Focus on: Labour & Employment Law in Peru

Benites, Vargas & Ugaz

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1. Hiring

1.1. Peruvian citizens

In Peru, labour legislation is quite protective regarding the dismissal of employees. The general hiring rule implies a preference and presumption of indefinite-term hiring and only by exception and in the cases provided by legislation (just 9 cases), fixed-term hiring is allowed. These cases are related to temporary and objective reasons.

Fix-term contracts must be written and signed by employees; also, they must consider in the contract the temporary cause that generates the contracts, and this should match perfectly with the type of contract that is celebrated, otherwise, the contract should be considered as inexistent, and the employee will be placed in a position to claim for an indefinite-term contract. The legislation also considers an open clause that allows temporary hiring when the employee has a temporary and objective need, but this doesn’t match with the fix-term contracts established by law.

Laboral legislation does not establish any quantitative limit for hiring staff on a fixed-term contract, in that sense, employers can hire the number of employees necessary under this type of contract as long as they establish there the temporary reasons to justify the hiring in all cases.

1.2. Foreign employees

The labour relationships of foreign citizens entering Peru to provide dependable services to a domiciled company are regulated by the Foreign Personnel Hiring Act. This law ensures that national employees and foreign employees have the same rights and benefits but in practice, there are some differences regarding the procedure of hiring and the limits for foreign employees hiring.

Regarding the procedure, foreign employees need to celebrate a special temporary contract and register this contract in the Ministry of Labor and Employment Promotion (MTPE); this registration is necessary to obtain an immigration status (visa) that allows them for working.

On the other side, regarding the hiring limits, labour law establishes that foreign employees must not exceed 20% of the total personnel of a company and the total remuneration received by foreign employees must not exceed 30% of the total payroll. There is a possibility for companies to request to be exempted from these limits but just in the case of professionals and/or specialized technical personnel, or management personnel for new business activities, or in the event of a corporate restructuring or reorganization, among others.

Also, none of the limits apply to foreign employees who:

  • provide services in Peru on an immigrant visa
  • are married to Peruvian citizens, or who have Peruvian children, parents, or siblings
  • are foreign investors with a permanent investment in Peru of at least five (5) Tax Units (UITs); or,
  • provide services in the country under bilateral or multilateral agreements executed by the Peruvian Government, among others.

2. Salary and Social benefits

In terms of labour benefits, employees whether they are hired for an indefinite term or a fixed term contract, have the same labour benefits, which represent around 15 salaries per year, plus the profits that are paid before the annual declaration of income tax; profits are not considered a salary.

Our law establishes a minimum wage which is adjusted periodically by the Peruvian government in coordination with the National Laboral Council; the minimum wage has been recently increased and now the amount is around USD 280.00. The labour benefits that our legislation considers are:

  1. Family allowance: this benefit applies to employees whose remuneration is not regulated by collective bargaining if they have one or more dependent children under the age of 18 or doing university or technical studies under 24 years. It is equivalent to 10% of the minimum wage.
  2. Legal bonuses: these are paid two times a year, one in July (national holidays) and another in December (Christmas); each bonus is equivalent to one month’s pay. The legal bonuses are exempt from any provision, contribution, and discount of any nature, e.g., social health insurance and private pension system, except for the discount for income tax and those authorized by the employee. Also, the employer must pay the worker directly 9% of the value of this benefit if the worker is registered with the public health system (Essalud) or 6.75% if is registered with a private health care entity (Entidad Prestadora de Salud, EPS).
  3. Compensation for time worked, which applies to employees who work at least 4 hours per day. The amount is a half remuneration plus 1/6 of semestral remunerative bonuses paid in a period of 6 months considering May to October and November to April. This benefit is deposited into a bank or financial account chosen by the employee. The employee could access to the deposit when the labour relationship ends.
  4. Profit sharing, this benefit only applies to companies with over 20 employees on payroll and whose activities generate third-category income. Employers share their profits by distributing a percentage of the yearly pre-tax income. The profits are calculated based on the yearly salaries and the number of worked days. The law establishes the percentage that the employer must distribute among its employees depending on the kind of activities the company does; the percentage ranges between 5% and 10%. The share in profits must be distributed within 30 calendar days of the deadline established in the legal provisions for submitting the annual sworn income tax return.
  5. Annual leave, which is equivalent to thirty (30) calendar days of rest, with one (1) month of paid remuneration upon completion of each year of service; some companies consider this minimum in working days (22) which be a better condition for employees. The use of annual leave days should be agreed upon between the employer and the employee, if an agreement is not reached, the employer will decide the annual leave period on behalf of the employee. The annual leave period could also be split by a written agreement between employer and employee. It is possible to split it into two periods of 15 days each. The first one must be a period of not less than 7 and 8 days, consecutive, the remaining period can be enjoyed in periods of less than 7 days.

In case employees do not spend their annual leave within the following year they earn this benefit, they are entitled to the annual leave salary plus a compensation that is similar to a monthly salary. This compensation does not a applies to management personnel who have the possibility to determine and choose to spend their annual leave or not.

3. Social security, safety, and health

Regarding social security contributions (EsSalud), employers are forced to make contributions for all their employees, including foreign employees, based on the total monthly compensation, including compensation in kind, with certain exceptions such as profit sharing payments and extraordinary bonuses. The rate of this contribution is 9% of the employee’s compensation.

In terms of pension contributions, the contribution for the National Pension System (ONP) is 13% of the employee’s compensation, and the contribution for the Private Pension System (AFP) is 10% of the employee’s compensation, plus commission for the pension fund administration and insurance premiums for handicap and burial coverage.

