Chile Employment Laws: Complete Guide for Employers

Chile is one of the best-evaluated economies in South America. Since 1998, the World Economy Forum (WEF) has consistently ranked Chile among the most competitive country in Latin America.

Chilean polity is democratic and has maintained an open, transparent, and dynamic business environment. The Latin American country is an attractive and reliable place for global businesses to expand; the Chilean employment laws cover every aspect of the employment relationship. 

Chile’s labor laws are established as a general system to protect employees. There are certain minimum rights granted that must be honored by employers. The most relevant minimum labor rights in Chile are:

• minimum legal wage (approx. $436 as on 1 August 2022)
• vacation leave of 15 working days per year 
• profit sharing 
• maximum of 45 hours of work per week
• severance pay and social security contributions 

Any global employer or an international company looking to expand in Chile would find this guide on Chilean labor regulations beneficial before hiring their first employee in Chile. 

This page on employment law in Chile will guide you through all the labor statute’s critical elements, including working hours, holidays, leaves, minimum wages, and other mandatory employment rules. 

Who is Covered by the Chilean Employment Act?

The Chilean employment law applies equally to national citizens in the workforce and foreign residents on a valid work permit. The applicability of the labor code in Chile is defined in the employment contract. Depending on the nature of employment, Chilean employment rules may vary on matters like working time, rest periods, payment of wages, employee perks, and dismissal rules. 

Special rules apply for employment in Chile as apprentices, cargo drivers, firefighters, temporary agency workers, seafarers, airline crew, agricultural workers, tourist-related, artists & performers, students, and professional sportspeople. 

Labor courts in Chile usually rule to protect employee rights and base their decisions according to the ‘rule of reason’. 

OECD defines the ‘rule of reason’ as a legal approach where an attempt is made to evaluate the pro-competitive features of a restrictive business practice against its anticompetitive effects to arrive at a decision. 

Employment Contract

Generally, an employer in Chile is subjected to judicial scrutiny on termination of an employment contract at will, even if the terminations are based on a company-related business need. 

Drafting clear and detailed employment contracts may protect employers from frivolous claims. 

Here are the two most common contract types under Chilean employment rules:

Individual labor contract

• This is a written contract formed between an employer and an employee.
• Under this, the employer and employee form a mutual contract wherein the employee is legally bound to render services to the employer. In return, employers have to compensate for the services. 
• Article 10 of the Chilean Labor Code mentions what must be included in the individual labor contract
• Date and place of execution
• The identity of the parties (nationality, contact information, etc.) 
• The position of the employee, job description, and the location of work
• The remuneration to be paid by the employer (at maximum 1-month intervals)
• The duration of employment (fixed-term or indefinite term) and the other benefits in cash or kind. 

Collective labor agreements

• This is a written contract executed between employers and employees to establish common labor conditions. 
• The collective contract is usually registered before the Department of Labour and executed for a maximum of three years. 
• The Chilean labor regulations also allow employers and employees to freely negotiate a collective agreement without being subjected to legal proceedings.

Employers must execute all employment agreements in Chile in writing no later than 15 calendar days after the starting date. 

Chilean labor laws do not allow a probationary period in a typical employment relationship. Employers may, however, conduct probation through short, fixed-term contracts. This ensures employees are protected against termination at will. 

However, the employer may terminate the employment relationship or convert it to an indefinite term towards the end of fixed-term contracts. 

Key Provisions of the Act

The employee and employer rights and duties in a Chilean employment relationship arise from different statutory sources:

• The National Constitution of Chile 
• The Chilean labor code 
• Various statutes and decrees, and 
• Judicial and administrative decisions

Together, they form the labor act rules in Chile or the Chilean employment rules. 

The following sections deal with the crucial provisions of the Chilean employment rules. 

Working hours 

• Chilean labor law stipulates 10 hours a day working time for no more than six days a week or no fewer than five days a week.  
• The total working hours in Chilean labor law is 45 hours per week. 
• The standard working time is no more than six days and no fewer than five days a week.
• The Chilean working hour law provides for daily rest periods, a midday meal break, and a weekly rest day on Sundays or otherwise.  

Holiday entitlements

• Per employment laws in Chile guide, there are generally 9 to 12 national holidays per calendar year.
• List of public holidays in Chile:
  • 1 Jan: New Year’s Day
  • 15 Apr: Good Friday
  • 16 Apr: Easter Saturday
  • 1 May: Labour Day
  • 21 May: Navy Day
  • 21 Jun: National Day of Indigenous Peoples
  • 27 Jun: Feast of St Peter and St Paul
  • 16 Jul: Our Lady of Mount Carmel
  • 15 Aug: Assumption Day
  • 18 Sep: Independence Day
  • 19 Sep: Army Day
  • 10 Oct: Day of the Race
  • 31 Oct: Reformation Day
  • 1 Nov: All Saints’ Day
  • 8 Dec: Immaculate Conception
  • 25 Dec: Christmas Day

• Chilean labor act rules mandate compensation for any exemptions on public holidays with a paid day off on any other day in a week.  

