Comprehensive Guide to Employment Laws in Puerto Rico

Puerto Rico is a growing hub of entrepreneurial activities. Recent investments in STEM have resulted in a tech boom in the island’s economy post-depression following the devastating Hurricane Maria in 2017 and the pandemic in 2020. 

Any entrepreneur will find it easier to hire employees with or without registering a business entity in Puerto Rico. Moreover, entrepreneurs or international companies must comply with labor act rules in Puerto Rico and the Puerto Rican employment rules to avoid legal disputes while hiring local talent.  

Puerto Rico’s labor laws uphold the employee-employer rights and duties while ensuring a decent workplace and wages. 

Being an unincorporated territory of the United States of America, most US federal laws also dictate the labor regulations in Puerto Rico. The most relevant federal labor and employment rules are 

• minimum legal wage (approx. USD 8.5 per hour as on January 1, 2022)
• 15 working days of annual vacation leave 
• a maximum of 40 hours of work per week
• eight weeks of maternity leave in Puerto Rico for foreigners and citizens

Continue to read this page on employment law in Puerto Rico to know all the essential labor laws and local employment practices, including working hours, holiday entitlements, minimum wages, statutory employer contributions, payroll tax obligations, data protection, and more.  

Applicability of the Act

The labor & employment laws apply to all employment relationships and contracts concluded in Puerto Rico, regardless of employee nationality. 

The Federal Labor Standards Act (FLSA) recognizes exempt and nonexempt employees for the applicability of certain provisions under the labor law in Puerto Rico. 

For instance, benefits like working hours, minimum wage, or overtime regulations do not apply to employees in positions of supervisor (like managers, administrators, or trusted employees) or independent contractors under Puerto Rican employment law.

Further, employers need not withhold income tax when hiring self-employed consultants or independent contractors, thus making them a popular hiring choice in Puerto Rico. 

Employment Contract

Puerto Rico employment rules recognize all forms of employment contracts, either verbal or written, and in any language, as understood by the employee valid. 

The first three months of employment are usually considered a probation period under which the employer or employee may terminate the agreement without reason. 

All written employment contracts under Puerto Rico labor law are executed in any language known to the employee. Typically, an employment contract must clearly define the following: 

• the term of the contract
• working hours
• the conditions of the work
• termination/dismissal clause
• salary details, payment schedule, and other benefits
• identity & signatures of the contracting parties.

Employers in Puerto Rico can execute a similar employment contract for hiring remote workers. Additionally, the employment contract for remote work in Puerto Rico may include

• the definition of work to be performed
• means and ways to perform the work 
• the method of communication between the employer and employee 

The employment act in Puerto Rico guides employers and employees to bind to the legal duty of following the employment contract provisions. However, the labor act rules in Puerto Rico reserve the discretionary rights of employers to interpret the mentioned policies or rules of employment in the contract. 

Further, the employee’s signature in the employment contract establishes a statutory presumption of the employee understanding the language and content of the contract. Electronic signatures are as valid as written signatures.  

Key Provisions of the Act

US federal agencies like the Equal Employment Opportunity Commission and the US department of labor, Puerto Rican agencies like the department of labor and human resources, and the Puerto Rico State Insurance Fund Corporation collaborate to enforce employment rules in Puerto Rico. 

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

• Puerto Rican constitution
• Fair Labor Standards Act of USA
• The Puerto Rico Oversight, Management, and Economic Stability Act (PROMESA)
• Collective bargaining agreements 
• statutory and regulatory provisions and court decisions

Together, they form the labor law in Puerto Rico or the Puerto Rican employment rules which enforce the act. 

Working hours 

• The usual working hours per Puerto Rico’s labor law are 40 hours a week or eight hours a day. 
• A six-day workweek is common across most employment relationships in Puerto Rico. 
• Puerto Rican working hours law allows for an “Alternative Weekly Work Schedule” upon prior written agreement.
  The employer may grant daily work shifts of ten but not exceeding 40 hours a week. 

• The labor act rules in Puerto Rico are clear on what will not constitute overtime: 

1. 1. The employee makes up for the lost work hours in the same week of the absence.
   2. Employees can work for a maximum of 12 hours a day and 40 hours per week.

