Complete Guide to Hiring Employees in El Salvador

El Salvador is a nation in Central America, with a population of approximately 6.57 million. The country has a diverse economy, with a mix of agriculture, manufacturing, and services industries.

El Salvador can be a good option for hiring employees due to its favorable labor laws and cost-effective workforce. The adult literacy rate in El Salvador is 89%, with a 0.85% increase from 2019 to 2020. It is slightly higher than the world average, which makes the hiring process in El Salvador much easier. 

Companies can hire employees in El Salvador by establishing a legal entity, and banking, accounting, and payroll service in the country. El Salvador has had steady economic growth, which has led to more job opportunities, especially in the capital of San Salvador. 

El Salvador has a low GDP per capita, and the country’s economy relies heavily on agriculture and manufacturing. The coffee industry alone creates 82,000 jobs. However, the country’s informal employment rate is high, at 69% of the total employed population in 2021.

Things to Know Before Hiring in El Salvador

Understanding the labor laws and regulations before recruitment and selection in El Salvador is essential. Additionally, it may be helpful to learn about the job market and average salaries in El Salvador. 

Here are some essential things to know before hiring in El Salvador:

Legal obligations

Foreigners must apply for a work permit, regardless of where the compensation applies. Non-residents living over two-hundred days in El Salvador are residents, and they must file taxes like other citizens. Employers looking to conduct recruitment and selection in El Salvador must withhold taxes accordingly. 

Five types of labor contracts are most often used to govern employer-employee relationships. Following tips before signing labor contracts and contacting local experts for guidance is recommended.

Labor Laws

Ministry of Labor and Social Welfare moderates the employment law in El Salvador. Understanding and adequately implementing employment law to maintain a company’s good standing and maximize its chances of success is crucial.

Some important labor laws to know before hiring in El Salvador include:

• A standard working week lasts 44 hours, with a regular shift lasting at most eight hours.
• The full work week is 39 hours long for employees who work at night, based on seven-hour shifts.
• Women are entitled to 16 weeks of paid maternity leave at the rate of 75%, paid by social security.
• Fathers receive three days of paternity leave paid at 100% of the regular pay, and an employee can use it within the first 15 days of the child’s birth.
• A probation period of up to 30 days applies to new employees.
• During recruitment and selection in El Salvador, employers must remember that they can hire up to 10% of the company as foreign employees. Non-resident employees can receive up to 15% of the total salaries paid to employees.

Public holidays

There are 11 public holidays in El Salvador.

Sick days

The time an employee has worked for the company affects the quantity of compensation and leave. Employees working with the company for a year or more are eligible for 75% of their basic pay for 60 days.

Business Culture

El Salvador’s business culture is relationship-oriented, and personal connections are significant in doing business. Establishing trust and building relationships with potential employees, business partners, and clients is essential.

Taxes

Employers must withhold social security contributions and income tax from employees’ salaries and pay them to the tax authorities.

It is essential to understand the following taxes:

• Social security contributions apply on monthly salaries at a rate of 7.5% for employers and 3% for resident and non-resident employees, with a monthly salary ceiling of $1,000.
• Employers are required to make contributions of 15.25%. 
• Non-residents are taxed on Salvadoran income at a flat rate of 30%, while residents are taxed on their worldwide income on a scale from 0% to 30%.

Minimum wage

The minimum wage in El Salvador varies depending on the industry. As of 2023, the minimum wage is $242.40 monthly for retail employees, $237.00 for industrial laborers, and $202.80 for apparel assembly workers.

Termination

Employment termination in El Salvador is allowed under certain circumstances. An employer can legally terminate an employee’s contract without notice if the worker deceives the employer by providing false letters of recommendation or certificates when the contract ends. However, this ground ceases to be operative after the worker has completed 30 days of employment.

Severance pay

Employers must provide severance pay during a termination for un-justified cause. The severance pay in such cases is 30 days of standard salary.

The Cost of Hiring an Employee in El Salvador

The cost of hiring an employee in El Salvador varies depending on several factors, such as the type of employment, benefits, taxes, and compliance.

While hiring employees in El Salvador, simplifying the process and providing competitive benefits packages is mandatory. Some key points to keep in mind are:

• The average salary for bilingual Salvadorans is around $600 monthly, nearly double the minimum wage.
• The cost to hire employees in El Salvador involves factoring in many components beyond salaries, including benefits, hiring, and training expenses.

What Does a Company Need to Hire Employees in El Salvador?

