Benefits and Compensation in Puerto Rico: A Complete Guide

What are Employee Benefits?

Employee benefits are the additional perks offered to employees by their employers. These benefits are a part of the compensation structure and aim to maintain employees’ job satisfaction. The nature of  benefits’ nature is decided per the company’s policy. It can be monetary or non-monetary, depending upon the compensation package and industry standards.

Offering benefits to employees is beneficial for both employers and employees. Businesses can improve employee job satisfaction and lower employee turnover by providing suitable employee benefits. Employers may attract top talent to their businesses by offering their employees the best perks.

Employees can access different kinds of mandatory and supplemental benefits in Puerto Rico. Every employee receives compensation that is at least equal to the minimum wage as established by the US government, as Puerto Rico is a territory directly managed by the United States of America. In addition, Puerto Rican employees are permitted to take several kinds of leaves depending on their needs. In addition to these required perks, the employees receive other benefits, such as travel reimbursement and health insurance.

You must conduct extensive market research before choosing employee benefits for all your employees. This guide will assist you in creating a Puerto Rican compensation and benefits policy and improving the company’s attrition rate.

Compensation Laws in Puerto Rico

Several compensation laws govern employee benefits in Puerto Rico. Before you create a benefits plan for your employees, you must understand these compensation laws in detail. Some compensation laws you must follow are:

• All the compensation laws apply to both local and foreign employees. The ex-pats are also entitled to all the benefits offered to the local employees.
• In Puerto Rico, the Government has decided on a minimum wage. All employees must pay at least $8.5 an hour to all their employees.
• As per the federal laws of the territory, the employees are eligible for a Christmas bonus in Puerto Rico. The bonus amount can go up to $600.
• As the territory comes under US jurisdiction, even the US Labor Laws apply to all employees.
• Employers in Puerto Rico must display some federal postings to make the employees aware of the basic compensation needs. 

All companies must adhere to the compensation laws in Puerto Rico. You must also consider the collective bargaining agreements as they are legally binding. 

How to Design an Employee Benefits Program for Employees in Puerto Rico

You must have a proper plan before designing a compensation package in Puerto Rico. The process of creating a benefits plan is quite comprehensive. Hence, companies and employers cannot do it overnight. Also, once you draft a benefits plan, you must check if it is viable for the company and the employees before implementing it across the organization. 

Also, you must decide on a budget within which you need to create a benefits plan and a compensation package in Puerto Rico. Here is a detailed step to creating a fruitful benefits plan in Puerto Rico. 

Step 1: Decide a budget and set your goals

Making a list of all the goals you want your benefits strategy to achieve will aid you to start developing the compensation structure in Puerto Rico. You must consider the company’s size and the economic sector in which it operates before drafting the benefits plan.

Businesses must also consider the employees’ collective bargaining agreements or employment contracts when deciding on benefits. You must consider your organization’s commercial climate before drafting the policy. Some common goals that companies consider before creating a benefits plan include:

• Attracting the best talent for job openings and retaining the existing employees
• Sticking to a fixed budget while curating a benefits plan for the company
• Adhering to all the labor laws that have a direct impact on the mandatory and supplemental benefits

Step 2: Check the requirement of the employees and the existing industry standards

Setting a budget is great but providing valuable and relevant employee benefits is essential to enhance job satisfaction. You can look at industry norms and the benefits your competitors offer their employees. Additionally, you must gain insights into the different compensation and potential benefits employees might seek at a workplace.

It would be beneficial to conduct an internal survey to know what employees expect from a benefits package. It assists in identifying any gaps in your existing benefits plan. You could reduce certain costs and do away with benefits your workforce isn’t using.

Step 3: Add flexibility to the compensation structure

You should start developing a framework for worker’s compensation in Puerto Rico soon after you have enough data from various surveys and analyses. 

Different employees in an organization might have different needs. Hence, you cannot just have a single framework to meet the needs of all your employees. Therefore, make a flexible compensation package that addresses the needs of all the employees and is adaptable on all levels. 

Step 4: Communicate the plan

Once you create the first draft of the benefits plan, you must inform all the stakeholders involved, including the employees. You must conduct open discussions to understand the plan’s limitations and how you can improve it. You must ask the employees to review the policy and then carefully give suggestions. Once you receive the feedback, you can read it and incorporate the necessary changes. 

Step 5: Analyze the plan

Dynamic economic and business conditions may affect the benefits program. You need to assess your benefits package periodically to determine whether they are practical and adequate. Additionally, evaluate the program’s components before using them to ensure the plan is error-free. You can determine the effectiveness of the benefits package for employees using precise metrics and, if necessary, take corrective action.

Types of Guaranteed Benefits in Puerto Rico

The employers offer all their employees different kinds of employee benefits in Puerto Rico. Some of these mandatory benefits include:

Minimum wage

• In Puerto Rico, all companies must pay a salary to all employees that are at least equal to the minimum wage the Government decided. 
• As per the Fair Labor Standards Act, the minimum wage for all Puerto Rico employees is $8.5 per hour.
• However, the minimum wage will increase to $9.50 in July 2023.
• The Fair Labor Standards Act does not cover employees working in sectors like agriculture, government, or are professionals. Hence, the minimum wage is not applicable in these cases. 
• Also, the employees covered by a specific collective bargaining agreement generally have a pre-decided minimum wage which may vary from the minimum wage set by the Government.

Working hours and overtime

• The employees in Puerto Rico must work 8 hours a day and 40 hours a week. 

