Complete Guide to Payroll in Guatemala

Guatemala is a small country that shares its boundaries with the Pacific Ocean and the Caribbean Sea. The country is a highly coveted business location due to its stable GDP growth.  Additionally, the nation is close to countries like the United States, Mexico, etc., offering easy access to the international market. 

The country is a middle-income economy, and you can easily incorporate a business here. The Government has relaxed the FDI policies for foreign companies to encourage businesses to set up their subsidiaries in the country. Guatemala is ranked 96 among 190 countries per the World Bank’s Ease of Doing Business Report 2020. Hence, irrespective of the industry, you can set up a business in Guatemala without restrictions.

However, when you start a new company in Guatemala, you have to formulate a comprehensive payroll system for the company. You must develop a payroll policy that acts as a guiding document for all employees if they have doubts about the company’s payroll system. While setting up a payroll system in Guatemala, ensure that you abide by all local Guatemalan laws.

Read on to understand the payroll policies and procedures in Guatemala. 

How Is Payroll Calculated in Guatemala?

Payroll is the process of paying the company’s employees on a given date. It is calculated after considering various factors like working hours, employee pay, tax deduction, etc. 

Before calculating the payroll, companies need to establish a payroll system in Guatemala and include all employees.

Like other countries, Guatemala’s payroll system also includes calculating salary components like gross pay, net pay, etc. An employee’s gross salary is the total amount the company spends on onboarding a particular employee. It includes all the components of the compensation structure, like basic pay, allowances, etc. Once all the mandatory deductions are made to the gross pay, the employees get the value of the net salary. Moreover, the payroll system also considers the allowances given by the company to its employees. 

The payroll process in Guatemala is relatively standardized for all employees, irrespective of their nationality or nature of work. Also, you need to consider the federal laws that govern payroll in Guatemala, like the minimum wages, payroll cycle, etc. 

Important Elements of Salary Structure in Guatemala

The salary structure in Guatemala constitutes the following elements:

• Cost to Company (CTC): The Cost to Company (CTC) represents a company’s total cost when it onboards an employee.

  It is the umbrella that covers all the salary components like gross pay, net pay, allowances, etc. However, the CTC refers to the company’s cost, not what the employees receive in their bank accounts. 

• Gross salary: The gross salary is one of the essential components of the compensation structure. It represents the maximum earning potential of the employees as it includes both fixed and variable components of the salary. It is calculated before any tax deductions.

• Net salary: Net salary is the amount you get when making all the relevant deductions to the gross pay. Generally, the term is also called the take-home pay of the employees. 

• Basic salary: The basic salary is the base pay of every employee. All the other components of the salary structure are calculated based on basic pay. The basic pay constitutes about 30-40% of the gross salary. The company finalizes the employee’s basic pay based on factors like designation, seniority, etc. 

• Allowances: All employees in Guatemala are entitled to different kinds of allowances. All these entitlements are decided based on the employer’s policy. Some standard allowances that employees get as a part of their employment are:

1. 1. Food allowance
   2. Travel allowance
   3. Healthcare allowance

• Bonuses: In Guatemala, the minimum wage employees are entitled to a monthly bonus. The bonuses are given out to all other employees in one financial year.

How to Set Up a Payroll in Guatemala?

Before setting up the company’s payroll, you must understand the Guatemala payroll process. Some of the important steps in setting up a payroll involve

Step 1: The company must reach out to Banrural and pay the incorporation fees to start the incorporation process.

Step 2: The company or its legal representative must submit the registration form and other supporting documents to the Mercantile Registry of Guatemala. Collect the Commercial Patent and the identification number to start operations in the country. 

Step 3: Collect the tax identification number from the RTU (Registro Tributario Único), as payroll processing is a mandatory requirement. 

Step 4: After the company’s registration with the tax authorities, you need to set up a bank account that you can use to make all payments.

Step 5: You must check the employees’ hourly schedules to calculate their gross pay. 

Step 6: Now, factor in all the deductions like taxes, etc., and calculate the net salaries for all employees.

Step 7: Decide a payroll structure for the company

Step 8: Fix a payment cycle for all the employees and finalize the dates for bonus payments.

You must follow all the steps to set up a compliant and effective payroll system in Guatemala. You can contact a global PEO like Multiplier if you need assistance establishing a payroll system in Guatemala. We have a set of experts that will help you set up a compliant payroll system. 

A Step-by-step Process of Payroll Processing in Guatemala

Setting up a payroll system in Guatemala might initially seem complex and intimidating. However, the entire process becomes systematic and easy once you take a step-by-step approach to establish the system. Some important steps that are a part of the Guatemala payroll processing are

Step 1: Choose a payroll system

You must choose a system that meets your company’s needs and fits your budget. Some of the common payroll systems available in Guatemala are:

• Manual payroll: If you opt for a manual payroll, the entire payroll system is managed manually by the HR professionals of the company. Hence, you have to recruit employees with practical knowledge of payroll.
• Outsourcing: You can outsource the company’s payroll function to a third party. You must pay a small fee in exchange for these services. However, you will have to consider the payroll laws’ adherence.
• Payroll software: If you want to automate the entire payroll system, you must choose payroll software that takes care of all aspects of the payroll.

Step 2: Draft a payroll policy

• Once you choose a payroll system, you must draft some rules and policies that define your payroll system. 
• Draft a payroll policy that covers all aspects of compensation structure, payroll cycle, etc. 
• You must make this policy accessible to all employees. Ensure that the payroll policy becomes the go-to document for all the company employees.

