Employer of Record (EOR) Peru

Employment Contracts in Peru

In Peru, employment contracts are governed by specific modalities that cater to various business needs and types of work. These contracts are defined by the Labor Law and regulated through various Supreme Decrees, ensuring that both employers and employees are clear about their rights and obligations. Below is a detailed look at the various types of employment contracts in Peru and their conditions, referencing the respective articles for each type of contract.

Types of Employment Contracts

• Accidental Contract (Article 53, Supreme Decree No. 003-97-TR): This type of contract is used for situations where temporary, unforeseen, or exceptional work is required, not falling within the regular business operations. The accidental nature of the work defines the short-term need, and the contract can be renewed up to five years.
• Temporary Contract for Market Needs (Article 54, Supreme Decree No. 003-97-TR): Employers can hire employees on a temporary basis when there is a substantial increase in production due to market demand. While the tasks may be part of the company’s regular operations, they cannot be covered by permanent staff. These contracts are typically valid for a period of up to two years.
• Contract for New Activities (Article 55, Supreme Decree No. 003-97-TR): A contract of this nature is used when a business starts new activities, establishes new markets, or increases its current production. It is typically valid for a period of up to three years.
• Business Conversion Contract (Article 57, Supreme Decree No. 003-97-TR): This contract is applicable when a business undergoes changes such as a shift in operations, expansion, or introduction of new technology. It helps companies adapt to technological or procedural shifts and is usually limited to a maximum duration of six months.
• Seasonal Contract (Article 72, Supreme Decree No. 003-97-TR): Seasonal contracts are made to meet the needs of a company’s production that occurs only during specific times of the year. These contracts are often related to industries like agriculture, tourism, or retail, where work is cyclical. The terms of seasonal contracts must be written and clearly define the season’s duration and conditions.
• Occasional Contract (Article 61, Supreme Decree No. 003-97-TR): This contract is used to cover temporary and irregular needs that arise unexpectedly, usually outside the normal scope of work. It is commonly applied to tasks that do not form part of the usual operations but require attention for a short period.
• Emergency Contract (Article 62, Supreme Decree No. 003-97-TR): Designed to address situations arising from force majeure or unforeseen circumstances, emergency contracts are typically short-term and cover needs that cannot be anticipated. Their duration depends on the specific nature of the emergency.
• Substitution Contract (Article 63, Supreme Decree No. 003-97-TR): Substitution contracts are entered into when an employee is temporarily replaced due to absence or leave. This type of contract is valid only as long as the employee being replaced is absent, and the substitute’s contract ends once the original worker resumes their position.
• Intermittent Contract (Article 64, Supreme Decree No. 003-97-TR): These contracts are used for employees who work intermittently or on an irregular basis. These contracts may be renewed automatically without the need for a new agreement and are generally for tasks that do not require constant attention but may arise sporadically.
• Contract for Specific Work or Service (Article 64, Supreme Decree No. 003-97-TR): A contract for specific work or service is used when the task to be completed is clearly defined, and its duration is based on the completion of the specific work. The contract ends once the work or service has been completed.

General Contract Conditions

All employment contracts subject to a specific modality must meet certain formal requirements. They must be written in triplicate, specifying:

• Duration of the contract
• Objective reasons justifying the contract’s temporary nature
• The specific work or services to be performed
• Other conditions of the employment relationship (Article 75, Supreme Decree No. 003-97-TR).

Renewals and Extensions

For most contracts, such as those for market needs or new activities, renewals can be done but must not exceed the maximum duration established by law (e.g., five years). Successive contracts may be signed with the same employee, but the total duration cannot surpass the established limits (Article 74, Supreme Decree No. 003-97-TR).

Termination and Rehiring

If an employee continues to work after the expiration of a temporary contract without a renewal, the contract will automatically be considered as indefinite. Permanent workers cannot be rehired under temporary modalities unless one year has passed since their previous employment termination (Article 78, Supreme Decree No. 003-97-TR).

Compensation and Legal Protections

If an employer arbitrarily terminates a contract, they must compensate the worker. This compensation is calculated based on the number of months the worker would have worked until the contract’s natural expiration, with a cap of 12 months. Additionally, if the employer falsely simulates the need for temporary work, the employee can claim permanent employment status (Article 77, Supreme Decree No. 003-97-TR).

Working Hours

The Constitution establishes a standard workday of 8 hours per day or 48 hours per week, as outlined in Article 25.