• Puerto Rican employment regulations oblige employers to respond within 20 calendar days upon an employee’s request to change the working arrangement, like work-from-home or change in work hours. 

Holiday entitlements

• Official public holidays in Puerto Rico are mostly the same as the US federal holidays, in addition to holidays for religious festivals in each of the 78 municipalities in Puerto Rico. 

1. 1. New Year’s Day (January 1)
   2. Epiphany (January 6)
   3. Martin Luther King Jr. Day (third Monday in January)
   4. Washington’s Birthday/Presidents’ Day (third Monday in February)
   5. American Citizenship Day (March 2)
   6. Emancipation Day (March 22)
   7. Good Friday (Friday in late March or Early April)
   8. Birthday of José de Diego (April 19)
   9. Memorial Day (last Monday in May)
   10. Puerto Rican Independence Day (July 5)
   11. Birthday of Don Luis Muñoz Rivera (third Monday in July)
   12. Constitution Day (July 25)
   13. Birthday of José Barbosa (July 27)
   14. Labor Day (the first Monday in September)
   15. Christopher Columbus Day (the second Monday in October)
   16. Veterans Day (November 11)
   17. Discovery of Puerto Rico Day (November 19)
   18. Thanksgiving Day (the fourth Thursday in November)
   19. Emancipation Day (December 2)
   20. Christmas Eve (December 24)
   21. Christmas Day (December 25)

• While the above list of holidays is mandatory for public offices, it’s customary for businesses in Puerto Rico to close on Good Friday or Viernes Santo. 

Leave schemes

Maternity leaves

• Puerto Rican employment law mandates paid maternity leave for 56 calendar days (eight weeks). It is usually taken four weeks before birth and four weeks after birth. 

• Any extension in the maternity leave period in Puerto Rico is unpaid and granted for up to 12 weeks upon a medical prescription.

Paternity leaves

• There is no special paternity leave for childcare in Puerto Rico. 
• However, the labor laws in Puerto Rico follow the US Federal Family and Medical Leave Act which mandate twelve weeks of unpaid and job-protected leave for family and medical-related reasons.

Annual leave (vacation)

• Effective June 20, 2022, employees who have worked for at least 115 hours for the same employer are entitled to annual leaves.
• The vacation benefits in Puerto Rico are accumulated over time. 

1. 1. The accrual is capped at 15 days of vacation leave.
   2. The accrual rate applies only to employers with more than 15 employees over 26 weeks in a consecutive two-year period. 

• Paid vacation leave per Puerto Rican employment rules is accrued

1. 1. half a day’s vacation per month during the first year of employment
   2. three-quarters of a day’s vacation per month, if employed for two to five years
   3. one day per month, if employed for six-twelve years 
   4. if employed for more than fifteen years, one and a quarter days per month.  

Other leaves

Child Adoption

• Puerto Rico paid maternity leave of up to eight weeks (56 calendar days) applies to female employees when adopting a child of fewer than five years of age.
• The maternity leave period in Puerto Rico for adopting a child of six years or older is five weeks. 

Nursing leave

• There are special employment rules in Puerto Rico for post-natal employees. 
• The employer must grant nursing female employees a one-hour nursing break every day, which can be split into two 30-minute breaks or three 20-minute periods.

Marriage leaves

• Puerto Rican labor law mandates employers to give their employees five days of paid leave for their marriage. 

Sick leave 

• Effective June 20, 2022, employees who have worked for at least 115 hours for the same employer are entitled to sick leaves.
• Puerto Rican labor regulations link sick pay compensation from the employer to the relevant employee’s length of continuous service. 
• Paid sick leave in Puerto Rico is accrued one day per month or 12 days of sick leave per year. 

Caregiver leaves 

• Labor act rules in Puerto Rico mandate employers to provide five days of paid leave for illness or medical treatment of the employee’s family members or those under their custodians.

Voting day leave

• Puerto Rican employment rules oblige employers to grant a two-hour paid leave to their employees during the workday to vote.

Jury service leave

• Employers in Puerto Rico must grant up to 15 days of paid leave to their employees summoned for jury duty in a court. 

