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Employer of Record in El Salvador

Employer of Record in El Salvador

Skuad’s Employer of Record El Salvador (EOR) solutions make business expansion to El Salvador easy and hassle-free. Our unique HR platform allows companies to hire exceptionally talented employees in El Salvador, without having to set up a separate legal entity. It streamlines the process of hiring and onboarding a remote team by handling payroll management, taxation, and other legal compliances. To learn more about Skuad, Book a demo today.

El Salvador at a Glance

Estimated population: 6.4 million (2018) 

Currency: US Dollar

Capital: San Salvador

Officially recognized language: Spanish

Languages frequently used: Spanish

GDP: $53.67 billion purchasing power parity (PPP) (2018)

Employment in El Salvador

The laws governing employment were established in the Labor Code of 1972, which regulates employment relationships between employers and employees. The Ministry of Labor has administrative power over inspections and conciliation hearings. Labor courts are in place to preside over labor disputes. The labor code applies to domestic and foreign employees equally. All labor laws are deemed mandatory and cannot be left out of the employment agreement.  

El Salvador allows foreign companies to hire their citizens through their branches and subsidiaries and are required to comply with the Salvadorian Labor Code. 

All the points above are mandatory for companies that plan to expand their operations into El Salvador. The best way to do so would be to partner with an Employer of Record (EOR) such as Skuad to help place your company at a strategic advantage.

What You Must Know Before Employing In El Salvador

The established Labor Code applies equally to foreign and domestic workers for a foreign company setting up a base in El Salvador.

Employment can be provided strictly based on employment agreements. These have to be written in Spanish and need to contain the employee’s birth date, workplace location, nationality, gender, salary, marital status, job description, duration of work, and the purpose of the contract. Copies of the employment agreement must be made available to the employee, employer, and the General Labor Office within eight days of the commencement of the job.

There are five types of employment contracts.

  • Fixed-term contract: These contracts state the duration and the specific task to be undertaken. In some cases, when they are renewed, they become indefinite contracts. These are used to fulfill the needs of short and medium-term projects. Typically, construction jobs and consultant positions come under the purview of fixed-term contracts.
  • Indefinite contract: These are not defined by a limited time frame, and such employees are taken into the company permanently. As long as the legal conditions are adhered to, either the employee or employer can terminate the contract.
  • Professional services contract: This type of contract is implemented when the company needs to accomplish specific tasks from a professional. This contract need not abide by the statutory agreements. Consultants and freelancers come under the ambit of this contract. 
  • Probationary period labor contract: These contracts are awarded to employees before they are offered a permanent position within the company. The contract gives both the employer and employee a chance to test the scope of their relationship before going forward. These agreements usually last 30 days, and if the employer does not terminate the contract after 30 days, it automatically becomes an indefinite contract.
  • Interim labor contract: This is when a company temporarily fulfills a vacant position by finding a new and permanent worker. The selected employee has the same rights as a permanent employee. The employer has the right to terminate the contract at any time.
Title Entitlements
Permissible working hours Not to exceed 44 hours per week (six days).
Overtime Eligibility
  • Standard working hours in a day are six hours. Anything above six hours is considered overtime.
  • Overtime is paid at 200% of the basic salary of an employee.
  • Overtime is waived off in case of a force majeure.
Paid public holidays Paid public holidays are determined by Swiss cantons (states). Some of the key holidays are,
  • Labor Day (May 1)
  • Day of the Cross (May 3)
  • Soldier’s Day (May 7)
  • Independence Day (September 15)
  • Ethnic Pride Day (October 12)
  • Day of the Dead (November 2)
  • Christmas Day (December 25)
  • New Year’s Eve (December 31)
Paid leave
  • Besides paid public holidays, employees are also entitled to 15 days of paid annual leave. During this period, they are paid 130% of their standard salary.
  • Annual leave cannot be carried over.
Medical Leave
  • Employees can receive up to 26 weeks of paid sick leave.
  • The employer pays for the first three days, and the rest is covered by social security.
Maternity Leave
  • Women are offered 12 weeks of maternity leave before the birth of the child. Thereafter with 6 weeks of leave after the child’s birth.
  • Pre-natal maternity leave can be extended in cases of pregnancy-related illnesses.
  • Eligible employees are likely to receive social security benefits during pregnancy.
  • If the mother becomes temporarily disabled, she will likely receive 100% of the regular pay from social security.
  • After the 4th month of pregnancy, a woman cannot be assigned physical work.
Paternity leave (emergency family leave)
  • Male employees are offered three days of paid leave from the employer.
  • These can be availed during the first 15 days of the child’s birth.
Parental leave There is no provision of this under the law.
Employee protection
  • The formation of labor unions is allowed, but the powers of the unions are limited.
  • Most often, it is difficult to organize workers for specific demands. However, collective bargaining is practiced by labor unions.