13th Month Salary/ Bonus

In Peru, a bonus is an additional financial benefit provided to workers twice annually, typically in July for Fiestas Patrias and in December for Christmas. Governed by Law No. 27735, this bonus primarily applies to employees in the private sector. Generally, it is equivalent to a full month’s salary and is exempt from pension-related deductions, with the exception of contributions to Essalud. For employees with EPS health coverage, Essalud contributions may be replaced with equivalent bonus payments. This benefit is also exempt from income tax, aiming to recognize employees’ contributions and encourage productivity by providing extra income around holiday times.

Similarly, a Christmas bonus is granted twice a year to public sector employees, in July for Fiestas Patrias and in December for Christmas, as per the Public Sector Budget Law. Unlike the private sector bonus, the Christmas bonus is set at a fixed amount by the government; for fiscal year 2024, this amount was set at S/300. This payment is exempt from most contributions, deductions, and income taxes, except for those explicitly required by law or authorized by the employee. Its purpose is to provide financial support to public sector employees and promote spending during the holiday season.

Probation Period, Termination and Severance Pay

Probation Period

Labor regulations establish that the trial period is generally limited to 3 months. However, for certain exceptions, such as for skilled or confidential employees, the trial period can be extended to 6 months if both parties have a formal written agreement. For management-level employees, the trial period may be extended up to one year, provided there is an express written agreement in place beforehand.

Termination and Severance Pay

Termination

In Peru, employment termination is governed by Legislative Decree No. 728, or the Labour Productivity and Competitiveness Law (Supreme Decree No. 003-97-TR), which outlines specific grounds for ending an employment contract. Termination may occur for various reasons:

• Standard Causes: Contracts may end due to events like the worker’s or employer’s death (for sole proprietorships), employee resignation, retirement, or mutual agreement. Contracts also end automatically upon the completion of specific projects, the fulfillment of contract terms, or permanent disability.
• Dismissals:
  • Individual Dismissal: A worker may be dismissed for “just cause,” which could relate to either the employee’s performance or conduct. Grounds for dismissal include gross negligence, refusal to perform assigned tasks, unauthorized absences, revealing trade secrets, or violent behavior. If a dismissed employee challenges the termination in court, the employer is required to provide proof of the just cause.
  • Collective Dismissal: Employers may dismiss groups of employees for objective reasons, such as financial distress, technological or structural adjustments, or unforeseen events, provided these terminations are pre-approved by the Labor Administrative Authority. In cases of economic hardship, Supreme Decree No. 013-2014-TR specifies that three consecutive quarters of negative financial performance or substantial loss could justify such a dismissal, requiring an audit report from an authorized agency.

Severance Pay

Employees dismissed without a legally justified reason may be entitled to compensation, with the amount determined by their employment contract type:

• For Indefinite Contracts: Severance pay is calculated at 1.5 times the monthly salary per completed year of service, capped at a total of 12 months’ pay.
• For Fixed-Term Contracts: Compensation is equivalent to 1.5 times the monthly salary for each remaining month of the contract, also capped at 12 months.

The severance payment is based on the employee’s salary at the time of dismissal, with additional income (such as commissions) averaged over the previous six months included if received regularly. Employees may alternatively pursue reinstatement, along with compensation for damages, unless they hold a position of trust, in which case the company may end their employment due to a “loss of confidence.

Employees vs Independent Contractors

In Peru, there are key distinctions between employees and independent contractors, each with specific legal and operational requirements. Employees are generally hired on an indefinite basis, with contracts that can be verbal or written, and these contracts are structured to ensure protections and benefits outlined by Peruvian labor laws. Employees may also be hired on a fixed-term basis, though only under specific circumstances, such as temporary increases in workload or project-based work, with strict guidelines that prevent long-term or indefinite use of fixed-term contracts for the same employee. If a fixed-term contract is extended beyond allowable limits, the employee is reclassified as an indefinite-term employee.

Independent contractors, by contrast, operate as autonomous service providers and do not have the same legal protections or benefits that employees receive. Contractors are engaged by foreign or local entities on a project basis and are expected to maintain control over how they perform their work. This autonomy is essential to their classification; otherwise, if the contractor’s role aligns too closely with that of an employee, it may be redefined under Peruvian law. Furthermore, if an independent contractor performs activities that constitute a “Permanent Establishment” (PE), they may be subject to local tax obligations as a domiciled taxpayer.

Below is a table outlining the primary differences between employees and independent contractors in Peru:

Social Security in Peru

In Peru, both employers and employees are required to contribute to the social security system, which encompasses health and pension funds, ensuring access to healthcare and retirement benefits.

