Understanding Payroll in the Dominican Republic: Complete Guide for Employers

The Dominican Republic is a small island that is the second-largest nation in the Caribbean. It shares its western borders with Haiti. Out of the countries in South America, the economy of the Dominican Republic ranks seventh in terms of size, and it is actually the largest among all the Caribbean countries.

The crucial industries of the country are mining, tourism, energy, agriculture, infrastructure, real estate, telecommunication, and manufacturing. The country hosts the single largest gold mine in entire South America. All of these are probably the reason behind many global organizations looking to hire a workforce from the Dominican Republic.

However, hiring from the country can become hazardous if you are not entirely acquainted with the payroll procedures and policies in the Dominican Republic. Here, we will learn all about the Dominican Republic payroll process.

How Is Payroll Calculated in the Dominican Republic?

The payroll in the Dominican Republic can be calculated by deducting taxes and other components like insurance, loan recoveries, leave adjustments, social security contributions, and others from the gross salary. We can term these deductions as gross deductions. The gross salary includes basic pay, all the allowances, and any one-time incentive. So, the formula to calculate the payroll looks like

Net Salary = Gross Salary – Gross Deduction

The employee must pay income tax by 31st March every year. The taxable income does not include Christmas Bonus. The table below shows the rate of income tax for various annual thresholds.

Important Elements of Salary Structure in the Dominican Republic

Minimum wage

The Dominican Republic payroll process indicates a minimum wage for the employees. The government of the country has a mandate on the minimum wage. The minimum wage for workers in the free-trade zone is 8310 Dominican pesos. It is between 7843 and 12873 Dominican pesos for the workers outside. 

Gross salary

The gross salary is calculated by adding various allowances to the basic salary. The gross pay does not include taxes and other deductions. The allowances include overtime pay, annual leave pay, and others.

Net salary

The net salary or net pay is a crucial element of the payroll in the Dominican Republic. It is the amount the employee receives after adjusting the tax and other deductions with the gross salary.

Overtime

Any working hour over forty-four hours per week is considered overtime. For overtime up to 68 hours, the employer pays 135% of the regular hourly wage. For overtime above 68 hours, the overtime payment is 200% of the salary.

13th Month Pay

A critical fact to know while discussing payroll rules and regulations in the Dominican Republic is that there are no provisions for 13th-month pay in the labor law. However, many employers choose to offer Christmas bonuses as 13th-month pay.

How to Setup a Payroll in the Dominican Republic?

Setting up a payroll in the Dominican Republic can be achieved in a few steps. They are described below.

Register your company

You can register your company as individual entrepreneurship, private enterprise, representative office, permanent establishment, or a limited liability company in the Dominican Republic. The accreditation authority in the Dominican Republic is the Business Registry or Registro Mercantil.

Compliance with labor law

You need to know the labor law to understand every aspect of the payroll regulation in the Dominican Republic. The labor law generally has all the crucial elements of an employment contract, like minimum wage, overtime pay, and various employee benefits.

Employee information collection

The employment contract must have all the employee information that you may require. The crucial information includes 

• Name
• Address
• Gender
• Agreed Working hours
• Wages
•  Work location
• Location where the employment contract was signed

You need to collect those employee information and keep them in a secure location.

Acquaint with employee data

There are several changes in employee data every month. Some of these changes can be

• Change in personal information
• Change in family status
• Receiving an increase in salary
• Receiving bonus
• Taking unpaid leaves
• And many more

All this information is critical in calculating the salary.

Set up international treasury

Ensuring timely payment of salaries to your employees is crucial. To achieve this, it’s recommended to establish an international treasury process. One method is to  open a bank account in the Dominican Republic specifically for paying salaries, taxes, and social security contributions.

A Step-by-step Process of Payroll Processing in the Dominican Republic

While discussing the step-by-step payroll process in the Dominican Republic, there are several steps that you need to go through. 

Collecting tax information

Before you start processing payroll in the Dominican Republic, you need to collect all the tax information related to an employee. You can distribute various tax forms for the employees to fill out. You can also gather all the documents referring to various deductions and employee benefits. 

Creating a payment schedule

The next step requires you to set up a payment schedule that suits you the best. According to the Labor Code of the Dominican Republic, the employees must be paid once per month or once per two weeks.                       

Calculating payroll

Now it’s time to calculate the payroll, considering all the information you have gathered. First, you need to calculate the gross pay for each employee. Then you need to collect all the details on gross payroll deductions in the Dominican Republic. Now you can calculate the net salary payable to every employee.   

Making payments

After completing the calculation, you can either send advice on disbursement to the bank or use any payroll processing software.

Performing payroll accounting

Payroll accounting is an essential part of the payroll process in the Dominican Republic. It keeps track of the payments you have made. You can do payment accounting on your own, or you can outsource it.

Payroll compliance

The final step is to ensure compliance with the rules. Make the necessary contribution to the Social Security Fund and Pension scheme on the due dates. 

Payroll Contributions

The payroll process in the Dominican Republic works similarly to other countries. Both the employer and the employee make various contributions to the payroll. These are also termed payroll taxes in the Dominican Republic. 

According to the rules, the employer and the employee follow the different percentages of contributions. The table below shows the schemes in which both contribute and their contribution percentage.

Apart from these, the payroll deductions in the Dominican Republic also include 1.2% against labor risk insurance that the employer has to contribute. 

