What you need to know about labor laws in Peru

Peru has become an attractive investment target for foreign businesses, thanks to its macroeconomic stability and economic performance. It stands indeed as one of the fastest-growing economies in Latin America, and in 2020, its gross domestic product (GDP) is forecast to expand by 3.2 percent and 3.6 percent in 2021.

If you are planning to start a business in Peru and employ local talent, you must be aware of the next key labor laws.

Key Labor Laws in Peru

1. Hiring Process and Labor Contracts

In Peru, there are three different types of employment agreements. Indefinite-term contracts are considered a general rule for establishing a labor relation ―these are not required to be formalized in writing. Moreover, fixed-term contracts and part-time contracts must be signed in writing in order to specify the reasons for hiring.

As part of the hiring process, employees undergo a trial period that generally lasts three months. During this period, workers can be dismissed without the right to indemnity. However, in the case of a trustworthy position or qualified worker, this period can be extended up to six months, and for management positions, it can be extended up to twelve months.

The main authorities responsible for the enforcement and compliance of labor laws are:

• The Ministry of Labor and Job Promotion (Ministerio de Trabajo y Promoción del Empleo, MTPE)
• The National Superintendence of Labor Inspections (Superintendencia Nacional de Fiscalización Laboral, SUNAFIL)

2. General Employment Regulations

In general, Peruvian employees work a maximum of 8 hours per day (or 48 hours per week), having the right to take one day off per week. The monthly salary must not be less than the minimum statutory wage.

When it comes to overtime, including working on holidays, employees must receive an extra payment agreed between both parties. According to the law, during the first two hours, this payment must not be less than 25 percent of the total employee's wage; and for the remaining hours, the compensation cannot be less than 35 percent.

3. Labor Benefits and Obligations

These are the main employee benefits in Peru:

• Vacations: Right to take thirty days of paid vacation ―equivalent to a monthly wage― per each full year effectively worked. Employees can negotiate in advance their vacations through a written agreement, even though the year of service is not completed yet.
• Family Allowance: Workers can apply for this benefit if they have one (or more) dependent child under 18 years old or if they have older children enrolled in university (until 24 years old).
• Legal Bonuses: Every year, employees must receive two statutory bonuses equal to one monthly salary; the first is granted in July for the Independence Day holidays, and the second is paid in December for the Christmas holidays.
• Extraordinary Bonuses: Employers must pay, at the same time, as the legal bonuses, two extra compensations equal to 9 percent of statutory bonuses, or 6.75 percent for workers affiliated to a Healthcare Service Provider Company (EPS).
• Severance Pay (Compensación por Tiempo de Servicios): An employment insurance that represents approximately one and a half of the monthly salary (1.16666%) per year, granted in May and November.
• Profit-Sharing: Businesses with more than twenty workers must distribute a percentage of their annual income (set by law).

If you want to expand your business in Peru but need help to comply with each local labor law, then an International PEO is your best option. With a PEO, you will have access to highly qualified Human Resources professionals with a deep understanding of Peruvian employment regulations.