To ensure your expansion endeavors are in compliance with the El Salvador employment laws, Contact Skuad today.

Contractors vs. Full-time Employees

Although most of the employed workforce works full-time, a sizable chunk is also employed as temporary workers. According to an International Labor Organization (ILO) report, around 28% of the population was employed as temporary workers till very recently. This directly reflects the country’s economic structure and income level and has less to do with the regulatory framework.

Most of the temporary jobs were in the agriculture and construction fields. Further, temporary workers were also employed in the manufacturing, transport, finance, and public administration domains.

The laws governing temporary contracts remain the same going back to 1979. This was the year when the duration of a temporary contract was increased from six months to two years. At present, most temporary contracts range from one to two years, depending on the type of occupation. Fixed-term contracts are widely used when employing temporary workers.

An alternative way by which companies hire temporary workers is through a Professional Services Contract. In this arrangement, professionals are hired by companies for specific tasks for a specified duration. Freelancers, especially knowledge workers, are hired under this system. Companies seeking to expand in El Salvador can use this arrangement to hire workers from the country.

In El Salvador, companies are also given the option to fill a vacant permanent position with a temporary worker. This arrangement is known as the Interim Labor Contract, where the selected employee enjoys all the perks of a permanent worker. However, the worker can be terminated at any moment at which the company feels their services are no longer required.

The Probationary Period Labor Contract is a viable means by which companies can hire temporary staff. This contract spans approximately 30 days, and companies can make an informed judgment on hiring the worker permanently, based on his performance. If the employee comes up short in his work performance, the company can decide to terminate the employee within the specified period of 30 days.

All full-time workers are awarded indefinite contracts when there is no end-date or expiry date mentioned in their contract. Both the employee and employer have the power to terminate the contract when the need arises, provided both parties adhere to the legalities involved.

Skuad’s EOR services can help you address your queries regarding short-term and full-time employees. Contact us to learn more.

Hiring In El Salvador

With increased internet penetration, job websites have also become critical for finding employment. Websites such as jobboardfinder.com and goabroad.com have special sections that list jobs in El Salvador. Besides this, LinkedIn is a popular platform for finding jobs.

Recruiting local talent in a short duration in El Salvador is challenging. Getting aboard with an EOR can be a worthy move for a company seeking to expand. It will allow your company to focus on business priorities while the EOR manages human resources (HR) and compliance regulations, sourcing, and the overall hiring process. The EOR can expedite the hiring process with virtual on-boarding and sleek applications like the e-signing of documents with selected candidates.

Skuad’s scope of work is not limited to hiring; we can fulfil most of the HR-related work, including payroll management, compliance and tax filing, and expense management. Our EOR services will provide a better experience for both the organization and the candidate.

Book a demo here.

Probation & Termination

According to the ILO website, a probation period of up to 30 days is offered to new employees at El Salvador. The trial period allows an employer to test the performance of a new employee before offering him an indefinite contract.

When an individual is fired, the indefinite contract is dismissed. The employer is obligated to offer a termination letter stating the reason for the dismissal; otherwise, the dismissal is considered void. The valid grounds for dismissal include economic reasons, the worker’s conduct, and the worker’s capacity.

According to the ILO website, the employer is legally obligated to pay compensation of 30 days of pay for each year of work under the employer in the case of unjustified dismissal. 

The only exceptions to this rule are pregnant women and union leaders. They are provided legal immunity against dismissal. 

Skuad’s EOR, with its experience and expertise in the domain of HR, allows organizations to remain compliant with all the laws while carrying out actions such as termination. Moreover, Skuad can draft well-articulated labor contracts while remaining within the legal framework established by the laws of the land. 

EOR Solutions in El Salvador

Business expansion is a long-drawn process that calls for extensive planning, especially when expanding to a foreign country. It is complicated and can take up to several months to complete but by choosing the EOR route for hiring employees in El Salvador, you can fast-track the expansion process. Employer of Record El Salvador (EOR) solutions by Skuad can make expansion to El Salvador much simpler and a lot quicker for business. Our global outreach and a tech-enriched HR platform ensure compliance with local labor laws by managing employment responsibilities such as monthly payroll, work permits, employment contracts as well as taxation for your employees in El Salvador.

Outsourcing Employment Through an EOR in El Salvador 

Entering into an active partnership with an EOR helps save valuable resources that can be diverted into tax management, payroll management, hiring, and other related functions carried by the HR department.

