Chile, officially called the Republic of Chile, is a country in western South America that has a population of just over 19 million people. The country’s market-oriented policies have unlocked tremendous opportunities for foreign businesses looking to expand into Chile and be part of its economic growth. The sectors luring in high amounts of foreign direct investment (FDI) include financial services, telecommunications, wholesale trade, chemical manufacturing, energy and minerals.
- The Global Opportunity Index, presented by the Milken Institute, has ranked Chile as the top economy in Latin America (LATAM) for investment based on five key indicators: business perception, economic fundamentals, financial services, institutional framework and its international policies.
- Chile is catching the attention of global tech companies. For example, EdgeConneX, a pioneer in edge data centers and a member of Oracle PartnerNetwork (OPN), maintains a data center in Santiago and recently announced plans to build a second Chilean facility to meet LATAM’s growing demand for technological infrastructure.
- Chile has been focusing on becoming a leader in sustainability and the circular economy, with plans supported by FDI projects. For example, France-based Michelin recently announced plans to build the first tire recycling plant in Antofagasta, which will notably process tires from the local mining industry. In the future, it will accommodate waste from neighboring countries like Argentina and Perú.
- According to the Global Innovation Index, Chile ranks first in LATAM for innovation and has been climbing the ranks globally since 2017. In particular, as a testament to its sophisticated workforce, Chile ranks particularly high for its research and talent capabilities.
What are some key principles multinational companies (MNCs) should be aware of when hiring in Chile for the first time?
The rights of employees and duties of employers in Chile are derived from various statutory sources, including the National Constitution, the Labor Code, statutes/decrees, policy amendments and judicial decisions.
An employment contract in Chile must be specified in writing and executed within 15 days from the initiation of services by employee. If the contract’s duration is less than 30 days or if the length of terms is not mentioned in the contract, the time to execution is five days. If the labor contract is not put in writing within the aforementioned time frame, the terms of conditions shall be indicated by the employee and the employer will then bear the burden of proof.
There is a 45-hour cap per week on working hours, distributed across no more than six and no fewer than five days. Employees with the power to manage employees, work without direct supervision, work at home or in a location other than the workplace are excluded from these limits. The ordinary workday cannot exceed 10 hours. Any work in excess of 10 hours a day and 45 hours a week is considered overtime, and employers must observe limitations on the amount of overtime work allowed.
As a general rule, an employer in Chile cannot terminate a labor contract at will. Terminations must be grounded by a company-related business need. Recently, the labor courts have become increasingly strict when considering if the invoked business grounds are enough to justify a termination. However, trust positions (such as managers or employees entitled to broadly act on behalf of the company) can be terminated without invoking business needs. Thus, in those cases, a written eviction is enough.
If a labor contract is terminated due to a company’s needs (e.g. downsizing or a change in economic conditions) or in the case of termination at will (when permitted by law), the employer may need to pay severance to the terminated employee. The severance amount is typically equal to one month of salary for each year worked, as long as the employee has been in service greater than six months. Otherwise, the amount will be pro-rated. If the termination notice is not at least 30 days, the employee will be entitled to receive a severance compensation equivalent to one month’s remuneration.
Why is demand growing in Chile for Employer of Record (EOR) services?
While MNCs want to take advantage of burgeoning opportunities in Chile, there are still risks, requirements restrictions that make the investment process difficult. In particular, the Chile’s unique labor framework often makes it more difficult for MNCs to directly hire and manage employees. For example, labor courts are, by rule, sensitive to employee rights and will typically rule in favor of employees’ protection. Also, the labor code was amended in 2020, during the pandemic, to introduce new regulations specific to remote work.
Furthermore, there are onerous administrative burdens placed on HR teams in Chile. For example, employers must manage a dedicated payroll ledger book, detailing all remunerations paid, social contributions and taxes deducted. This must also be submitted to and stamped by the Chilean IRS (Servicio de Impuestos Internos) on a correlative basis, creating more administrative work for the HR department.
For these reasons, MNCs often find the EOR model a suitable alternative to setting up a local entity and hiring locally. Effectively, by partnering with an EOR, the MNC can eliminate the burdensome risks, requirements and restrictions that typically come along with hiring in Chile – while still drawing from Chile’s innovative talent pool.
How can partnering with GoGlobal help MNCs grow their team in Chile?
While Chile offers favorable economic conditions and a talented workforce, the strict labor code and administrative requirements can make HR processes particularly challenging. Essentially, GoGlobal assumes all the legal liabilities and handles the burdensome administrative requirements. This way, our clients can focus on the core business activities that help them scale and thrive – without being bogged down by red tape and paperwork.
Our innovative EOR solution has a proven track record of success in building fully compliant workforces in LATAM markets, offering expertise on the region’s complex regulatory compliance frameworks that give special attention to employee rights. We take pride in promoting a global mindset, but we also maintain teams of local experts on the ground in each market we serve. Therefore, our dedicated team in Chile knows the “ins and outs” of the regulatory environment, staying up to date on all requirements. At the same time, they are also fully practiced in Chile’s business customs and the local culture, offering a comfortable experience for clients and client-employees.
If your company offers a positive employee experience in your home country, GoGlobal will help you bring it to Chile. Before we begin the onboarding process, our onshore team in Chile will work hands-on with the newly hired team members to explain how the EOR arrangement operates. Throughout the arrangement, that same dedicated team stays as the point of contact for both the client and client-employee. We remain available to address questions that come up in the areas of payroll, taxation or benefits. In serving our clients and client-employees, our goal is to infuse the end-to-end global hiring experience with agility, efficiency and peace of mind.