Health Contributions

Employers are responsible for making monthly contributions to the national health system, EsSalud, which amounts to 9% of the total compensation paid to employees. Employees, on the other hand, have the option to affiliate with either EsSalud (the National Health System) or a Private Health System (Entidades Promotoras de Salud or EPS). If an employee chooses the private system, 25% of the payment made to the EPS can be credited against the employer’s contribution to EsSalud.

Pension Contributions

Employers must also make contributions to employees’ pension funds on a monthly basis, with the rate varying depending on the pension system the employee is affiliated with:

• National Pension System (SNP): Employers must withhold and contribute 13% of the employee’s salary to the state-managed pension system.
• Private Pension System (SPP): Contributions are slightly lower, at around 12.5% of the employee’s compensation. This includes 10% allocated to the employee’s individual pension account, with the remaining portion covering insurance and management fees.

For foreign workers, if they leave Peru and their labor contract ends, any contributions made to the Private Pension System (specifically the 10% personal account) can be transferred to an international pension fund or withdrawn to a foreign bank account, should the individual’s home country not have a compatible pension system.

Payroll in Peru

Minimum Wages

The minimum wage in Peru, known as the Minimum Vital Remuneration (RMV), is set at PEN 1,025 per month.

Payroll Cycle

The payroll cycle in Peru is the period during which an organization compensates its employees, typically on a monthly basis. Apart from the regular monthly salary, employers are obligated to provide two additional payments each year, one in July and another in December. These extra payments are known as the 13th and 14th-month salaries.

Overtime Pay

Overtime for employees must be paid alongside their regular wages, and the corresponding amount should be clearly documented on both their payroll and payslip.

Under current regulations, when overtime occurs during the standard working hours, employers are required to pay an additional surcharge. Specifically, for the first two hours of overtime, the surcharge is 25% of the employee’s regular hourly rate. For any overtime beyond the second hour, the surcharge increases to 35% of the hourly rate.

It’s important to note that, as stated in Article 2 of Supreme Decree No. 012-2002-TR, the calculation of overtime hours for surcharge purposes is based on any work performed beyond the employee’s regular daily working hours.

To illustrate, let’s consider an example where an employee with a monthly salary of S/2500 works four extra hours in one day.

Total Overtime Payment for 4 Hours = S/12.50

Mercans’ payroll capabilities

• Payroll Cycle Management in Peru: Mercans offers a streamlined payroll cycle management service designed to ensure accurate and timely payments for both employees and independent contractors in Peru, using the local currency. Rely on Mercans to handle all aspects of your payroll cycle, making it a smooth, efficient, and localized process for your business.
• Payroll Setup, Processing, and Administration: Mercans provides comprehensive payroll solutions, covering everything from the initial setup to precise processing and ongoing administration. We handle each step with a focus on accuracy, efficiency, and legal compliance. By entrusting Mercans with your payroll, you free up valuable time to focus on driving your core business operations.
• Compliance with Statutory Filings and Payments: Mercans ensures that your business stays fully compliant with Peru’s regulatory requirements. Our team expertly manages statutory filings and payments, keeping your business up-to-date with all legal obligations. With Mercans handling the details, you can rest assured that your statutory submissions will be accurate and timely, giving you peace of mind and allowing you to focus on growth.

Personal Income Tax in Peru

In Peru, individual income tax is determined by domicile rather than residency (for more details on domicile determination, refer to the Residence section). Domiciled individuals are subject to taxation on their worldwide income, while non-domiciled individuals are only taxed on their income generated within Peru.

Personal Income Tax Rates

The tax rates for labor income and foreign earnings of domiciled individuals in Peru follow a progressive scale, as outlined below:

Note: For 2024, one tax unit is equivalent to 5,150 Peruvian soles (PEN). The first seven tax units are exempt from tax, and individuals who meet specific criteria may deduct up to three additional tax units for expenses related to leasing property, professional services, hotels, restaurants, and other similar expenditures.

Non-domiciled individuals are taxed at a flat rate of 30% on their gross income sourced from Peru, without the ability to claim deductions or credits.

Additional Tax Details

Capital gains derived from the sale of stocks by domiciled individuals are taxed at a reduced rate of 5%. Likewise, income from rental properties is taxed at the same effective rate of 5%.

If no withholding tax is required, income tax must be paid when filing the annual tax return.

Peru Employee Hiring Cost

Hiring employees in Peru involves various costs beyond the gross salary paid to the employee. Employers must account for statutory contributions, such as social security, health insurance, and other mandatory benefits, which increase the overall expense of employment.

