Employer of Record in Chile: Hiring Through an EOR Guide

As one of the most successful economies in Latin America, Chile’s tech ecosystem is fueled by plenty of tech talent, so several US-based tech companies hire from this region. Chile also has more than 60,000 tech experts skilled in software development and programming, and they are in high demand worldwide, with several thriving tech hubs in Valparaiso, Santiago, etc. According to research, the Chile IT services market will be worth 2.07 billion dollars by the end of 2024. However, this sector is projected to grow to 2.74 billion dollars by 2029. 

If you’re one of those looking to supplement your tech team with experts from this country, you’ll need to establish a legal entity and this is the first of many steps that may extend over many months. You’ll also need an in-depth knowledge of the Chilean Labor Code and any regulations that affect your activity. However, many startups and medium-scale enterprises do not have the needed resources to carry out these processes while maintaining the flow of their daily operations. That’s where an Employer of Record comes in. An Employer of Record Chile will alleviate your burden by serving as your legal entity during the hiring process. 

Introduction to Employer of Record (EOR) in Chile

An employer of record, also known as a Private Employment Organization, is a third-party service provider that simplifies the hiring process for foreign tech startups. EORs will save you time while hiring talent from this region to supplement your workforce by serving as your legal entity. Instead of wasting time and resources trying to set up a legal entity for yourself, you can focus on the quality of employees to be added to your team and onboard them in as little as two weeks. If you were to set up a legal entity before hiring, you’d most likely spend months on the process before achieving your desired results. The EOR ensures that all your employment and onboarding procedures comply with the Chilean labor code. 

Another crucial aspect of hiring Chilean employees which is handled by an Employer of Record, is payroll and tax compliance. If it’s your first time operating in the region, you’ll have to cope with new payroll and tax reporting regulations, and it can be plenty of work to study all the information you need within a short period. EORs often have expert teams familiar with local payroll laws and will ensure you avoid falling on the wrong side of the law. However, there are several alternatives to choose from. A hiring agency is your best bet to connect you with trustworthy EOR to carefully handle your legal matters. 

Here’s a detailed breakdown of the benefits startups and medium enterprises are bound to gain from working with an Employer of Record: 

• These service providers your onboarding process as you no longer have to spend a long time filing for hiring permits. 
• EORs also simplify benefit enrollment, making it easier for employers to offer benefits like pensions and health insurance.
• EORs ensure payroll is handled as and when due while helping you navigate differences in exchange rates.
• These service providers guarantee your legal compliance by properly classifying your employees and independent contractors. 
• EORs also protect your personal and intellectual data. 

Read more: Payroll Taxes & Expenses in Chile

Step-by-Step Guide to Hiring Through an EOR in Chile

Undoubtedly, an EOR can significantly reduce your workload when hiring, but how will this process occur? Also, how will you choose the right EOR to handle your affairs? The following steps will guide you through everything you need to do: 

How Hiring Agency can Recommend Your Business to the Right EOR Provider?

Let’s say you’re a startup that wants to hire in Chile but lacks the required resources and documentation to create a legal entity. As emphasized earlier, the best course of action is to hire an Employer of Record to handle the legal aspects of the hiring process. However, hundreds of employers of records operate out of Chile, and it can be confusing to determine the best fit for your organization. That’s where Globy, a reliable hiring agency, comes in. 

While Globy has all the resources to help you sift through plenty of talent and present you with a shortlist of the best available alternatives, we also have a network of trustworthy EORs that’ll serve as your legal entity. By connecting you with the right EOR provider, you won’t have to worry about organizing your payroll and filing your taxes while we connect you with the best talent in the tech ecosystem. 

Deciding Between a Chilean EOR and Legal Entity

While you may still have doubts about using an Employer of Record, the first thing to do is compare the pros and cons of working with an EOR or creating your legal entity. 

Choosing to work with an EOR is beneficial in many ways. These service providers allow foreign companies to access the talent in the local tech market quickly without worrying about local labor and cross-border tax laws. Because they operate out of the region, they’ll also ensure you’re up-to-date on local practices that may be appreciated by employees. Chile has a strict regulatory system for employers, which clearly states strict overtime laws and mandatory notice periods. If you’ve never operated in this country, it can be plenty of work to navigate these processes, and you may struggle with administrative processes like HR and tax compliance. 

On the other hand, setting up a legal entity is beneficial because it supports a long-term goal of expanding your operations into Chile. However, the requirements needed to complete the process may be too steep for startups and medium-sized enterprises to fulfill. You’ll need to spend money training your HR team to navigate legal compliance while hiring in the country. There’s also the hassle of dealing with exchange rates, tax rates, and tax policies from different regions. 