• The Puerto Rican labor act clearly states that employers cannot penalize employees for taking court attendance leave. 

Military leave

• Employers may grant unpaid leave to their employees who are members of Puerto Rico’s military forces to serve when called upon. 

Sports leave

• Employers may grant up to 30 days of unpaid leave to all certified athletes and trainers to participate in any competition or training events. 
• Employers may allow an additional 15 days of leave if the employee has accumulated additional leave per the Puerto Rican labor act.

Minimum wage

• The employment law in Puerto Rico guides employers to set minimum salaries for employee categories other than Executives, Administrators, and Professionals. (paid at least $455 per week on a salary basis)
• Effective January 1, 2022, the minimum wage in Puerto Rico is USD 8.50 per hour.
• Federal minimum wage law shall supersede state minimum wage laws where the federal minimum wage exceeds the state minimum wage.

Overtime compensation

• Overtime compensation in Puerto Rico for more than eight hours of work in a single day is 1.5 times the minimum hourly rate. Thereby, the overtime minimum hourly rate is USD 12.75.
• The computation for overtime compensation per the labor law in Puerto Rico is based on the workweek of seven consecutive days and more than 40 work hours. 
• Generally, employers are not obliged to compensate employees receiving over $455 per week on a salary basis for working overtime. 

Payroll tax & other obligations

• The payroll frequency can be fixed bi-weekly, monthly, or semi-monthly per the employment contract in Puerto Rico.  
• Employers in Puerto Rico must withhold income taxes from the employee’s salary payments. They must also withhold employee contributions prescribed under the Federal Insurance Contributions Act (FICA).   
• Employers cannot withhold employee salary taxes under the Federal Unemployment Tax Act (FUTA). 
• Employers can calculate payroll obligations per Puerto Rico’s labor law as follows: 

• Gross Salary (-) Standard Deductions (income tax and social taxes like pensions, medicare, and unemployment) = Net Salary
• Tax on salaried income is progressive and varies between 0 to 33%. 
• The current Social Security tax rate stands at 6.2% for the employer and 6.2% for the employee, or 12.4% total. 
• The current rate for Medicare is 1.45% for the employer and 1.45% for the employee, or 2.9% total. 
• Moreover, a 0.9% Additional Medicare Tax is withheld on an individual’s wages paid in excess of $200,000 in a calendar year. 
• Those who employ at least one individual during any 20-week period or pay USD 1,500 or more in salaries during any trimester are subject to 6% FUTA (unemployment tax) on the first USD 7,000 of total wages compensated to each employee during the calendar year. 
• However, employers are granted a tax credit of 5.4%. Now, the effective unemployment tax rate for employers in Puerto Rico is 0.6% (6.0% less 5.4%).
• Labor act rules in Puerto Rico mandate employers to pay a 13th-month salary, or an annual bonus in December: 

1. 1. Employers with 20 or fewer employees must pay an additional 2% of their monthly salary or no more than 300 USD in December.
   2. Employers with 20 employees or more must pay an additional 2% of their monthly salary or no more than 600 USD in December.

• The labor act in Puerto Rico mandates employers to offer Christmas bonuses for employees with a minimum of 700 hours of work time for the same employer. 
  Micro, small and medium-sized businesses may offer Christmas bonuses to employees with a minimum of 900 hours. 
• Employees working on Good Friday or Easter are entitled to 1.5 times their regular daily salary.

Payslip

• The standard employer practice under the employment rules in Puerto Rico includes base salary, overtime payment, withheld taxes, and bonuses in the employee payslip. 

Dismissal rules

• The employment regulations in Puerto Rico do not require employers to give written notice of employee dismissal. 
• However, employers need a valid reason under the employment law of Puerto Rico for the termination or dismissal of employees, for instance, when the employee

1. 1. violates written rules
   2. is negligent in their work
   3. exhibits improper or disorderly conduct
   4. is unable to perform necessary tasks
   5. is the subject of complaints from other colleagues

• Employers in Puerto Rico must submit written statements on disciplinary or corrective action to employees upon asking. 
• Effective from June 20, 2022, employees can take legal action against wrongful termination, wage claims, accrued vacation and sick leave claims, and claims arising out of employment agreements anytime during the period of up to three years from dismissal.

