Introduction to Payroll in Ecuador
With its low cost of living, convenient VAT rates, and exciting opportunities for new businesses and start-ups, Ecuador can be a great country to consider for your company’s expansion.
If you want to find, recruit, and retain the best talent in Ecuador, though, you need to know how to manage payroll in the country. Payroll processing in Ecuador can be very complicated, particularly if you approach it without the help of a specialized payroll provider.
This is why teaming up with Skuad can help. As your trusted payroll provider in Ecuador, we can take all the load off and let you get on with what you do best: running a successful business.
All payroll processes include a pre-and post-payroll phase, which in turn are composed of several stages. It’s easy to get confused and feel overwhelmed by all these requirements, but Skuad is by your side to provide the support you need to simplify payroll.
This phase is essential, as it determines how the rest of the payroll process will be managed.
The first step in the pre-payroll phase is establishing a business profile in Ecuador. This is mandatory as it allows you to submit all the forms and paperwork to the Ecuadorian entities that you need to liaise with.
Different parts of Ecuador may follow different labor and employment laws. Remember to always check what the laws are in your specific area.
One of the most important components of the pre-payroll phase is employees' leave. Make sure that you have a clearly communicated set of policies on leave and vacation days.
Work attendance is another essential factor to pre-payroll, as it enables you to calculate your employees’ salaries. Defining and communicating policies around work attendance, absence, and special permissions is paramount.
In Ecuador, laws around labor and employment are regulated by the Work Code, 2005, which was last updated in 2012.
In Ecuador, employees are paid either monthly or bi-monthly.
Calculating the salary for each individual employee requires gathering a lot of information about that employee, including specific working hours, sick leave(s), special benefits, and more.
Payroll Calculation Phase
This phase can only be managed after the pre-payroll phase has been finalized correctly. At this stage, companies calculate the salary for their workforce, always in compliance with both local and national labor and employment laws.
One of the most substantial expenses of a company is represented by employees’ salaries. This can also be one of the most complicated and time-consuming phases, especially if you decide not to work with a payroll provider.
Keeping track of all the salaries that have been paid out is essential, which is why it’s important to have a solid internal accounting department that can handle this.
Payroll Reporting and Compliance
Salary pay-outs also need to be reported to the appropriate Ecuadorian agencies and departments, and the information needs to be included in invoices and tax returns.
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Payroll processing in Ecuador can be rather complex, and it can become difficult to keep track of the exact amounts that both employers and employees need to contribute in terms of taxes.
Payroll Processing Company in Ecuador
One of the best ways to navigate payroll processing in Ecuador with ease, security, and efficiency is by partnering with a global payroll provider, like Skuad.
Payroll outsourcing in Ecuador can help companies of all sizes and across all industries to manage all aspects of payroll in a transparent, competent, and compliant fashion.
Other payroll management options include:
- Internal payroll. This option requires paying your employees through an Ecuadorian subsidiary. This is a more costly alternative, as it means recruiting specialized HR staff.
- Remote payroll. With this approach, you can manage payroll in Ecuador through your parent company. This can work out cheaper than internal payroll, but it also means knowing all the local and national labor laws, and always keeping up-to-date with any changes.
An Ecuadorian payroll processing company. This approach requires performing comprehensive market research in order to find a reputable and professional local agency that you can trust with your Ecuadorian payroll.
Complying with Ecuadorian regulations requires understanding all the components of national laws and how these affect payroll management and calculation. Typically, payroll in Ecuador includes standard pay with both additions and deductions.
Since January 2022, the Ecuadorian government has established the minimum wage at $425 per month. This excludes all social benefits as well as the 13th and 14th salaries.
The so-called 13th salary is an extra monthly bonus that consists of the proportional monthly fraction of 1/12 of all the money paid by the employer throughout the year. This extra salary is not mandatory, but if offered by the company must be paid no later than December 22.
Ecuador also has a so-called 14th salary. This equals the monthly minimum wage, and if offered, it can be paid in either March or August.
Working Hours in Ecuador
The standard working hours in Ecuador are 8 per day, or 40 per week, spread over five days a week. Employees on a part-time work contract usually work less than 160 hours per month.
Overtime Work in Ecuador
Hours beyond the weekly average of 40 are considered overtime work. This type of work must not exceed 4 hours a day, or 12 hours a week. When overtime work occurs during the day, employees are paid an extra 50% on top of their standard hourly rate.
If overtime work takes place at night (between 12am and 6am), employees are paid 100% more for every hour of extra work.
Terminating a contract of employment in Ecuador is not easy. This can only happen when a just cause has been found, including:
- Work-related offences
In Ecuador, there is no mandatory notice period when it comes to terminating an employee’s contract. All the policies around termination need to be stipulated internally within the company and must be clearly communicated in the contract of employment.
When an employee gets terminated, they are entitled to severance pay that includes one month’s salary multiplied by the amount of years that that employee has worked with the company. The number of years is capped at a maximum of 25.
In Ecuador, provided that an employee has been working for the same employer for at least 180 consecutive days, they are entitled to receive up to two months of sick leave every year, paid at 50% of their standard salary.
Ecuador observes a range of public holidays, both on a local and on a national level, with a minimum of ten and a maximum of 14 being officially on public holidays lists. According to Ecuadorian law, employees shall not work on any of the ten officially-recognized public holidays.
Below is a list of the main national holidays in Ecuador:
- January 1— New Years
- Carnival (different dates every year)
- May 1 — Labor Day
- The Battle of Pichincha (different dates every year)
- Independence Day (different dates every year)
- Independence of Guayaquil (different dates every year)
- November 2 — All Soul’s Day
- November 3 — Independence of Cuenca
- December 25 — Christmas
- December 26 — Christmas Holiday
Maternity and Paternity Leave
Maternity leave in Ecuador establishes that new mothers are entitled to 12 weeks of paid maternity leave. This leave is paid in full but is divided as follows:
- 25% of leave is paid directly by the employer
- 75% of leave is paid by social security
There are special laws around multiple births, births of children with special needs or congenital diseases, and stillbirths or babies dying soon after birth.
Ecuador’s paternity leave entitles new fathers to a maximum of ten days off in the case of natural birth, 15 days in case of multiple births or births via C-section, and 23 days in case of premature birth or birth of a baby with special needs.
In Ecuador, employees can receive 15 consecutive days of annual leave. These include weekends, which means 11 working days plus 4 weekend days. The Ecuadorian law also includes special provisions for other types of leave, including student leave, childcare leave, and military leave.
Start Building Your Remote Team in Ecuador Today
Payroll in Ecuador is not an easy task to perform in a smooth, efficient, and compliant way. Adding to the difficulties of having to deal with the labor laws of a different country is the fact that Ecuadorian businesses and authorities mostly communicate in Spanish — a language that might not be familiar to a US-based company.
If you have decided to expand your business to Ecuador, therefore, a great option is to outsource payroll to a specialized partner like Skuad. Check out our FREE demo to discover how we work and what we can do for you, and start planning your Ecuadorian expansion today.