For example, if an employee’s gross salary is PEN 100,000 annually, the total cost to the employer will be higher due to additional employer contributions. Here’s a breakdown of the total annual employment cost:

In this example, the employer’s annual costs amount to PEN 41,266, which includes contributions for health insurance, pension funds, and other statutory obligations, bringing the total employment cost to PEN 141,266 for the year.

Employee Benefits in Peru

Peru provides a robust system of employee benefits designed to ensure the financial and physical well-being of workers. These benefits include social security, health coverage, pension contributions, mandatory leaves, and insurance plans. Employers are required by law to offer these benefits to their employees.

• Pension Systems: Employees in Peru can choose between two pension systems: the National Pension System (SNP) and the Private Pension System (SPP). Both systems require a 13% contribution from the employee’s salary. The SNP is government-managed, while the SPP is managed by private Pension Fund Administrators (AFP). When a worker starts a new job, the employer provides information to help them choose between these systems, unless the employee is already registered in one of them.
• Social Security and Health Insurance: Under Peru’s social security laws, employees are insured through the Public Health Insurance system (EsSalud), with employers responsible for contributing 9% of an employee’s salary. In industries that involve high-risk activities such as mining or construction, employers are also required to provide additional insurance coverage for workers exposed to these risks.
• Healthcare and Life Insurance: After working for four years, employees are entitled to a life insurance policy provided by the employer. The life insurance offers coverage in cases of natural or accidental death, and for permanent disability caused by accidents. The amount paid to the beneficiaries is based on the worker’s average salary in the last quarter prior to the incident.
• Mandatory Leave: Employees are entitled to paid rest on public holidays and annual leave. Peru’s public holidays include New Year’s Day, Labor Day, National Holidays, Christmas, and others. In addition to public holidays, employees are entitled to paid annual leave, which is another key benefit they receive throughout their employment.
• Maternity and Paternity Leave: Female workers are entitled to 49 days of prenatal leave and 49 days of postnatal leave, with an additional 30 days if the birth is multiple or if the child has a disability. Postnatal leave can be deferred and combined with prenatal leave upon the employee’s decision. In addition, breastfeeding leave is granted for one hour per day until the child reaches one year of age. Male employees are entitled to 10 days of paternity leave, which can be extended under certain circumstances, such as multiple births or complications during birth.
• Sickness and Disability Leave: Employees who suffer illness or injury are entitled to up to 20 days of paid sick leave. If the illness or injury lasts longer than 20 days, employees may qualify for temporary disability leave, during which the employer continues to provide pay for up to 20 days, after which EsSalud reimburses the employer for the continued leave.
• Retirement Pensions: In Peru, there are two options for retirement: the National Pension System (SNP) and the Private Pension System (SPP). To retire under the SNP, employees must have contributed for at least 20 years and reached the age of 65. If an employee is part of the SPP, the individual’s personal pension fund must be sufficient to provide for retirement. Employees must make a decision between the two systems when they begin their employment, and the employer provides information to help in this choice.

Work Permit in Peru

When expanding your business into Peru, it’s essential to understand the process of obtaining work permits for your employees. Whether you’re transferring existing team members or hiring new talent, obtaining the right work visa ensures a smooth transition and compliance with Peruvian law. Below is an overview of work visa options, requirements, and important considerations for your business operations in Peru.

Work Visa Categories in Peru

Peru offers several types of visas depending on the nature of the employee’s stay and purpose. The most common work-related visa options include:

• Tourist Visa
• Business Visa
• Journalist Visa
• Religious Visa
• Resident Working Visa
• Student Visa
• Artist Visa

Each visa has a distinct duration. For example, a tourist visa can be valid for anywhere between 30 to 183 days, while a business visa typically lasts up to 90 days. Employees who enter Peru on these visas can apply for a work permit once they’ve secured employment in the country.

Documentation Needed for Work Visa Application

To apply for a work permit in Peru, employees first need to enter the country with a valid visa. After securing employment, the employee can begin the application process. Documents typically required for the work visa application include:

• A passport with at least six months validity from the arrival date
• Copies of the front and back pages of the passport
• Completed visa application forms (usually two copies)
• A signed cover letter explaining the purpose of their stay in Peru
• A planned itinerary for the duration of their stay
• Proof of financial stability (e.g., recent bank statements or personal income tax return)
• A letter from the employer confirming the job offer or employment contract

Step-by-Step Application Process

Employees applying from outside Peru must first schedule an appointment at the nearest Peruvian embassy. The embassy will provide guidance on required documents, and the employee will be interviewed by a consular officer. Once the documents are submitted and the visa fee is paid, the embassy will process the application, which can take anywhere from 5 to 30 days.