Severance payments

• The Puerto Rican labor law mandates severance pay for damages upon unjust dismissal or termination of business activities. 
• Effective June 20, 2022, the severance pay in Puerto Rico is: 

1. 1. Three months’ salary and two weeks’ salary for each year of employment for employees serving less than 15 years for the same employer. 
   2. Six months’ salary and three weeks’ salary for every year of employment for employees serving more than 15 years for the same employer. 

• The total severance payments cannot exceed nine months’ salary.

Data protection and employee privacy

Employers in Puerto Rico rely on various data disposal and data breach laws in the absence of dedicated privacy and data protection laws. Employers are expected to respect and protect the personal data of prospects & employee citizens. 

Employers dependent on background checks (even via a third party) must get written consent from prospects and their employees to ensure data privacy. Additionally, they must notify employees about any data breach during the process. 

Further, the constitutional right to privacy influences Puerto Rican labor act rules to prohibit the use of personal data of prospects or employees in any form of discrimination that affects access to work, like medical records, political & religious beliefs, marital status, etc. 

Penalties

The labor act rules in Puerto Rico enforce penalties on employers for instances when, 

• The bonuses are not paid between November 15 and December 15 of each year, or
• Failure to comply with mandatory payroll obligations could lead to employees claiming reimbursement of the amounts illegally deducted.

Compliance Strategies for Employers

Entrepreneurs and global firms looking to hire and manage employees under the Puerto Rican labor act rules will benefit from the given compliance strategies.

• Hiring and managing employees based on standard templates:

1. 1. Entrepreneurs can use standard templates for drafting employment documents like offer letters, employment records, and termination notices to ensure compliance with Puerto Rican labor laws.  
   2. You can buy such templates online from reputed legal services.  
   3. Small business owners can manage payroll tax & other obligations using simple HR accounting and financial tools.   
   4. Further, the employers must fill out Form I-9 under the Federal Immigration Reform Control Act of 1986 (IRCA) to verify the employee’s identity to employ foreign nationals in Puerto Rico. 

• Recruiting an in-house HR manager:

1. 1. A dedicated Human Resources (HR) manager specializing in Puerto Rican labor law can supervise employee recruitment, training, payroll obligations, etc., following the employment rules in Puerto Rico.  
   2. An in-house HR manager has the organization’s confidence to oversee appraisals, reward management, wage compensation, and deal with organizational changes and local industrial relations. 
   3. HR managers also ensure data protection and employee privacy under the Puerto Rican labor code while hiring local talents. 

• Contemporary SaaS-based payroll providers

1. 1. Global employers can hire local talent from Puerto Rico even without establishing a local business entity. 
   2. Partnering with payroll providers such as Multiplier helps employers comply with Puerto Rican labor law and follow all best practices for hiring & managing local talents.  
   3. SaaS-based payroll providers offer contract drafting and management, ensure compliance with mandatory benefits under labor act rules in Puerto Rico, and salary payments with just the click of a button. 

How Can Multiplier Help?

The labor law in Puerto Rico enforces employee-employer rights and duties in an employment relationship within the territory. Puerto Rican employment rules lessen salary bonus burden & other employer obligations for small-scale businesses. 

While developing an in-house team of HR experts, entrepreneurs and global companies are quickly adapting to modern SaaS-based solutions for labor law compliance. 

Flexible solutions like Multiplier can eliminate the need to register a business entity for hiring in Puerto Rico. We offer automated employment contract generation, drafting multi-lingual contracts, or managing payroll obligations.  

Multiplier is a leading provider of PEO solutions for employers with a registered entity in Puerto Rico. Working with Multiplier ensures 100% compliance for employers and international firms during the hiring process or during payroll management – taxes, social contributions, and more, per Puerto Rican employment law.  

On the other hand, global employers or international firms can partner with Multiplier EOR without registering a local entity and still manage newly hired local talents.  

Spanish is among the official languages in Puerto Rico. You can avail of our multilingual contract services to support your local employees in understanding the employment terms better. Our presence in 150+ countries makes us a comprehensive HR solution for your global expansion.