A company must follow specific guidelines and regulations for recruitment and selection in El Salvador. Some things to keep in mind are:

• A written contract in Spanish is important and should include compensation, benefits, health insurance options, termination requirements, entitlement terms, working hours, etc.
• Companies must own a local legal entity in El Salvador or work with a global employment solution.
• Third-party organizations can help businesses navigate the complexities of local employment laws and regulations, manage payroll and benefits, and ensure compliance with local tax requirements.
• Employers can technically use verbal or written contracts, but writing formal contracts with any relevant agreement details is always recommended.
• Employers need to comply with labor laws and taxes and provide local benefits packages tailored to fulfill the local needs of employees. They must establish regulations to avoid discriminatory practices and staff their business in El Salvador with a diverse workforce.
• Employers must mitigate the compliance risks of hiring international employees and contractors through third-party organizations.
• Employers need to consider public holidays, sick days, and maternity leave entitlements when hiring employees in El Salvador.

Various options for Hiring Employees in El Salvador

There are five types of labor contracts in El Salvador, which the country’s Ministry of Labor regulates. The Salvadoran labor code establishes these contractual standards applicable post-recruitment and selection in El Salvador. The five types of labor contracts in El Salvador are:

• Indefinite-term contract: This contract has no specific end date and is the most common type of contract in El Salvador.
• Fixed-term contract: This contract has a specific end date, and employers use it for temporary or seasonal work.
• Specific task contract: This type of contract is used for a specific project or task and ends with the project’s completion.
• Part-time contract: Companies use this type of contract for employees who work less than the standard hours.
• Training contract: This type of contract is used for employees undergoing training and is limited to a maximum of six months. In El Salvador, there are several options available for hiring employees. These options include
• Full-time employment: Full-time workers in El Salvador usually work eight hours per day, five days per week, for 44 hours per week. Employees are eligible for various perks, such as compensated vacation time, medical leave, and social security. After one year of service, an employee is eligible for 15 days of paid holiday time at a rate of 130% of their average daily wages. Employers must give workers overtime for any job outside of regular working hours. 
• Part-time employment: The minimum wage for part-time employees in El Salvador varies depending on their industry. Part-time employment in El Salvador is limited to eight hours, with a single workday and breaks to take food. A split workday is allowed, provided the break lasts 30 minutes.
• Temporary employment: El Salvador offers temporary employment through various programs and permits. These visas are accessible to Salvadorans who want to work temporarily in the United States. The H-2A visa is for transient farming labor, whereas the H-2B visa is for non-agricultural employment that is temporary or seasonal.  El Salvador has also been classified as a Temporary Protected Status (TPS) nation, allowing Salvadorans to work in the United States for a specific period. The TPS designation applies until June 30, 2024, and TPS recipients’ work authorization has been extended for an extra 12 months, until January 4, 2021.
• Outsourcing: Several dedicated HR agencies can help companies to comply with the labor regulations in El Salvador. Employers can partner with such agencies for a fraction of the cost and manage employees after recruitment and selection in El Salvador. 
• Employer of Records (EOR) solution is another great option. Employers can leverage to comply with the labor laws after recruitment and selection in El Salvador. EOR solutions cost less than dedicated HR agencies, and companies with moderate budgets can use EOR for their benefit. 

The Steps to Hiring in El Salvador

There are two options to hire staff in El Salvador: establish a new legal entity before conducting recruitment and selection in El Salvador or use an Employer of Record (EOR). 

The steps to conducting recruitment and selection in El Salvador are as follows below:

1. Registration with the Ministry of Labor

Foreign enterprises that hire El Salvador workers must follow their labor code. It is also critical to execute employment legislation correctly to keep the company’s excellent standing and maximize its odds of success. 

One can accomplish this by establishing a local legal company nationwide or partnering with a worldwide hiring solution for recruitment and selection in El Salvador. 

Companies must acquire work and temporary residence permits, before recruitment and selection in El Salvador. Some requirements for a work permit include police clearance certificates, medical certificates, evidence of experience or a university degree, and a residence certificate.

2. Job Posting

The first step towards recruitment and selection in El Salvador is to create a job posting with a description, required qualifications, and application instructions. 

3. Screening and Selection

After receiving applications, one should screen the resumes and shortlist candidates with the necessary qualifications. Conduct phone or video interviews to narrow down the list further.

4. In-person Interviews and Background Checks

An inherent part of recruitment and selection in El Salvador are background checks. One must conduct a background check to verify the candidate’s education, work history, and criminal record.

5. Job Offer and Employment Contract

The final step to conclude recruitment and selection in El Salvador is to provide the offer letter. Once the candidate accepts the job offer, one must draft an employment contract outlining employment terms and conditions. The contract should comply with the labor laws there. 

Let Multiplier be Your EOR platform in El Salvador

Partnering with an EOR such as Multiplier can be a worthy move for a company seeking to expand into El Salvador. Our EOR solutions simplify labor law compliance, recruitment, and selection in El Salvador. It allows companies to hire employees in El Salvador without setting up a separate legal entity. 

Companies can fast-track the expansion process and focus on their business priorities. We will manage human resources (HR) and compliance regulations, sourcing, and permits, employment contracts, as well as taxation for questions like how to hire employees in El Salvador.