How to Hire in Puerto Rico: A Comprehensive Guide

Located on the northeastern part of the Caribbean Sea, south of Florida is the Commonwealth of Puerto Rico. Besides being unincorporated, the archipelago country is disenfranchised.

Since the 20th century began, the island nation has seen massive developments thanks to the Puerto Rico Industrial Development Company’s efforts and the US Government. Today, the country is a high-income economy that the IMF recognizes as developed. As per the Human Development Index, Puerto Rico holds the 40th rank. The country’s GDP stands at USD 112.273 billion per 2021 estimates.

Entering Puerto Rico as part of a company’s global development plan could do wonders for your business. Puerto Rico retains many cultural and economic features that you would associate with either Latin America or the Caribbean. Additionally, it maintains its status as a US territory, which adds to its favorability among foreign investors.

The economy of Puerto Rico is characterized by manufacturing activity, and naturally, industrial activities account for 50% plus of the GDP as per 2018 reports. The services sector followed next, while agriculture generated less than 1%of GDP. Currently, 44.3% of its population is employed in the workforce, as per data from the US Census.

• It makes sense to hire employees in the country, given that they are bilingual and bicultural.
• A large number of them have higher education
• Several tax incentives exist for companies employing people from this Island. 

Read this article to learn the prerequisites and how to hire in Puerto Rico. 

Things to Know Before Hiring in Puerto Rico

Puerto Rico’s Governor, Pedro Pierluisi, signed into changes for laws that reversed portions of 2017’s employment reform law. The new House Bill 1244 has changed statutory probationary period requisites, vacation and sick leave accruals, and an annual Christmas bonus eligibility. The changes have been in place since  July 2022. 

Read everything you need to know before hiring in Egypt here:

Employment contract

An employment contract is a written document that formally establishes a working relationship between employees and employers. It specifies all profile requirements and related payments employers must make in place of services. 

In Puerto Rico, a written employment contract is recommended but not compulsory. These might be verbal or, preferably, written. Generally, a written contract allows the parties to better understand all outlined expectations clearly. Such contracts extend over indefinite terms unless specified otherwise. All non-competition clauses must be mentioned clearly.

Employers can write a Puerto Rican contract in any language both parties are comfortable with. It must also contain the following details:

• Employer’s name
• Salary
• Benefits
• Add-on compensation
• Profile
• Working hours
• Paid offs
• Probation period
• Termination details

Probation 

• Employers generally mention the probation period in the employment contract. 

• However, the probation period is automatic, with no need to mention it under an agreement in writing. 

• The latest legislation has mandated the probation period to last up to 90 days.

Termination

An employer is not mandated to give employees a written notice of dismissal. However, any employer must give their employees a written statement on disciplinary or corrective action if and when an employee files a complaint.

Notice Period

• Employees do not get a statutory notice period for dismissal based on just cause. 
• No federal or local law mandates employers to provide employees advance notice for termination, and payment in lieu of the notice, except in cases such as termination without just cause related to the business or the employee performance.

Severance

Termination without cause from an employer’s end can lead to an employee seeking severance pay per legal procedures.

Employment-related must-knows

When you plan to follow the hiring process in Puerto Rico, you must clearly understand the basics of local employment laws.

• Employers must write the contract to be clear on the benefits and leave policy, more than the employment specifications, during the recruitment process in Puerto Rico. 

• Acknowledgement must be made of the employer’s discretion for interpreting its rules and policies unless the interpretation is arbitrary, capricious, or contrary to law. Contradiction can also occur when the employer reserves discretion in written form in the context of all rules or policies.

• The employer can allow employees to make up time by working up to 12 hours daily. Employees can make up for the time they missed due to personal reasons during a week without incurring overtime obligations.
• There is an irrefutable statutory presumption for independent contractor status on meeting few requisites.
• The law recognizes electronic signatures in the context of contracts and employment-related documentation like the acknowledgment of receipts.

• Fair labor standards act- This US labor law helps establish minimum wages, overtime payment, record-keeping, and youth-related employment standards for private employees and all governments.
• PROMESA- Puerto Rico Oversight, Management, and Economic Stability Act, known as PROMESA, is an amendment to the Fair Labor Standards Act for all considerations made to the youth minimum wage and overtime for Puerto Rican staff.
• Collective bargaining agreements -These laws focus on workers’ rights collectively. As per National Labor Relations Act, employees are entitled to organize trade unions and engage in collective bargaining. 

Working hours and breaks

When hiring staff in Puerto Rico,  keep track of the permissible working hours and breaks.

• Working hours in Puerto Rico are capped at 40 hours each week or 8 hours a day.
• If you earn more than minimum wage, you will be entitled to a minimum of  1.5 times your hourly wage for any overtime worked. 
• Puerto Rico sets an overtime rate double  the employee’s standard rate for each hour,  for any hour worked above 8 in any single day, or for over 40 hours in any week.

Payroll

Once you set up a company and hire employees in Puerto Rico, you need to set up a payroll system. In Puerto Rico, employees are paid monthly. 

Minimum wage

• Employers must set pay as per the minimum wage policy. 
• The minimum wage in Puerto Rico is  $8.50 per hour. 

Bonuses

• The mandatory Christmas bonus payment is reduced to 2% of the overall salary.
• This comes with a $600 cap for those employees who have worked 1,350 hours for that year and goes up to $300 when an employer has less than or equal to 20 employees.
• During the first year of employment, an employer can pay 50% of the Christmas Bonus. The same must be paid to the employee between 15th November and 15th of each year and is subject to late fees. 
• Employees hired before the enactment of the latest Act are entitled to receive the Christmas Bonus equivalent to around 6% of their annual salary with the $600 cap. However,  they must have worked  700 hours for the year.