Leave schemes

Maternity leave

• Chilean paid maternity leave applies during the prenatal phase, i.e., six weeks before the expected date, and the post-natal phase, i.e., up to 12 weeks after childbirth.
•  The maternity leave is extendable up to 18 weeks. 
• In addition to Chilean paid maternity leave, working mothers may choose between different types of additional parental leave:
  • 12 weeks after the end of post-natal maternity leave, or 
  • A working mother may choose to work part-time, extending the additional parental leave to 18 weeks after post-natal maternity leave.

Paternity leave

• The labor code in Chile entitles five days of paid paternity leave within the first month of birth. 
• The nature of leave may be continuous or separate days.

Shared paternity leave

• Shared paternity leave in Chile allows working birth mothers to share a portion of their additional parental leave and pay with their partners to care for children until their first birthday.
• It is subject to a maximum of six weeks full-time. 
• A working birth mother may transfer a maximum of 12 weeks if they choose the 18-week part-time additional parental leave. 
• The provisions for maternity leave in Chile for foreigners with valid work permits are no different from the citizens of Chile. 

Annual leave (vacation) 

• Chilean employment rules provide fully paid annual leave of up to 15 working days for employees with more than one year of service. 
• Vacation leaves are extended by one working day for every three years of service for the current employer with ten or more years of experience. 
• Employees in the 11th and 12th Regions of the country and the province of Palena have a primary vacation period of 20 days.

Other leaves

Child care

• Employers must provide frequent intervals between work hours to attend to children for up to two years.  
• Additionally, in extreme cases of terminal illness, a working mother can avail of leave calculated based on the number of hours and equivalent to 10 ordinary working days per year. 

Marriage leave

• The labor act rules in Chile provide for five continuous days of fully paid leave and annual leave. 
• It is subject to prior 30 days’ notice and submission of a certificate from the Civil Registry and Identification within 30 days of celebration. 

Sick leave: 

• Employees are entitled to sick leave for the duration mentioned in the medical certificate of illness or an accident. 
• The Chilean labor code shifts the burden of payment from employers to social security/health institutions during this period. 

Bereavement leave: 

• The labor regulations in Chile mandate employers to grant seven days of continuous leave, in addition to annual leave, following the death of a close friend or family member.
• Chilean labor law does not prescribe service conditions for employees to avail  bereavement leave. 

Minimum wage

• Chile has about 800,000 minimum wage employees. 
• As of 1 August 2022, the monthly minimum wage in Chile is CLP 400,000 or $436 approximately. 

Overtime compensation

The labor office in Chile limits overtime requirements to exceptional situations and mandates every employer not to make it permanent. 

• The Chilean employment rules restrict working time to 12 hours a day, including overtime hours. 
• Overtime can only be agreed on temporarily and cannot exceed three continuous months. Employees’ extra working hours should be in writing. 
• The overtime compensation is paid with a 50% surcharge over the regular work hours.

Pension

• Chilean employment rules provide for a mandatory contribution towards pension benefits by employers. 
• Indemnities are also covered under pension. 
• Pension benefits are usually fulfilled under the Employees’ Compensation Fund, which is funded through –
  • a base contribution made by the employer – about 0.90% of the employee’s salary and a cap of 80.2 Unidad de Fomento (UF) per base salary 
  • an additional payment varying from 0% to 3.4% borne by the employer exclusively depending on the company’s activity and level of risk 

Payroll tax & other obligations

• The labor act rules in Chile mandate employers to deduct the Monthly Second Category Tax (SCT) under the progressive tax scale from the remunerations paid to employees. 
• The income tax brackets range from an exemption to a 40% tax rate.
• Employers must file within the first 12 days of the month following the tax deducted at the source. 
• The labor law in Chile calls for Unemployment insurance financed on a tripartite basis—the employer, the employee, and the government. 
• Employers contribute about 2.4% of the employees’ taxable remuneration up to a maximum of 120 UF. 
• Employers are obliged to contribute the full 3% for employees on fixed-term contracts.
• Employers must contribute between 1% and 1.5% of the employee’s disability and survival insurance (SIS) remuneration.
• The Chilean labor code mandates companies to share profit with their personnel. The statutory requirement is 30% of net profit to the employees, calculated in proportion to the employee’s salary. 
• All foreign employees with valid work permits are subject to Chilean social security regulations unless exempted. 

Payslip

• The employment rules in Chile mandate employee remuneration to include base salary, overtime payment, commissions, profit sharing, and bonuses. 
• The labor law in Chile is clear on what indicates payments or allowances. For instance, lunch, family allowance, transportation allowance, etc., do not constitute remuneration. 
• Payment of salary during maternity leave in Chile is usually replaced by a subsidy payment made by the workers’ health institution (Isapre/Fonasa). 

