Navigating Through Ecuador Labor Law

Ecuador has undertaken serious efforts in recent years to reduce the complexity of its regulatory business environment. Any entrepreneur will find hiring employees in this South American country easier. In doing so, global companies must comply with the labor act rules in Ecuador to avoid legal disputes while hiring local talents. 

Ecuadorian labor regulations uphold employee protections and employer obligations under the employment relationship. Further, the new labor directives promote a violent economy in the South American country. The most relevant labor and employment rules include: 

• Maximum of 52 hours of work per week (including overtime)
• Employee dismissal without the need for prior notice or just cause
• 12 weeks of maternity leave in Ecuador for foreigners and citizens
• Minimum 15 paid annual vacation leave 
• The minimum legal wage is fixed at USD 450 per month 

Companies may continue reading this page on employment law in Ecuador to understand essential labor regulations and general employment practices.   

Applicability of the Act

The labor regulations in Ecuador applies to valid employment relationship defined per three criteria:

• An employment agreement to perform lawful personal services
• Dependency or subordination to the employer
• The payment of remuneration

The Ecuadorian labor code enacted in 1938 regulates all employment relations (also involving foreign residents) in the country. It specifies regulations regarding essential employment practices, like working hours, holiday entitlements, minimum wages, statutory employer contributions, payroll tax obligations, data protection, and more.  

However, basic employee protection, like maximum working hours, minimum wage, and overtime compensation, does not apply to employees in managerial positions (like managers, administrators, or trusted employees). 

Further, employers need not oblige to mandatory payroll regulations when hiring self-employed consultants or independent contractors, thus making them a popular hiring choice in Ecuador. There are no industry or sector-wide Collective BAs in force in Ecuador.

Employment Contract

The labor regulations in Ecuador mandate having written employment contracts to establish valid employment relations.  

• All written employment contracts under Ecuadorian employment law may also be executed in languages other than Spanish, clearly defining the following:

1. 1. The term of the contract
   2. Working hours and the conditions of the work
   3. Applicable sanctions for non-performance of the work
   4. Termination/dismissal clause
   5. Salary details, payment schedule, and other benefits

• Further, any relevant collective bargaining agreements (CBA) are implied employment contract terms. However, there are no sector-wide CBAs in force currently.
• Employers must also register the concluded written contract in the online platform of the Ministry of Labor. 
• Ecuadorian labor law also recognizes verbal employment agreements, but the labor relationship would have to be demonstrated before a judge. 

NOTE: Employers cannot conclude temporary employment contracts for over six months. Further, the Ecuadorian labor code prohibits an informal workforce, i.e., disguising a real employment relation as an independent/self-employed relation.

Key Provisions of the Act

All prescribed employee-employer rights and duties in an employment relationship are sourced from 

• Constitution of Ecuador
• Ecuadorian labor code of 1938
• Collective bargaining agreements
• Labor statutes and Ministerial directives 
• statutory and regulatory provisions and court decisions

Together, they form the labor regulations in Ecuador or the Ecuadorian employment rules which enforce the act. 

Working hours 

• Employers must set normal working hours per Ecuador’s labor law, 40 hours a week or eight hours a day.  
• Additionally, the labor regulations in Ecuador prescribe working options as follows:

1. 1. Remote opportunities for white-collar jobs
   2. Right to work no more than six hours daily for women employees returning after paid maternity leave
   3. Overtime work is capped at four hours per day and 12 hours per week 

• Further, the Ecuadorian working hours law stipulates employers fix two consecutive days for rest. 
• Thus, Saturday and Sunday are the most common mandatory paid rest days.  

Holiday entitlements

• Employers must offer rest days on the following 11 public holidays per the Ecuadorian labor code:

1. 1. New Year’s Day (1st January)
   2. Carnival (24th to 25th February)
   3. Good Friday 
   4. Labor Day (1st May)
   5. Battle of Pichincha Day (24th May)
   6. Guayaquil Independence Day (9th October)
   7. All Souls Day (2nd November)
   8. Cuenca Independence Day (3rd November)
   9. Christmas Day (25th December)

• However, businesses in Ecuador may ask employees to work on public holidays, with a 100% surcharge on the normal pay. 

