Labor Matters

1. Which is the regulatory frame in labor matters in Chile?

Chile has fairly refined labor laws that are mainly contained in the 1994 Labor Code. Some of the most important provisions are detailed below.

The Labor Board (Dirección del Trabajo) is responsible for advising on and regulating this area.

The Labor Code regulates labor relations in the private sector. Workers in the public and municipal sectors are subject to a special statute.

The right to work in a non discriminatory environment is established in the Article 19, No. 16 of the Constitution. In addition, the Constitution acknowledges the right to form a union, to negotiate collectively and to strike.

1.1. Are there any restrictions regarding the nationality of workers?
Where a workforce comprises more than 25 employees, a minimum of 85% of those employees must be Chilean nationals. This restriction may be relaxed, among others, in cases where foreign technicians or experts have skills otherwise unavailable in Chile.

1.2. Which are the rules to manage employer-employee relations?

Relations between employers and employees are basically governed by the Labor Code, contained in Decree in Force Law No. 1 of January 7, 1994, amended by Law 19,759 of October 5, 2001, which regulates both individual and collective relations between employers and employees.

1.3. Which are the formalities required to carry out a labor contract?

Where a relationship of employer and employee exists (i.e. where the employee is personally rendering services under the subordination of the employer and receiving remuneration for such services), the employment contract must be put into writing. If this is not done, the law will imply a written contract and a court, when deciding the terms of the contract; will agree with the employee’s version of the terms (except where the employer brings evidence to rebut such terms).

1.4. Are there any restrictions in order to fire an employee?

Employers have the right to terminate employment contracts only on the grounds set out in the Labor Code, in certain cases with the payment of compensation and in other cases without.

1.5. Which is the work week? Are there any limitations to work hours?

There are restrictions on the maximum hours that can be worked in a week and rules on rest periods and vacations. The normal working week is limited to 45 hours. Offices and banks normally operate Monday through Friday. In general, a minimum break of 30 minutes must be allowed in the middle of the day. Such period is not considered as worked time, and therefore is not added to the working week.

If working conditions require continuity of labor, a shift system may be established with the approval of the Labor authorities. The normal working period may be extended by mutual written agreement to a maximum of two hours more a day, provided such an extension is not detrimental to the health of the worker.

1.6. How are the wages established?

There is a monthly minimum wage. Employers making profits are required to share those profits with employees.

Employers have no obligation to provide fringe benefits. Pension, sickness, maternity and disability benefits are covered by social security institutions. There is no obligation to provide canteen facilities and meals, but enterprises do, in fact, normally provide them.

1.7. How does the Social Security System work?

Through Decree Law No. 3,500 of November 1980, a private social security system was created. Social security is managed by private entities called Administrators of Pension Funds (AFPs). The contributions are placed in an individual fund made up of certain qualified investments, such as government securities or fixed term deposits in banks.

Some tax benefits has been established in order to increase saving.

All employees are required to make health care, pension and unemployment insurance contributions. Although these contributions are to the employee’s account, it is the employer who is legally bound to withhold from the employee’s wage the proper amounts and pay them to the employee’s pension and health care providers.

Furthermore, the system provides compensation insurance in relation to work-related accidents and professional illnesses (which is set up by the State or by private entities called Mutualidades). This insurance covers employees injured in work-related accidents or suffering work-related illnesses. Employer’s contributions vary and are a percentage of the payroll. Employers must also pay a percentage for unemployment insurance.

These obligations must be fulfilled during the first 10 days following the month of payment.

1.8. Is the client entitled to apply for the resident permit in Chile after the completion of the company setup?

In general, to work legally in Chile a foreign employee will need an employment contract visa or a temporal residential visa.

Foreign employees will be required to pay Chilean income tax on their Chilean income, and in general, after 3 years residence, on their worldwide income.
In the case of certain South American countries such as Argentina or Brazil an identity card is sufficient. This matter is based on reciprocity. A work permit is required to perform any kind of remunerated activity in the country.