Dismissal rules

• Chilean employment law allows employers to terminate an employment contract without notice in certain cases—for instance, a severe breach of contract by the employee, material misconduct, etc. 

• Immediate terminations are allowed with severance pay in lieu of notice, capped to 1-month remuneration. 
• However, the labor code in Chile protects pregnant employees’ employment until one year after the end of post-natal maternity leave. 
• Other categories of employees, like ones on medical leave, union directors, or the president of the company’s health and safety committee, cannot be dismissed.
• Employers may terminate their employment contract only with the prior authorization of a labor court.
• A labor trial before Chile’s courts can ordinarily last between 8 months to 2 years.
• Further, retirement is not a legal cause for termination in Chile.

• Any other terminations require at least 30 days of prior notice. 

Data protection and employee privacy

The right to privacy has constitutional protection in Chile. However, there is no designated data protection agency, and thus, employers are not mandated to register with any other government body. 

Some of the best practices to ensure data protection and employee privacy under the Chilean employment rules are: 

• An employer must have the written consent of their employees to access and process their details.
• Observe limitations on background checks:
  • The labor law in Chile does not allow access to credit history or medical records like pregnancy certificates or HIV checks.
  • Even criminal record checks are exceptional. It is restricted to positions that involve working with minors who have disabilities.

Penalties 

The employer is subject to civilian offenses charged by the labor courts upon violating specific provisions of the labor code in Chile.

• Chilean law no. 20.393 of 2009 establishes the criminal liability of legal entities for the crimes of money laundering, financing of terrorism, and bribery. 
• The law transfers the burden of proof on the employer for any criminal act committed by employees and dependents on duty. 

Compliance Strategies for Employers

Entrepreneurs and global firms follow the below common strategies to comply with the Chilean labor act rules for hiring and managing employees.

• Recruiting an HR manager:
• Hiring a dedicated HR manager looks after aspects like employee recruitment, development, training, employee benefits, etc. 
• The HR manager can also oversee appraisals, reward management, manage payments, and deal with organizational changes and industrial relations. 
• An employer can also hire an HR manager to ensure that the Chilean labor law and other local rules and regulations are taken care of while hiring talent from Chile. 
• Employment contracts based on standard templates:
• The labor code of Chile states all the information employers must include in employment documents like offer letters, employment records, and termination notices.  
• Following these standards helps you prepare top-notch employment documents.  
• Payroll provider
• Foreign employers in Chile need not establish a local hiring entity. 
• However, if the nature of employment puts the employee under legal subordination to the employer, the latter must designate a local representative, typically a payroll provider in Chile.  
• A payroll provider like Multiplier can enter into a local employment contract on its behalf and pay salaries and social security contributions per the labor code in Chile.

Ongoing Changes That May Impact the Chilean Employment Law

Chile is in the reform phase—from the reduction in working hours to the hike of the minimum wage, pension reforms, and the drafting of the new constitution—all include a social agenda that may affect employment relationships in several ways. 

For instance, the Chilean government may agree on a third hike to 410,000 ($483) in January 2023 if the 12-month inflation rate exceeds 7% in December 2022. Moreover, a new draft constitution will be put for a referendum in September 2022 which may impact the Chilean labor act rules. 

How Can Multiplier Help?

Chilean employment rules are a compilation of rights and duties for employers & employees emanating from the National Constitution of Chile and various judicial and administrative decisions. 

There are several specific provisions relating to every aspect of the employment relationship and require careful and detailed reading of various statutes & decrees:

• Employers need not maintain a separate register for foreign workers. 
• Companies with less than 25 employees can hire any number of foreign employees.
• However, companies with 25 or more employees must have employed at least 85% of Chilean nationals in the workforce. 
• Firms with 10 or more employees must have in place an internal order and health and safety regulations. 
• Companies employing 20 or more female employees must offer daycare benefits.
• While it is not a legal requirement for employment documents to be drafted in Spanish, it is highly recommended for inspection purposes. 
• There are certain degrees of limitations for employers on the pre-employment background check. 

It is a painstaking effort to develop an in-house team to ensure proper compliance and avoid penalties. This is why we have Employer of Record (EOR) or Professional Employer Organization (PEO) solutions for those looking to hire their first employee in Chile. 

Multiplier offers EOR & PEO solutions for employers with or without a locally registered entity in Chile. Working with us ensures 100% compliance for employers and international firms during the hiring process or during payroll management – taxes, social contributions, and more, as per the labor code of Chile. 

While there are no actual legalities about how much time it will take to register a business entity in Chile, global employers or international firms can instantly partner with Multiplier EOR to manage newly hired employees in Chile. 

Multiplier extends its products and services to more than 150 countries.