Skuad is proficient in creating tailor-made contracts in compliance with the local laws. Our expertise even extends into amending existing contracts and speedier hiring with practices such as the e-signing of documents.

Types of Visas in El Salvador

Visa Category Explanation Duration
Business Visa
  • This visa is granted for individuals who come for business and trade purposes.
  • Both single-entry and multiple-entry visas are issued.
  • Single-entry visa: 90 days
  • Multiple-entry visa: Up to two years
Frequent Traveler Card
  • The frequent traveler card is for individuals who frequently travel to El Salvador for business purposes.
  • This card allows multiple entries with a stay of up to 90 days for each entry.
Multiple-entry: 90 days of stay for each entry.

Work Permits 

Foreign nationals working in El Salvador require a Temporary Residence Permit and a Work Permit. Both are valid for a period of two years and can extend up to five years. Alternatively, foreign nationals who frequently travel to El Salvador can apply for a Frequent Traveler Card.

Skuad can address all your queries regarding work permits for foreign nationals employed in El Salvador. 

Payroll & Taxes in El Salvador

To set up payroll in El Salvador, you need to have the knowledge of the prevailing laws of the country.

Taxation is also a necessary component of employment and income. Getting aboard with Skuad’s EOR solutions will help you save time, money, and cost and allow you to focus on your business priorities.

Payroll Details

Companies seeking to expand in El Salvador have four options to operate their payroll.

Payroll Type Explanation
Internal You can use an internal payroll if you have a vast subsidiary that seeks to remain in the country for several years.
Remote If your company does not have resources for an internal payroll, you can integrate employees from El Salvador into the payroll of your parent company as remote employees.
Local It is possible for a company to partner with a local Salvadorian payroll processing company to outsource the entire payroll process.
EoR Lastly, the best option is to partner with an EOR and allow them to handle the payroll processing formalities for you.


Taxation in El Salvador

Tax Type Explanation
Income Tax Residents (anyone living in the country for more than 200 days) and non-residents are subject to income tax on their Salvadorian-source income.
Tax is imposed on all types of income derived from employment, capital, goods, and services. Each taxpayer is supposed to file income tax returns according to their taxation policy.
Income tax progressively climbs from 10 to 30%, depending on the rise in income.
Non-residents pay a withholding tax that ranges from 20 to 25% or at reduced rates for Salvadorian-source income generated from certain services.
  • Resident individuals get tax deductions on social security contributions and certain schools and medical expenses.
  • Employees must contribute 3% of their salary to social security and 6.25% to their private pension funds.
  • Capital gains are taxed at 10%.

Incorporation: How to set up a Subsidiary in El Salvador

Many companies get incorporated as a limited liability company (LLC) in El Salvador due to the business freedom and El Salvador’s foreigner-friendly policies. The process is as follows:

Step Count Explanation
Step 1 Sign a deed of incorporation with a notary public.
Step 2 Register with all the public entities, namely, the Registry of Commerce, local City Hall, internal tax office, Pension Fund administrator, Ministry of Labor, and Salvadorian Social Security Institute.
Step 3 Set up a local bank account.
Step 4 The minimum shared capital is $2,000, of which 5% must be paid at incorporation, while the remaining can be injected in a year.

An LLC can be set up with two shareholders and one director. Two of the three members can be foreigners, but one must be a Salvadorian, locally known as the legal representative. All LLCs are liable to appoint an auditor to submit audited financial reports annually. All business entities, including LLCs, are subject to local corporate income tax at 30% on all income sourced from El Salvador.

Skuad’s EOR solutions can help you learn more about this process. 

Professional Employer Organization (PEO)

A Professional Employer Organization (PEO) is responsible for the outsourcing of all your HR functions to an external HR organization, such as payroll and employee benefits. In this arrangement, the outsourced organization becomes the professional employer of your existing workforce without providing any staff.

As the operating employer, you remain in control of assigning daily tasks and managing job functions. The degree of control the outsourced organization has over your employees depends on the service level agreement (SLA).

With the help of an EOR solutions company, the external HR organization only takes partial responsibility for the HR functions. However, in a PEO, the HR organization takes full responsibility for the HR functions in the organization.  

Organizations planning to expand into new territories are better suited with a global EOR which becomes the legal employer on behalf of the organization. Instead of associating with a PEO, a co-employment partner, organizations have more to gain by utilizing the services of a EOR solution. The EOR solution safeguards organizations from unexpected policy changes, loss of control, and potential risks as the EOR bears every legal liability for the organization. In addition to these, the EOR handles payroll, tax, and employment law compliances. To know more about Skuad's EOR solution, Contact Skuad today.

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