Labor legislation is mainly provided by Chilean Labor Code and supplementary laws such as Decree Law 3,500 and Laws No. 18,933/16,744 and 18,469 among others. Also, rulings issued by Chilean Labor Authority are crucial to understand the rights interpretation labor rules
Generally, there are no employment regulations for foreigners who work for Chilean companies except for some public occupations such the president in Chile, members of Congress in Chile, judges and soldiers. There is type of occupations (e.g. a lawyer) that the Chilean government has a regulation permitted by treaties between those countries.
If the companies in Chile have over 25 employees, at least, they must employ 85% Chilean employees. There is no limitations to hire foreign engineers in areas where substitution is impossible. There is no limitations to hire foreign engineers or specialized professionals in areas where substitution is impossible.
The following points are considered for calculating the ratio
- Based on total number of workers hired by the same employer throughout Chile, they are not based on workers by each branch.
- Experts who can’t substitute by the Chilean are excluded.
- Spouses and foreigners whose children are Chile can be considered Chileans. Foreigners whose Chilean spouse died are also considered Chileans.
- Foreigners who live in Chile for more than 5 years are also considered Chileans. In this case, temporary embarkation is not considered.
Employment contract in writing/Link of Dependency and Subordination.
In Chile all employees must have a single employment contract drafted under Chilean rules and formalities. This contract is signed between the Company and employee in three hard copies. At least one of them must be placed on the site where the employer performs the services for use of regulator.
The general rule is that employment contract must be written in Spanish and shall be prepared no later than fifteen days since employee starts providing services for Company. Fines for not fulfilling the requirements aforementioned could amount up to 5 UTM. Also note as general rule, all work-relationship that implies a link of dependency and subordination from the party who leads the worker, may qualify as a dependent work-relationship, thus must count with an employment contract in writing. As well, the Chilean Labor Code and its supplementary regulation.
The Chilean Labor Code states the minimum contents that all employment contract should contain in order to be in full compliance with labor provisions.
Main contents of a labor contract are as follows:
- Contract location, date.
- Party’s name, worker’s nationality, birthday, employment starting date.
- Duties and location where duties should be provided.
- Amount, payment method and timing for remuneration.
- Working hours and their allocation. (In the case of shift work system, follow the place stipulated by employment regulations).
- Contract period.
Labor legislation is mainly provided by the Chilean Labor Code and supplementary laws such as Decree Law 3,500 and Laws No. 18,933/16,744 and 18,469 among others. Also, rulings issued by the Chilean Labor Authority are crucial to understand the right interpretation of labor rules
The method of payment can be monthly, weekly or daily salary, but you must pay for it on a regular basis. Payment methods in units exceeding one month cannot be selected. There is statutory requirements for remunerations which main features are as follows:
Monthly Minimum Wage (MMW)
There exist a minimum salary which is compulsory under the Chilean labor rules. Its usually updated in July each year where the Congress issues a new law, fixing the new Monthly Minimum Wage applicable from July 1st onwards. Also note that such minimum payment must be equal to base salary. In other words, its forbidden for employers to include in the MMW other remuneration items (such as Bonuses and Profit Sharing together with the salary). This implies that employer should pay these additional items in excess of minimum salary.
Different types of remuneration
Several kinds of remunerations may take place in a remunerative pack offered to an employee.
Base salary: The base salary always must be paid in cash, in periods no larger than a month.
Legal profit Sharing: In addition to the Base Salary, the other relevant component are the Legal Profit-Sharing Payment. This is compulsory for all employers that obtain net tax profits at the end of their annual periods.
Compulsory social security contributions (SSC) payable on a monthly basis.
In Chile all employees must pay compulsory on a monthly basis. SSC are deducted from the employee’s gross remuneration.
The latter is performed by the employer who must declare and pay the deducted amounts to the Social Security Entities on a monthly basis within 10 days of the month following the remuneration payment.
Main social contributions are as follows:
- Pension fund: 10% calculated over a monthly remuneration up to USD3, 000 app.(employee´s cost).
- Pension Fund Administrator Fee: 0.41% (the cheapest one in the market) (employee’s cost).
- Disability & Death insurance: 1.41% calculated over a monthly remuneration up to USD 3,000 app. It is company cost for all companies since July 2011. (Employer’s cost).
- Unemployment Insurance: 0.6% as employee’s cost (calculated over a maximum remuneration of USD4, 500 approx.). 2.4% as employer’s cost (also calculated over a maximum remuneration of USD4, 500 approx.).
- Work accidents and Professional, Insurance: 0.95% calculated over a monthly remuneration up to USD 3,000 (*) plus an eventual extra contribution up to 3.4% if the activities of the company are risky and have occurred work accidents and/or labor diseases affecting one or more employees in a determined period of time which is appraised by the social security administrator in charge of this type of coverage (employer’s cost).
Monthly pay slips in writing and Payroll Ledger Book
Under the Chilean Labor Provisions, employer is obliged to deliver to all employee a pay slip with a detailed description of remuneration paid on a monthly basis. Also, employers with five or more employees must manage a Payroll Ledger Book with details of remunerations paid, social contributions and taxes deducted. It must be stamped by the Chilean IRS on a correlative basis.
Minimum Statutory vacations
All employee in Chile with more than one year of services for the employer, is entitled to fifteen working days of vacation per year. For these purposes, Saturday is not considered a business day. For the employees working certain area are given 20 working days as a vacation per year.
Such vacations are cumulative. Thus, in case of employment termination they must be converted to money and be paid as another severance. Also, employees with less than one year of service must be paid of the vacation days accrued. This is a minimum statutory requirement, thus it cannot be negotiated by the parties nor renounced by the employee.
The right to constitute labor organizations such as unions, federations or confederations – without prior authorization, is acknowledged. Unions are regulated in the Labor Code.
Membership to a Union is personal and voluntary. Worker can join or withdraw from the Union freely. Workers may belong to only one union for each employment they hold. The purpose of unions, as stated by law, is to represent the workers in collective bargaining, in the exercise of their rights arising from labor contracts, integrate the employer and workers, monitor compliance with social security and labor legislation, help their associates, promote education and the improvement of security in the workplace, and provide nonprofit services for its members.
Since April 1st. 2017, the union is the only allowed by law to represent employees in a collective bargaining process.
Unions in companies with 50 workers or less may be formed with a minimum of 8 workers; in companies over 50 and less than 250 workers, may be formed with a minimum of 25 workers representing at least 10% of all the staff, although in this case a union may be formed with a minimum of 8 workers and reach the above mentioned quorum within one year; and 250 workers may form a union regardless of the percentage of the staff which they represent.
The directors of the union must be Chileans over 18 years of age who have been members of the union at least 6 months before the election.
While the workers are serving as directors, they cannot be removed from their work unless specific causes arise, cause the get a legal protection or privilege (the only way to these individuals being dismissed is by means of a Labor Court authorization based on misbehavior of worker).
Strikes are not allowed in utilities, such as those supplying electricity or water, or in activities where serious damage may be caused to the security or economy of the country. In these cases, mandatory arbitration applies.
Collective Agreements Keys
The contents of a collective agreement are mainly all the matters referred to remuneration and other benefits, and to common conditions of work. The recent Law N° 20.940 (in force since April 1st. 2017) made significant changes to the governing rules of Unions and Collective Bargaining Procedures.