Payroll Cycle

The payroll cycle in the Dominican Republic is either monthly or bi-weekly. For monthly cycles, the employer makes the payment on the last day of the month usually.

Dominican Republic Payroll Options for Companies

For companies considering expanding their business, there are four options to manage payroll in the Dominican Republic.  The options are

Internal payroll

Comparatively larger companies usually set up their internal payroll service. In this form of payroll, the company requires setting up subsidiaries in the country. In addition,  it is necessary for the company to hire an HR payroll in the Dominican Republic.

Remote payroll

Remote payroll is a system that manages the payroll for out-of-state employees. In many cases, foreign companies having no subsidiary in a country use this type of payroll. Usually, the company utilizes its existing payroll in this. However, the company must abide by the laws and regulations of the country while setting up this type of payroll process in the Dominican Republic.

Outsourcing to a local service provider

When seeking to have complete oversight and management of your payroll process in the Dominican Republic, outsourcing to a local payroll processing company is often the best option. This allows for all pertinent payroll information to be readily available while ensuring compliance with local regulations and avoiding potential challenges that may arise when attempting to manage payroll in-house. However,  the company will be responsible for compliance with all the payroll rules and regulations in the Dominican Republic. 

Hiring a global payroll service

The fourth option is to hire a global payroll service. These organizations have vast experience in managing payroll for several multinational companies. Working with them means you do not have to worry about following the rules and regulations while managing payroll in the Dominican Republic.

Entitlement And Termination Terms

Although an employment contract is not mandatory according to the labor law of the Dominican Republic, businesses should create an agreement. The contract should contain the entitlement and termination terms of an employee. These terms are crucial in creating payroll policies in the Dominican Republic.

According to labor law, the employer must report the recruitment of an employee to the Ministry of Labor. This report must contain the name, age, gender, and nationality of the employee along with their identity card number, the position occupied, working hours, rest periods, salary, and leave allowance.  

Probationary period

The labor law of the Dominican Republic does not have any mandate on probationary periods. But, the employer can include a probationary period of 3 months in the contract. During this period, the employer can legally release an employee without paying compensation.

Entitlement terms

While discussing a payroll guide in the Dominican Republic, we must remember that an employee is entitled to certain benefits. The list here contains the most crucial ones.

Annual leave

The employees working in a company for more than one year will receive a leave of fourteen days at least. For an employee who has worked for more than five years, it extends up to 18 days. 

Public holidays

Public holidays are an integral part of the payroll rules and regulations in the Dominican Republic. The labor law, Law 16-92, governs the national holidays in the Dominican Republic. According to this law, there are 12 public holidays in the country. The law also gives the government of the Dominican Republic an option to create one-time national holidays. The list below contains national holidays in the Dominican Republic.

1. New Year’s Day

2. Epiphany Holiday

3. Lady of Altagracia Day

4. Duarte Day

5. Independence Day

6. Good Friday

7. Labor Day

8. Corpus Christi

9. Restoration Day

10. Our Lady of Mercedes Day

11. Constitution Day

12. Christmas Day

Maternity leave/ Parental leave

According to the labor law of the Dominican Republic, there is a provision for maternity leave for a pregnant employee. Usually, the duration of the maternity leave is 14 weeks. Seven weeks are before childbirth, and seven weeks are after. 

Fathers can take a leave of up to 2 days after the birth of a child.

Other leave

There are other leaves to consider when discussing the payroll rules and regulations in the Dominican Republic. Sick leave is allowed for up to 26 weeks with a partial payment. Other leaves to add to the entitlement terms are Bereavement leaves for a death in the family and a marriage leave of five days.

Termination Terms

Termination terms are crucial while discussing the payroll policies and procedures in the Dominican Republic. Under the labor law of the country, there are several types of termination or a permanent break in the employment contract. They are –

Termination at will

It is the right of an employer or an employee to terminate an employment contract at their will. The party terminating the contract must give advance notice before terminating the contract. The table below contains the notice period for various lengths of service.

Also, if the employer is terminating the contract, they must make severance payments to the terminated employees. The table below contains the severance pay for a certain length of service. 

“For cause” termination by the employer

An employer can terminate an employment contract, citing any cause mentioned in the labor code. For such termination, the employer must submit evidence of misconduct to the Department of Labor within 48 hours of dismissal.

“For cause” termination by the employee

An employee can terminate a contract with an employer by citing a cause. In this case, the employee must submit evidence of the misconduct to the Department of Labor within 48 hours of resignation.

Termination due to incapacity or death

In case of incapacity or death of an employee, the employer must pay economic assistance to them or their family members.

Dominican Republic Payroll Processing Company

There are two options available to optimize the payroll procedure in the Dominican Republic and maximize its benefits. You can choose to manage payroll yourself by internal or remote payroll processing. Or you can partner up with a global payroll service like Multiplier to outsource your payroll service. If you are interested to learn more, contact Multiplier.

How Multiplier Can Help with Global Payroll?

Establishing a payroll process in the Dominican Republic may present challenges for foreign entities due to various regulations that must be adhered to. However, Multiplier stands out as a company that excels in this area, providing expert guidance and support to streamline the payroll process in the country.

We offer global payroll solutions in more than hundred and fifty countries around the world. We have in-depth knowledge of the local rules and regulations. Our experienced professionals work 24×7 to manage your payroll policies in the Dominican Republic so that you can concentrate on other crucial aspects of your business.