Leave schemes

Maternity leaves

• Ecuadorian employment law mandates paid maternity leave for 84 calendar days (12 weeks). Employees can take maternity leave two weeks before and ten weeks after birth. 
• In case of multiple births, the labor law mandates extending the maternity leave period in Ecuador for ten more days. 
• Ecuadorian employment rules allow for further extension without pay. 

Paternity leaves

• Employers may use the following provisions under the labor act rules in Ecuador for granting paternity leave: 
• Normal delivery: 10 days of paid leave
• Multiple births: 15 days of paid leave
• Child born under special conditions of care: 18-25 days of paid leave
• The shared paternity leave in Ecuador is valid only when the mother dies during childbirth or while on maternity leave. 

Annual leave (vacation)

• Employers must grant at least 15 consecutive annual leave, including non-working days. 
• Employers must add at least one day of additional leave for each year of service, starting in the fifth year. 
• Employers may also note that paid vacation leave, per Ecuadorian employment rules, is accrued for up to three years and utilized in the fourth year. 
• Further, the labor act rules in Ecuador allow employers to deny statutory leave benefits to employers in service for less than one year. 

Other leaves

Sick leave 

• The labor act rules in Ecuador prescribe paid leave provisions for temporary disability of employees while in service of the employer. 
• Ecuador’s labor regulations link sick pay compensation from the employer to contributions made to the Ecuadorian Social Security Institute (IESS) in the following way: 

1. 1. 180 days of continuous contribution within six months, OR
   2. 189 days of continuous contribution within eight months before the onset of illness.
   3. Further, relevant provisions under the Ecuadorian labor code enable employers to pay 50% of the remuneration only for the first three days of disability. 
   4. IESS will cover the remaining payment (66%-75% of the remuneration) for up to 26 weeks of disability. 

Bereavement leaves

• Ecuadorian labor law mandates employers to offer at least three days of paid leave to mourn the death of immediate family members or close relatives. 

Voting day leave

• Ecuadorian employment rules oblige employers to grant paid time off to their employees during the workday to vote.

Education leaves

• Employers must offer one year of leave with pay (up to six months) for academic specialization. 
• Employers shall extend the education leave to employees with at least two years of service with the same employer. 

Military leave

• Employers may grant paid leave to their employees who are members of Ecuador’s armed forces to serve when called upon. 
• Employers may follow the below prescriptions under the labor code in Ecuador to fix compensation during the leave 

1. 1. 100% salary during the first month of absence
   2. 50% salary during the second month of absence
   3. 25% salary during the third month of absence

Minimum wage

• The employment law in Ecuador guides employers to set minimum salaries for employee categories other than managerial positions or independent positions of trust within the organization. 
• The monthly minimum wage for 2023 is prescribed at $450. 

Overtime compensation

• Ecuadorian labor act rules prescribe computation for overtime compensation:

1. 1. 50% of the regular pay if the overtime is performed before midnight.
   2. 100% of their regular overtime pay worked between midnight and 6:00 am and on mandatory rest days. 

• Additionally, the labor regulations in Ecuador mandate employers pay 25% more for night-time work between midnight and 6:00 am.

• However, Ecuadorian labor law exempts overtime compensation from any work arising from employee negligence. 

Payroll tax & other obligations

• Employers may calculate net salary, including statutory deductions per Ecuadorian labor law –

1. 1. Tax on the salaried income of residents is progressive and varies between 5% to 37%. 
   2. Further, employers must withhold 25% income tax on non-resident payments abroad.
   3. The tax-free allowance for the 2023 financial year is USD 11,722.
   4. Further, employers must make monthly contributions equivalent to 12.15% of the employee’s salary towards social security. 
   5. The same must be withheld at 9.45% on behalf of the employee.
   6. Additionally, employers must contribute 8.33% of employee salary to a reserve fund (activated after one year).

