Hire employees in Ecuador

Companies who are planning to recruit in Ecuador are usually attracted by the country’s low employment costs. Wages are way below Western standards and social security contributions are also just a fraction of what you could expect to pay in other countries.

That being said, cheap labour is not the only aspect rendering hiring in Ecuador attractive. As the country’s official language is Spanish – which is spoken by the vast majority of the local population – recruiting an Ecuadorian employee means adding valuable language skills to your remote team.

Although verbal contracts are also valid under Ecuadorian labour law, it is best practice to establish a written employment contract when hiring an employee from Ecuador. The contract should be drafted in Spanish and contain at least the following basic terms of employment:

• Identification of both parties

• Date of commencement (and employment duration for temporary contracts)

• Workplace

• Job description, duties and responsibilities

• Basic salary as well as other compensation or benefits

• Working hours

• Total number of holidays

• Notice periods for employment termination

• Probation period, if any

Most employment agreements in Ecuador are permanent but fixed-term contracts are also possible under certain circumstances.

Probation Period

Probationary periods in Ecuador usually last for 90 days.

Working Hours

As a general rule, employees in Ecuador work 40 hours per week, i.e. eight hours per day and five days per week.

Overtime

Any work performed beyond standard working hours is considered overtime and should be paid at a rate of 150% of the employee’s usual salary – 200% on public holidays.

Most employers pay their workers once a month.

Minimum Wage

The current national minimum wage is USD 450 per month (valid since January 2023).

Sick Pay

Employees who are unable to work because of sickness or injury are entitled to sick pay. The employer generally provides sick pay equal to 50% of the employee’s usual wages for the first three days of sick leave. Any following sick days are normally covered by the Ecuadorian Social Security Institute (IESS) – given that the employee fulfills the necessary requirements.

Bonuses

All employees are legally entitled to a 13th and 14th salary which should be paid no later than the 24th of December – the 14th instalment is due before the 15th of August. While the 13th salary equals one full salary, the 14th month’s bonus corresponds to the national minimum wage. There further is a legal requirement for businesses to share their profits.

Employers and employees in Ecuador are subject to the following tax and social security contribution rates (last review February 2023):

Taxes

Employers

25%

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• 25% corporate tax rate

• 12% VAT (standard rate)

Employees

up to 37%

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Individual income tax rates range from 0% to 37% *

Social security

Employers

up to 20.48%

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12.15% of employee’s salary to Ecuadorian Social Security System

After the employee’s first year, employers are also obligated to make an additional reserve fund payment of 8.33%.

Employees

9.45%

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9.45% of employee’s salary to  Ecuadorian Social Security System

Please note that the social security contributions indicated above do not necessarily reflect the actual employment costs. These may differ depending on the employment contract and due to other factors (e.g. 13th and 14th salary, health insurance allowances, accrual for severance pay, etc.).

Annual Leave

During the first five years of service, employees are entitled to 15 days of paid annual leave. Thereafter, annual leave entitlements increase by one day for every additional year of service. The maximum is 30 days.

Ecuador observes eleven public holidays – including two days over the annual Carnival celebrations – on which employees usually don’t have to work.

Maternity Leave and Paternity Leave

Female employees can take up to twelve weeks of fully paid maternity leave – ten more days in case of multiple births – starting two weeks before the expected due date. Payment is provided by both the employer and the IESS in shares of 25% (employer) and 75% (social security). Paternity leave is currently limited to ten days.

Parental Leave

There are no legal provisions for further parental leave.

Additional Leave and Benefits

Other leave includes 25 days in case the employee’s child needs to go to hospital and one day of bereavement leave for the death of a close family member.

Termination procedures in Ecuador can be quite complicated. When planning to dismiss an employee for any reason linked to the employee’s behaviour, employers generally have to notify an independent labour inspector who will then make judgement on whether the dismissal is lawful or not.

Recognised causes for employment termination generally include:

• redundancy – 30 days’ notice

• employee’s misconduct including dishonesty and lack of discipline – no notice as such but possible suspension of employment contract until final judgement of labour inspector

• other personal grounds such as underperformance or incapability – no statutory notice period but no employee can be dismissed before having completed his or her first year of service (once probation is over)

If employees are dismissed for reasons other than their behaviour, they are entitled to severance pay equal to:

• three months’ pay during the first three years of service

• one month’s pay for each year of service if the employee’s length of service exceeds three years

When terminating employees with a fixed-term contract, employers must pay a bonus equal to 25% of the employee’s usual monthly salary for each year of service. Employees who are made redundant also receive this bonus as well as severance pay as mentioned above. The same applies in cases classified as “sudden dismissal”.