Step 3: Register the employees in the system

• As soon as you decide on a payroll system, you must register all the employees. 
• Add all the details of the employees, like their names, date of birth, etc., along with their compensation structure to process the payroll of all employees. 
• Additionally, you need to add details about the payroll cycle you will follow.

Step 4: Set up bank accounts for all the employees

• All employees must have an active account in any public or private bank in Guatemala. 
• The company can assist employees in setting up a bank account. You can use this bank account for all salary payments.

Step 5: Verify the timesheets and calculate the salary

• Post entering all the important information about employees, you need to ascertain their salary. 
• For this, you need to check the employee’s working hours and calculate the overtime payments for the employees. 

• Now, factor in all the deductions and calculate the net payable salaries for all employees. You must also add the payments of allowances and reimbursements while computing the net pay.

Step 6: Reconcile

• Before you pay the employees’ salaries, you must cross-check all the information, like tax receipts, ledgers, etc. Fix the errors before the payroll gets processed.

Step 7: Disburse pay slips

• All employers in Guatemala must provide their employees with a salary slip. 
• They can either choose to give a printout or a digital copy of the pay slip based on the company’s payroll policy. The pay slip must contain the salary breakup and the employer and employee details.

Step 8: Record the transactions

• You must record all the payroll transactions in a payroll register. These records are important as they act as documentary proof that all payments are  according to the timeline.

Payroll Contributions

The payroll contributions in Guatemala comprise different contributions, including:  

Minimum wage

• In Guatemala, the minimum wage is decided based on the employment industry.

• All companies must pay their employees equal to at least the minimum wage that applies to the sector.

• For employees working in the agricultural sector, the minimum wage is set at Q 2,872.55

• The employees engaged in export and maquiladora activities must get a minimum wage of Q 2,959.24

• Employees working in any other sector apart from agriculture and export should be paid a minimum salary of Q 2,704.35.

Overtime

• The standard working hours in Guatemala are 8 hours per day, and the weekly limit stands at 44 hours.

• However, employees who work beyond these hours will be entitled to overtime pay.

• The employees who work additional hours get 150% of their regular salary as overtime payment. These payments also apply if the employee works on a national or public holiday.

Employer contribution

Employers in Guatemala must contribute to the social security systems for the welfare of their employees. You can make these payments directly to the organizations managing these funds.

Therefore, an employer contributes 12.67% to the employees’ pay.

Employee contribution

Employees must make social security contributions in Guatemala. The contribution amount is deducted from the employee’s gross pay and paid to the organizations that manage these funds.

The employees do not contribute to other funds except social security.

Taxes

All employees working in Guatemala must pay their income taxes. The amount due as tax is automatically deducted from the employee’s gross pay and paid to the tax authorities. The tax rates applicable in Guatemala are

Payroll Cycle

All firms in Guatemala follow a payroll cycle to pay employees for their work. The financial year in Guatemala runs from 1st January to 31st December. You can pay the salaries monthly, bi-weekly, or daily according to the nature of the job. Hence, there is no fixed payroll cycle. However, the company must define the payroll cycle in their employment contracts and make the payments accordingly.

Guatemala Payroll Options for Companies

Companies in Guatemala can try out different payroll options. You can compare the pros and cons of all options before you finalize one for your company. Some of these options include

• Internal payroll: This option is generally chosen by large organizations with human resources teams. The entire system is taken care of within the company, and the company also hires additional resources to facilitate the process. 

• Remote payroll: A remote payroll is a sought-after option for subsidiaries and branch companies with a parent company. In this case, the subsidiary employees are registered to the payroll system of the parent company itself. However, the parent company must comply with Guatemalan laws while paying employees in Guatemala.

• Payroll processing company: There are several payroll processing companies out there that can help you with managing your payroll. However, all the legal aspects of the payroll will be taken care of by the company.

• PEO company: A PEO company manages the entire payroll function for any business. You can get in touch with a PEO company like Multiplier and relieve yourself from the burden of managing your company’s payroll system. 

Entitlement and Termination Terms

An employee’s entitlement, and termination terms should be mentioned in the employment contract to avoid future lawsuits. If you decide to let go of an employee, you must convey to them the reason for termination. You can terminate an employee on the following grounds:

• Mutual discussion and agreement between the employee and the organization
• The employee undertook malice practices during their employment
• If there is a significant structural change in the company

The employer must issue the employee a termination letter stating the reasons for termination. Also, the company must pay the employee severance to sustain themselves until they find a new job.

Guatemala Payroll Processing Company

Expanding in Guatemala can seem challenging if you are new to the country and unaware of the payroll policies and laws that apply to firms. Therefore, you can reach out to an expert or an organization to help you navigate the entire process.

You can contact a PEO company like Multiplier to seek guidance on the local laws and other laws that govern the payroll systems in Guatemala. Keep all your options open to ensure that you get the best help with the company’s payroll processing.

How Multiplier Can Help with Global Payroll

Setting up a payroll system in Guatemala can seem like a challenging activity. However, with proper guidance and expert help, you can easily set up a compliant payroll system. 

Reach out to a PEO company like Multiplier that can help you figure out your payroll needs. All our professionals are well versed with the Federal laws of Guatemala, and they will help you set up a compliant payroll system that meets the needs of all employees.