Peru’s low wage standards make it an attractive hiring destination for international companies looking to recruit new members for their global teams. But not only that. With Spanish being the local language, companies hiring employees in Peru can be sure to enhance the language skills of their remote teams. Not to forget the access to the Latin American market the country provides for international businesses.
While permanent employment agreements do not need to be in writing, the written form is required for part-time and fixed-term contracts. The latter can be concluded for a duration of up to five years and must include some additional information such as their intended duration and the reasons for which it has been concluded.
In general, employment contracts need to be drafted in Spanish and should provide the following basic information:
- Identification of both parties
- Date of commencement (and employment duration for temporary contracts)
- 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
- Reason for choosing fixed-term contract (if applicable)
- Health and safety obligations
- Data protection obligations
The length of the probation period depends on the employee’s position. In most cases, the trial period is limited to three months (extension to up to six months is possible for positions of trust) but for managerial positions and other high-level executives, it can be extended to up to one year.
Working Hours and Breaks
According to Peruvian labour law, an employee’s normal weekly working time is limited to 48 hours, i.e. eight hours per day over six days per week. During an eight-hour day, employees must have a 45-minutes lunch break. One rest day per week is compulsory.
The first two hours of overtime work must be paid at a rate of at least 125%. Thereafter, the minimum pay rate is 135% of the employee’s usual wages.
It is common to pay employees in Peru once a month.
The minimum wage in Peru is currently (June 2021) set at PEN 930 per month.
Employees who are unable to work because of sickness or injury are entitled to their normal wages for at least five days.
In Peru, employees are entitled to a 13th and 14th salary which must be paid out in July and December.
Taxes and Social Security Contribution
Employees and employers in Peru are subject to the following tax and social security contribution rates (as of 2021):
29.5% corporate tax rate
18% VAT (standard rate) – 16% genuine VAT plus additional 2% municipal promotion tax
Individual income tax rates range from
8% to 30% *
9% of employee salary to health insurance
complementary insurance for high-risk workers
13% of employee salary to pension fund (12.4% if employee is member of a private pension fund)
* Individual income is taxed progressively based on the following tax brackets (percentage rates given only apply to income exceeding the respective tax bracket threshold):
up to 5 tax units**: 8%
5 to 20 tax units: 14%
30 to 35 tax units: 17%
35 to 45 tax units: 20%
over 45 tax units: 30%
**In 2020, the Peruvian government has set the value of one tax unit at PEN 4,300.
After having completed one year with the employer, employees in Peru are entitled to 30 calendar days of paid annual leave. The country’s 12 public holidays are also paid days off.
Maternity Leave and Paternity Leave
Female employees can take 98 days of maternity leave – 49 days before and 49 days after giving birth. In case of multiple births, maternity leave can be extended by another 30 calendar days. During maternity leave, the mother receives her usual salary by her employer who is later reimbursed by social security.
Fathers can take ten (consecutive) calendar days of paternity leave paid by the employer.
There are no legal provisions for additional parental leave.
Additional Leaves and Benefits
It is common to provide employees in Peru with a life insurance plan.
In addition to employment termination by default – i.e. in case of a fixed-term contract – resignation and mutual agreement, Peruvian labour law recognises the following grounds for employee dismissal (non-exhaustive list):
- employee’s incapability – physical as well as mental – or constant underperformance
- gross misconduct
- redundancy and mass layoffs
In case of employee dismissal due to misconduct, employers have to observe a six-day notice period. If the employee is dismissed because of his or her disability to continue carrying out the job-related duties, a 30-day notice must be given. Summary dismissals based on a severe breach of the employment contract do not require any notice. For employees wishing to resign from their position, the notice period is 30 days.
Employees who are terminated without just cause, i.e. not because of their capability or behavior, are entitled to severance pay (indemnización por despido arbitrario) equal to one and a half monthly salaries for each year of service. For fixed-term contracts, severance pay is one and a half salaries for each remaining month until the initially agreed end date of the contract. In both cases, severance pay is capped at 12 monthly wages.