• The labor act rules in Ecuador mandate employers to offer additional bonus payments –

1. 1. 13th-month salary payment in December
   2. another 14th-month salary payment in March or April 

Payslip

• The payroll frequency can be fixed bi-weekly, monthly, or semi-monthly per the employment contract in Ecuador. 
• The standard employer practice under the employment rules in Ecuador includes base salary, overtime payment, withheld taxes, and bonuses in the employee payslip. 

Dismissal rules

• The employment law in Ecuador for termination allows employee dismissal without prior notice. 
• However, Ecuadorian employment law on termination mandates employers to offer severance payment for the sudden dismissal of employees without justification. 
• Employers shall calculate severance pay at 1.25 monthly salaries per year of service, accounting for at least three months’ salaries. 
• The compensation for a person with a disability is an additional severance payment of 18 monthly salaries. 
• The same is not necessary for employee dismissal with a just cause. 
• A just cause for dismissal per labor code in Ecuador:

1. 1. Serious disregard for internal regulations
   2. Repeated lack of punctuality
   3. Immoral behavior of the worker
   4. Lack of honesty
   5. Abandonment of work

Data protection and employee privacy

• Ecuador’s Organic Law on Personal Data Protection is relatively new and broadly based on the EU General Data Protection Regulation (GDPR). 
• However, Ecuadorian labor law has no specific restrictions on carrying out background checks. 
• Both employers and third parties may utilize the applicant’s past, health, or criminal record for the same. 

New Ecuador Labor Law to Promote Gender Equality 

• The new provisions issued under the Ecuadorian labor law (through an Official Gazette Supplement 234 dated January 20, 2023) promote a violet economy, for instance:

1. 1. The working hours per Ecuadorian labor law for women employees may be freely distributed in 5 days, without exceeding 40 hours a week or more than 10 hours a day.
   2. Employers can deduct up to 140% of the remunerations and social benefits for creating new jobs for female workers. 
   3. The new labor regulations in Ecuador oblige companies with 25 or more employees must promote plans and working conditions to prevent sexual harassment in the workplace.

Penalties

• Ecuadorian labor act rules enforce penalties on employers for instances when

1. 1. Employers fail to register the internal occupational health and hygiene committee.
   2. Violations of employee privacy under data protection law may result in sanctions ranging between 0.1% to 1% of annual revenue from the previous year. 
   3. Failure to comply with mandatory provisions (as discussed) under the law. 

Compliance Strategies for Employers

Here are the three most commonly followed employee management compliance strategies for entrepreneurs and global firms: 

Managing employees based on standard templates:

• Companies may use standard templates for drafting employment contracts or generate employment-related documents like offer letters, payslips, and termination notices to comply with Ecuadorian labor laws.  
• Entrepreneurs can use online templates from reputed legal services.  
• Further, businesses can manage payroll tax obligations using HR accounting and financial tools.   

Developing an in-house HR team:

• Most companies develop an in-house team of Human Resources (HR) experts specializing in Ecuadorian labor law. 
• An in-house HR team can supervise employee recruitment, training, payroll obligations, and more, complying with Ecuadorian employment law.  
• A dedicated HR manager oversees appraisals and reward management and deals with local industrial relations. 

Using online payroll providers

• Global employers can hire local talent from Ecuador even without establishing a local business entity. 
• Partnering with payroll providers such as Multiplier helps companies comply with Ecuadorian labor law while hiring & managing local talents.  
• Online payroll providers offer contract drafting and team onboarding services with just the click of a button. 
• It can also extend necessary statutory compliance under labor act rules in Ecuador.  

How Can Multiplier Help?

While in-house teams of HR experts are resilient to organizational restructuring, contemporary startups, and enterprises prefer SaaS-based solutions for labor law compliance. Multiplier is a leading PEO-EOR online platform that simplifies business expansion and employee management in Ecuador. 

Multiplier is serving hundreds of global companies through its on-demand solutions like automated employment contract generation, drafting multi-lingual contracts, one-click management of employee payroll, and more.

Further, according to local laws, working with Multiplier ensures 100% compliance for employers and international firms during business entity registration, team onboarding, and employee management. Our presence in 150+ countries makes us a comprehensive HR solution for your global expansion.