorship

A registered entity in Chile is generally required to sponsor a foreign employee’s work-linked residence application — an EOR partner such as Mercans allows companies without a local entity to still hire and sponsor talent compliantly.

Specialized Technical Staff Exception

Businesses hiring specialized technical talent that falls outside the 85% workforce quota can structure their Chilean hiring accordingly, with Mercans confirming eligibility for each role.
Understanding these pathways can streamline the hiring process, allowing employers to bring skilled talent into their Chile-based operations effectively.

EOR Solutions in Chile

Best Employer of Record Chile