• Employees who work more than the specified working hours are entitled to overtime pay as per the Fair Labor Standards Act.

• The overtime rate in Puerto Rico is 150% of the employee’s regular salary.

• Employees who work on holidays are also entitled to overtime pay.

Paid time off 

• In Puerto Rico, all employees are entitled to an annual leave once they complete 115 hours a month. 
• Every month, 1 ¼ days of annual leaves get added to the employee’s number of leaves.
• However, the leave accrual system only applies to companies with more than 15 employees. For companies with less than 12 employees, a ½ day leave is accrued monthly. 
• Employees who are a year old can take a maximum of 6 days of paid leaves.
• However, the number of leaves increases to 9 and 12 for employees working for one to five years and 5 to 15 years respectively.
• For employees who have been with the company for more than 15 years, the number of annual leaves is 15.

a. Public holidays

• There are 17 public holidays as per the Puerto Rico calendar. These holidays include both Puerto Rican and American holidays.

b. Sick leaves

• Once the employee completes a year in the company, they are entitled to sick leave.
• All employees can take sick leave of up to 6 days every year.
• Once the employee completes 130 hours a month, one day of sick leave is accrued. The number of sick leaves can go up to 12 days a year.
• Puerto Rico introduced five emergency sick leaves for employees suffering from COVID-19.

c. Maternity leaves

• In Puerto Rico, female employees are entitled to a maternity leave of 8 weeks. 
• These leaves are divided into two parts: four weeks before and four weeks after the due date.
• However, the employees have an option to take these leaves just a week before the due date, and they can resume work in the next two weeks post-birth if they provide a certificate of medical fitness. 
• Pregnant employees who face complications can extend their leave to 20 weeks. However, the company will not pay for these additional 12 weeks. 

d. Parental leaves

• Companies that have more than 50 employees also have the provision of parental leaves.
• The employees are entitled to 12 weeks of unpaid leave under the US Federal Family and Medical Leave Act. 

Bonus

• Employers with over 15 employees must pay a Christmas bonus to all the employees.
• The rate at which the bonus is calculated is 6% of the employee’s salary. However, a $10,000 cap on the compensation is considered for bonus calculations. The bonus amount can go up to a maximum of $600.

Employee Benefits for Expatriates

The employee benefits in Puerto Rico are the same for all employees, irrespective of nationality. Hence, the ex-pats working in the territory enjoy the same benefits as the resident employees. Ex-pats can access public and private health insurance and apply for mandatory and supplementary leaves. Some other employee benefits given to ex-pats in Puerto Rico are:

• Travel expenses
• Relocation expenses
• Rental expenses for a fixed duration

How are Employee Benefits Taxed in Puerto Rico?

In Puerto Rico, most employee benefits are taxed per the regular income of the employees. Some of the common employee benefits, like housing allowances, etc., are taxable, and the tax rate depends on the employee’s income slab. These taxes apply to both local and foreign employees.

Apart from the taxes, all the employees must make monthly contributions to social security accounts. The tax and the social security amounts are considered deductions from the employee’s gross pay and paid directly to the concerned authorities. Also, in some cases, the company might withhold payroll taxes from the employee’s salary. These payroll taxes include Medicare taxes, disability benefits tax, security tax, etc. 

Restrictions for Puerto Rico Benefits and Compensation

Most benefits in Puerto Rico are taxed. As a result, you need to know their financial worth to calculate how much tax the employee will owe. As an employer, you must also ensure that you send all tax payments to the appropriate authority on time.

Make sure you lawfully register your company in Puerto Rico and conduct business there before you begin developing a benefits plan for your employees. Companies must follow the industry-specific minimum salaries for employees.

Supplemental Benefits for Employees in Puerto Rico

All the employees in Puerto Rico enjoy different kinds of supplemental benefits depending upon the job post and company. However, the primary objective of these benefits is to motivate the employees to give their best and stay longer with the company. Some of the standard supplemental benefits offered in Puerto Rico include:

• Voting leaves: Puerto Rico provides voting leaves to all their employees. These leaves motivate the employees to participate in the General elections and actively contribute to forming the territory’s Government. 
• Adoption leaves: Women employees are entitled to an 8-week leave if they have an adopted child under the age of 5. However, if the adopted child’s age is above six years, the leave duration reduces to 5 weeks. 
• Caregiver leaves: If a parent, child, or a dependent employee working in Puerto Rico is unwell, the employees can take a caregiver leave for up to 5 days. 
• Sports leave: If the employee working in Puerto Rico is certified by the Olympics committee of Puerto Rico, they can take 30 days of unpaid leave annually to participate in the games. The employee can get the leave period extended if they have not availed of these leaves in the last year.
• Catastrophic illness leaves: Puerto Rico considers the health and well-being of the employees a topmost priority. Hence, all companies offer special leave for employees who have worked more than a year and at least 130 hours monthly. Employees can use the 6-day leave period to address the illness and get it treated. Employees must furnish a medical certificate from a health professional to support the diagnosis. 

How Can Multiplier Help with Benefits Management in Puerto Rico?

Starting a business and finding employees abroad can be challenging. Employers must follow local laws and ordinances while creating employment contracts and offering employee benefits. You can get help with this process from a worldwide PEO platform like Multiplier.

Both the qualifications of foreign workers and compliance with Puerto Rico labor laws are important if you are new in the territory and are setting up your business. Without establishing a subsidiary, our knowledgeable personnel can help you manage the workforce effectively. As a result, you can decrease your employment costs and explore new markets.