In addition, since the beginning of the year 2020, based on a very known case of a fatal work accident, employers are required to hire a life insurance for the employees that provide benefits for disability, death, or death. worker’s burial since the beginning of the employment relationship. This insurance is in addition to the health insurance and to the insurance for hazardous work (SCTR) that employers must hire.

Finally, the legislation is quite rigorous about occupational health and safety. A series of obligations and a comprehensive prevention duty have been established that ultimately result in the main employer being responsible for safeguarding all events related to the safety and health of the employees who provide services in their workplace, including third-party personnel or people with civil contracts. This implies that companies have a high responsibility in complying with the duty to prevent the generation of work accidents, professional illnesses, and any damage to the health of employees or people who work within the company.

It is important to say additional contributions may apply depending on the type of activities the company does.

4. COVID-19 measures

Based on the declaration of State of National Emergency thought by Supreme Decree N°044- 2020-PCM, the government has established several changing labour measures that employees might comply with. The accomplishment of these measures has been supervised by SUNAFIL through a different administrative procedures.

Some of the most representative measures are:

  • Remote work has been established since COVID-19 and applies in cases where it could not be implemented a license with payment should apply. Remote work is effective until December 31, 2022. The employer must respect and guarantee the employees’ right to digital disconnection.
  • Presential work is allowed but employees should demonstrate their complete vaccination scheme. If not, and the labour activities are not compatible with remote work, the labour relationship will be suspended with no salary pay.
  • In communication with unions, employers could use communication technologies.
  • The covid-19 supervising Plan is another duty of the employers, they must elaborate a document where the employer all the safety measures consider avoiding Covid-19 in the labour center. These measures must be based on the regulation given by the Ministry of Health, which is very changing.

5. Subcontracting and outsourcing

Regarding outsourcing, our country still allows the outsourcing of activities through two schemes: labour intermediation and outsourcing. In the first case, the companies must be exclusively created for this purpose, and they are just allowed to provide complementary, temporary, or highly specialized services. In the case of outsourcing companies, they do not need to dedicate themselves just to this purpose, this scheme supposes to outsource an integral production process, so cannot involve just the transfer of employees: the provision must include an integral service that is part of the company’s main activity, which means that the outsourcing company must have its own resources, its own workers, independence in the execution of services and plurality of clients.

Regarding outsourcing, currently, the main current modification is the one introduced by Supreme Decree 001-2022-TR, on February 23 of this year. This norm has modified the regulation of the law of outsourcing, restricting its content to services that exclude the core of the business of the company, a definition, and restriction not contained in the Law that regulates this figure.

The disputed standard does not specify the definition of the concept of “core business” and limits itself to pointing out that outsourcing cannot be related to activities that make up this, establishing some criteria to recognize the so-called “core business”, among them:

1. The corporate purpose of the company.
2. What identifies the company in front of its final clients.
3. The differentiating element of the company, within the market in which it develops its activities.
4. The company’s activity generates added value for its customers.
5. The activity of the company that usually reports the highest income.

The norm is in force and has established that those employees of outsourcing companies that are carrying out activities that are part of the core of the business must be transferred to the payroll of the main company within 180 days of the enactment of the norm, that is, until August 22, 2022. The consequences of this measure are that SUNAFIL (Inspection Labor Authority) could fine the main companies that do not comply with this provision, this being a most serious fine in terms of outsourcing (the most onerous of the legislation), in addition to giving to the outsourced employees a position to initiate a judicial claim to recognize a direct employment relationship with the main company.

A big sector of labour experts considers that this modification seriously violates the principle of normative hierarchy insofar as the regulation restricts the initial figure recognized by the Law, as well as an affectation of the right to freedom of contract; we agreed with this position. If this modification continues to be in force, Peru would be joining the list of countries in South America that prohibit outsourcing nuclear activities, including Venezuela, Bolivia, Ecuador, and Mexico.

6. To keep on the radar

One of the most important changes that have been planned by the current government is the implementation of the Labor Code, the preliminary draft of this document was published on April 13. This document, which is in the period of receiving comments and proposes, has included some important regulatory modifications, among them, expressing recognition of principles that help to interpret the labour regulation in a more favorable and protective sense for the employees, as well as the inclusion and regulation of Holdings with the purpose of facilitating their identification; In addition to establishing solidarity between the companies that comprise it, regarding labour and social security obligations.

Regarding labour contracts, the general rule of preference for contracting for an indefinite term is maintained and the assumptions of contracting for a fixed term are restricted (from 9 to 6 cases); Regarding them, one of the most important changes is the elimination of contracts subject to the modality for start a new activity, business reconversion and emergency; and intermittent and seasonal contracts are now considered contracts of indefinite duration.

Limits are placed on the validity of non-competition, exclusivity, and permanence agreements that have never been regulated in our legislation, but only contractually.

Regarding intermediation and outsourcing, the regulation contemplates the recent modification introduced by Supreme Decree 001-2022-TR, which restricts outsourcing activities, prohibiting services that are part of the core of the business of the main company, restricting this figure to services of an occasional nature. The Draft does not make any reference to the intermediation of activities.

The law also includes the regulation of teleworking as the only alternative to remote work, which also implies an agreement between employer and worker; This regulation is quite similar to the one we maintain in force.

One of the most important changes in the section about unions is the proposal to reduce the minimum number of workers to create a union (from 20 to 10 in the case of a company union).

Finally, some important inclusions on equality, equal pay, and non-discrimination have been considered.