Choose the Best EOR for Your Business Needs

After deciding to hire an employer of record in Chile, the next step is to decide which service provider to partner with. As you’d expect, several alternatives are available in the country. However, not all of them live up to their promises. 

The best alternative for you is to partner with an EOR that owns its legal entity in the country because they’ll be able to protect your data better and offer you consistent prices. You should also check the type of services promised by each service provider, the cost of working with them, and the presence of an expert workforce. 

If you’re interested in a reliable EOR, your best bet is to partner with Globy. This hiring agency has a network of Employer of Records and will recommend the best fit for your organization. Afterwards, the EOR will handle handle your legal processes including payroll, tax filing and settling employee benefits. 

Onboard Chilean Employees

After choosing your preferred EOR, the next thing to do is present a contract to the employee you’re interested in hiring. This contract must comply with local labor laws and clearly state the terms and conditions of the employment. When both parties sign this contract, the employee is onboarded. The EOR can handle the paperwork to smoothen this process, such as creating tax forms and informing the right authorities about benefits enrolment. They will also ensure the employee is added to your company’s payroll.

Read more: Employee Benefits in Chile

Costs Involved in Hiring Through an EOR

While EORs in Chile are relatively effective in hiring employees from this region, one of the most significant factors in working with any service provider is the cost of their service. When hiring through an EOR, looking at more than the upfront fees paid is best. Instead, focus on the total cost of ownership or the amount of money spent before the relationship between both parties is canceled. Here’s a breakdown of all the expenses involved in hiring an EOR: 

• Upfront Fees: These fees are the initial payments to engage the service provider. They also include the fees paid to onboard these new employees into your workforce. It’s crucial to note that each service provider has its fee structure, but it’s best to pick a partner that doesn’t charge too early. Costly upfront fees may indicate what’s to come when working with an EOR.
• Ongoing Fees: Because an Employer of Record will handle different aspects of your HR procedures such as payroll and tax compliance, it means you’ll need their expertise regularly. Hence, many service providers have designed a payment structure where companies pay them monthly to pay their employees and file their taxes when due. While monthly payments may not sound like a bad idea, it’s crucial to remember that these fees will stack up significantly and may cost you more over the long term. 
• Hidden Fees: These are another cost to consider when hiring an EOR. Hidden fees are payments usually not publicized by the service provider but may be required under certain scenarios. While these fees are usually less than those mentioned above, they can unsettle startups with a strict budget. As a result, it makes sense to inquire from your preferred EOR about any hidden fees in their payment structure before working with them.  

Mandatory Benefits for Chile Employees

If you wish to employ tech talent in China, it’s crucial to learn about the statutory benefits you’re expected to offer each. These benefits were introduced to ensure that all employees in Chile enjoy fair compensation for their work. According to the Chilean labor code, employees in the region are entitled to these benefits: 

• Working Hours: Every employee in Chile is entitled to a 45-hour work week with a maximum of 10 hours per day. However, new legislation has reduced this to a 40-hour work week. This reduction will be introduced in phases to avoid any strain on the local workforce. The weekly working hours limit was be reduced to 44 hours on April 26, 2024; 42 hours on April 26, 2026, and the final reduction to 40 hours will on April 26, 2028. 
• Minimum Wage: All employers are expected to pay their employees fair compensation that aligns with the minimum wage in the country. As of July 1, 2024, the minimum wage in Chile has increased from 460,000 CLP to 500,000 CLP. Overtime will also be paid at 150% of the normal wage rate. 
• Annual Bonus: Employers are expected to pay employees 30% of their net profit as a profit-sharing bonus. While not legally required, many employers settle this bonus as a 13th-month salary. 
• Sick Leave: All employees are entitled to paid time off when they fall sick in the line of duty. However, they must submit a medical practitioner’s report to access this benefit. 
• Maternity and Paternity Leave: Pregnant female employees are entitled to a 24-week leave period. On the other hand, fathers are entitled to a 5-day leave period. However, nursing mothers can transfer their leave to the child’s father. 
• Annual Leave: Employees who have worked more than one year are entitled to 15 days off. The number of days in the annual leave increases as the number of years of service increases, too. Unused leaves can be carried over for up to 2 years, or the employee may receive cash compensation in exchange for the paid time off. 
• Public Holidays: Chile has about 15 public holidays (there could be more depending on the employee’s state or territory), and employers must allow their workers to observe these rest days. 
• Health Insurance: Employers and employees are expected to contribute towards employee health insurance to compensate them in case of any mishap at work. 

Read more: Employee Leave Policies in Chile and Employee and Contractor Termination in Chile

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Article author

Vit Koval

Co-founder at Globy

A top Global Hiring voice on LinkedIn, co-founder of Globy, and host of Default Global. Using deep expertise in global hiring, remote work, and global business expansion to help companies excel worldwide with innovative strategies.