Upon arrival in Peru, the employee must apply for a work visa through the General Directorate of Immigration and Naturalization (DIGEMIN). If the employee enters the country on a different visa, they can apply for a status change while staying in Peru.

Employer Sponsorship and Workforce Composition Requirements

To sponsor a work visa for a foreign employee, the employer must ensure that at least 80% of their workforce is comprised of Peruvian nationals. Additionally, foreign employee contracts are limited to a maximum of three years but can be renewed. Temporary work visas are initially issued for one year and can be extended as long as the employment contract remains active.

Key Considerations for Work Permits

Employers should carefully plan the visa and work permit application process to avoid delays that may disrupt employee timelines. Compliance with Peru’s employment and immigration regulations is vital to ensure a smooth operation as you scale your business. Properly handling work visas will ensure that your international workforce can contribute to the success of your business in Peru.

EOR Solutions in Peru

• EOR for Prospective Employees: Mercans provides comprehensive Employer of Record (EOR) services for businesses that have identified their ideal candidates in Peru. Our solutions cover every phase of the employee lifecycle, ensuring full compliance with Peruvian labor laws and regulations while simplifying the hiring process for international employers.
• EOR + Recruitment: For companies looking for assistance in talent acquisition, Mercans offers a combined EOR and recruitment service. We leverage our broad network and industry expertise to help you find, hire, and retain top talent, making your market entry into Peru seamless and efficient.
• Visa Sponsorship and Global Mobility: Our visa sponsorship and global mobility services streamline the process of relocating your international employees to Peru. We manage the complexities of immigration, ensuring that your expatriates meet all legal requirements to work and reside in the country.
• AOR for Contractor Payments: Mercans’ Assistance on Record (AOR) services help businesses manage contractor payments with accuracy and compliance. We handle the intricacies of contractor payment processing, ensuring timely and correct payments in line with Peruvian laws.
• Converting Freelancers to Employees: Transitioning freelancers into permanent employees in Peru is made simple with Mercans. We provide expert support throughout the conversion process, ensuring all legal steps are followed for a smooth transition while maintaining compliance with local employment laws.
• HCM Integration: We offer seamless integration of Mercans’ EOR services with your Human Capital Management (HCM) system in Peru. This enables real-time data synchronization, improved compliance, and enhanced operational efficiency, streamlining your payroll and workforce management processes for better results.

Best Employer of Record Peru

• Full Compliance with Local Regulations: Mercans ensures full compliance with Peruvian labor laws, including the requirements set by the Ministry of Labor and Promotion of Employment (Spanish: Ministerio de Trabajo y Promoción del Empleo), Social Security, and other relevant government bodies.
• Independent Operations: Mercans operates as an independent entity, offering customized and reliable employment services tailored to the specific needs of each client.
• Versatile Employment Solutions: Whether you have employees, freelancers, contractors, or expatriates, Mercans is equipped to manage all types of employment, providing flexible solutions that suit various workforce structures.
• Designed for Enterprises: Mercans is ideal for large corporations and enterprises, offering scalable, sophisticated services that address the complex needs of large organizations, including multi-department and multi-location structures.
• Multi-Currency Payroll Management: We offer payroll services in multiple currencies, ensuring that global and multi-national businesses can streamline their financial operations seamlessly across borders.
• Global Reach with Multi-Country Expertise: With a broad international presence, Mercans specializes in managing payroll across multiple countries, ensuring smooth operations for businesses with a global footprint.
• Data Protection & Security Compliance: Mercans adheres to the highest standards of data protection and security, including GDPR compliance and SOC 1 & SOC 2 certifications, ensuring the privacy and integrity of all client information.
• ISO Certifications: Mercans is ISO 20000 and ISO 27001 certified, reflecting our commitment to delivering high-quality IT service management and robust information security practices.
• Security Standards Compliance: Mercans meets OWASP ASVS 3.0 security standards, ensuring that our software development and management processes follow industry-leading practices in safeguarding applications.
• HRBlizz: Our proprietary HRBlizz platform is a global payroll and talent management solution that streamlines payroll operations while ensuring compliance with local regulations. Backed by a network of over 1,000 in-country experts, it provides deep knowledge of Peruvian labor laws and business protocols.
• G2N Nova: G2N Nova, our advanced global payroll engine, handles gross-to-net payroll processing in over 100 countries. Available as a SaaS or service delivery platform, it integrates seamlessly with major HCM and workforce management systems, providing a comprehensive and flexible payroll solution.