Maternity & paternity leaves

As per the Puerto Rico Working Mother’s Act, pregnant women have a minimum of 8 weeks of paid leave. Female employees can use it four weeks before delivery and four weeks after delivering a child. 

Puerto Rico has no paternity leave per law. Still, the US Federal Family and Medical Leave Act permits workers to take up 12 weeks’ unpaid, job-protected leaves for medical or family reasons.

Annual leave

• First year of working: 6 days every year 
• Second year to the fifth year of working: 9 days every year 
• Fifth year to the fifteenth year of working: 12 days every year 
• Fifteenth year and more of working: 15 days every year 

Vacation and sick leave

• Eligible employees can accrue paid vacation and sick leave after working 115 hours per month. 
• Employees are liable to 1.25 days of paid vacation leave and one sick leave a month. 

Holidays for employees             

Official public holidays in Puerto Rico are listed below in order of month –

• 1st January – New Years’ Day
• 6th January – Epiphany
• 11th January – Birthday of Eugenio Mar
• 18th January – Martin Luther King Jr. Day
• 15th February – Presidents’ Day
• 22nd March – Emancipation Day
• 2nd April – Good Friday
• 19th April – Jos de Diego Day
• 31st May – Memorial Day
• 4th July – US Independence Day
• 19th July – Luis Muoz Rivera’s Birthday
• 25th July – Constitution Day
• 27th July – Jos Celso Barbosa’s Birthday
• 6th September – Labor Day
• 11th October – Columbus Day
• 11th November – Veteran’s Day
• 19th November – Discovery of Puerto Rico Day
• 25th November – Thanksgiving Day
• 25th December – Christmas Day

Social security

• The tax rate for Social Security

1. 1. Employers contribution – 6.2% 
   2. Employees contribution – 6.2%

• The rate for Medicare 

1. 1. Employers contribution – 1.45%
   2. Employees contribution –  1.45% for an employee.

Taxation

If an individual’s net income is above  USD 500,000, they must pay additional tax. Tax is 5% of extra of total net taxable income over USD 500,000, limited to around  33% of personal and the dependents’ exemption along with USD 8,895.

Besides the income tax, individuals need to calculate an ABT according to the tax table-

The Cost of Hiring an Employee in Puerto Rico

The recruitment fees in Puerto Rico vary per the company recruitment process in Puerto Rico.

• Advert costs – This is an average cost for advertising profiles across the print media or online job boards. The top portal used in Puerto Rico is Buscojobs.
• Payroll costs – The cost of compliance with payment processes is a significant figure.
• Salary – As an employer, you must bear the cost of the employee’s salary and social security liabilities.
• Bonus and benefits – As per policy allowances, employers have to bear the cost of bonuses and insurance or related benefits. 
• Training: When hiring a new employees, employers must train them so that they can work efficiently.

What Does a Company Need to Hire Employees in Puerto Rico?

Employers in Puerto Rico may employ both permanent and temporary employees. Meeting all taxation and legal compliances is important before hiring in Puerto Rico. 

Employers must look into the following requirements to set up a presence in Puerto Rico:

• Name plus registration number of incorporation
• Physical as well as a mailing address of the designated office
• Name and the physical address of a resident agent
• Name and the postal address of 2 officers of a corporation 
• Annual report that contains a status statement of the company’s economic condition at the time of closure of operations during the previous year
• When the business volume of the company exceeds $3 million in USD, the report must be audited by any Certified Public Accountant who is licensed in Puerto Rico.
• This report must also be signed by an authorized officer,  director, or incorporator.

Various Options for Hiring Employees in Puerto Rico?

Typically, Puerto Rico has two options for recruitment in Puerto Rico. These include –

1. Tie-up with a global EOR service provider: You can partner with an employer of record (EOR) such as Multiplier. We help to handle all logistics such as compliance, benefit, compensation, payrolls, and workforce management without you needing to set up an entity.
2. Direct hiring: If you already have a subsidiary or branch in Puerto Rico, you can directly hire employees in line with relevant laws.

The Steps to Hiring in Puerto Rico

Steps in the hiring process in Puerto Rico are as follows:

Step 1 – Advertising for openings

• Begin the hiring process in Puerto Rico by advertising job openings. 
• Make sure to mention the minimum requirements for a job post and advertise the job across channels. 
• Some popular job search sites include Buscojobs and others. 

Step 2 – Scanning applications

• Check the applications to shortlist suitable candidates for a role.

Step 3 -Telephonic conversation

• A telephonic interaction helps employers understand a candidate’s profile and suitability for a job post.  

Step 4 – Interviews

• A hiring manager and a panel can communicate with a candidate. This helps employers get all information on a candidate’s interests, experiences, and competencies. 
• Depending on the post, you can schedule a second interview or skill test. 

Step 5-Reference checks

• Candidates must provide past employer details for verification purposes in Puerto Rico.
• Criminal records and credit checks are common in the territory but only after the candidate concerned shares consent.

Step 6-Final offer

• The last step in the hiring process in Puerto Rico  is preparing the final offer letter. The HR department offers the position to a candidate. The employee accepts the same before signing the employment contract.

Let Multiplier be Your EOR Platform in Puerto Rico

Recruiting and onboarding employees in Puerto Rico can be time-taking and complex. Companies need to start advertising job posts and hire someone after meeting all compliance laws in Puerto Rico.

You can collaborate with global PEO–EOR platforms like Multiplier. Our team of experts ensures that the recruitment process in Puerto Rico remains quick and hassle-free. We offer SaaS-based Employer of Record solutions to recruit talent. Multiplier helps you tackle new markets and work on payroll management to initiate a hiring process in Puerto Rico and complete the recruitment process in Puerto Rico.