Hire employees in Chile using an Employer of Record

Chile requires 14-month salaries, profit-sharing payments, and specific termination procedures that most companies discover after they've already made hiring promises. Miss these requirements and you'll owe back payments plus penalties when employees find out their rights.

Setting up a legal entity in Chile costs €25,000-45,000 upfront and takes 4-6 months minimum. Your perfect hire can't wait that long, and neither can your business goals.

You've got three options for hiring in Chile:

Option 1: Set up your own entity

• Cost: €25,000-45,000 upfront, €8,000-15,000 annual maintenance
• Timeline: 4-6 months minimum
• Complexity: RUT registration, labor law compliance, payroll system, mandatory profit-sharing calculations
• Makes sense when: Hiring 25+ people long-term, permanent market presence

Option 2: Hire contractors

• Cost: None upfront, but limited control
• Timeline: Immediate
• Risks: Misclassification fines (€15,000+), back taxes, mandatory employee benefits owed
• Makes sense when: Short projects (< 6 months), specialized consulting
• Note: Hire with Columbus also handles contractor agreements and payments

Option 3: Use an employer of record (Recommended for most)

• Cost: $179/month per employee
• Timeline: 2-3 days to hire
• Complexity: None - we handle everything including 14-month salary calculations
• Makes sense when: 1-50 employees, testing markets, multi-country teams

If you're hiring 1-8 people, entity setup costs more than 4+ years of EOR fees ($179/month = $2,148/year per employee). An EOR like Hire with Columbus handles employment contracts, 14-month salary calculations, mandatory profit-sharing, tax compliance, and all the regulatory updates you'd otherwise need a local HR team to manage.

Ready to hire in Chile without the compliance headaches? Get started with Hire with Columbus.

What employment types can you use?

You found the perfect candidate in Santiago, but here's the real question: how do you actually get them on payroll without spending six months setting up a Chilean entity?

You've got three paths forward, and the costs tell the whole story. Setting up your own entity runs about $15,000-25,000 USD upfront plus ongoing compliance headaches. Hiring contractors seems cheaper until you face misclassification fines of up to $50,000 USD. Or you can use an employer of record like Hire with Columbus for $179/month per employee and start hiring in 2-3 days.

Let's break down what each option actually means for your timeline and budget.

How can you hire in Chile?

Setting up your own entity

This makes sense if you're planning to hire 20+ people and stay in Chile long-term. You'll need to register with the Chilean tax authority (SII), set up payroll systems, and maintain ongoing compliance with labor laws.

The math: $20,000 setup plus $3,000-5,000 monthly for accounting, payroll, and legal compliance. That's $56,000-80,000 in year one before you pay a single employee.

Hiring contractors/freelancers

Chilean labor authorities don't mess around with misclassification. If your "contractor" works set hours, uses your equipment, or follows your processes like an employee, you're looking at hefty fines plus back taxes and benefits.

The test is simple: can they work for competitors simultaneously and control how they deliver results? If not, they're probably employees in the government's eyes.

Note: Hire with Columbus also handles compliant contractor agreements and payments if you genuinely need freelance work done.

Using an employer of record (recommended)

Here's how it works: Hire with Columbus becomes the legal employer in Chile while you manage the day-to-day work and performance. We handle employment contracts, payroll, tax compliance, benefits, and all legal requirements.

Cost comparison for 5 employees:

• Entity setup: $56,000+ in year one
• EOR: $895/month ($10,740 annually)

You save $45,000+ and start hiring immediately instead of waiting months for entity approval.

Employment contract types in Chile

Once you've decided how to hire (hopefully through an EOR), you need to pick the right contract type. Chilean labor law recognizes several options, but most international companies use indefinite-term contracts for full-time roles.

Indefinite-term contracts (permanent)

This is your standard full-time employment contract with no end date. It's what most companies use for core team members because it offers the most flexibility for both sides.

Employees get full benefits and job security. You get someone committed to the role without worrying about contract renewals every few months.

Fixed-term contracts

These work for specific projects or temporary needs, but Chile limits them to 12 months maximum. You can't just keep renewing them to avoid permanent employment - after 12 months or two renewals, the contract automatically becomes indefinite-term.

Use these for maternity leave coverage, seasonal work, or when you're genuinely unsure about long-term needs.

Part-time contracts

Part-time employees (less than 45 hours per week) get the same rights as full-time workers, just prorated. They're entitled to vacation, sick leave, and benefits based on their hours worked.

This works well for specialized roles that don't need full-time attention or when testing someone before offering full-time employment.

Project-based contracts

These end when a specific project completes, but the project must have a clear, defined scope and timeline. You can't use project contracts for ongoing business operations.

Chilean courts scrutinize these heavily, so make sure your project has genuine start and end dates with specific deliverables.

How Hire with Columbus handles contracts

We draft all employment contracts in Spanish (required by law) and ensure they comply with Chilean labor regulations. You tell us the role requirements, salary, and contract type - we handle the legal language and local compliance requirements.

For permanent roles, we typically recommend indefinite-term contracts. They're straightforward, give you the most flexibility, and avoid the renewal complications that come with fixed-term agreements.

If you need a fixed-term contract for legitimate business reasons, we'll structure it properly and handle the conversion to permanent employment if needed. No surprises, no compliance headaches.

How does payroll and taxation work?

Your €60,000 employee actually costs €84,000 per year in Chile. That 40% markup comes from employer social security contributions, mandatory bonuses, and Chile's complex tax structure that most companies underestimate.

Here's what you're really paying for when you hire in Chile.

Income tax brackets

Chile uses a progressive tax system with rates that climb quickly. Your employees will see these deductions from their gross salary:

The good news? Most international hires fall into the middle brackets. The bad news? You're also paying employer contributions on top of these salaries.

Social security contributions breakdown

Chile's social security system hits both you and your employees. Here's who pays what:

Employee contributions (deducted from salary):

• Pension (AFP): 10% of gross salary
• Health insurance: 7% of gross salary (minimum)
• Unemployment insurance: 0.6% of gross salary
• Disability insurance: ~1.5% of gross salary

Employer contributions (your additional cost):

• Unemployment insurance: 2.4% of gross salary
• Work accident insurance: 0.95% of gross salary (average rate)
• Training tax (SENCE): 1% of gross salary

Your total employer contribution rate sits around 4.35% of gross salary. That's relatively low compared to other South American countries, but it's just the beginning of your actual costs.

Payment schedule and mandatory bonuses

Chilean employees expect their salary split into 12 monthly payments, but you're actually paying for 14+ months of work each year.

Monthly payments:

• Salary due by the last business day of each month
• No flexibility on this deadline - late payments trigger immediate penalties

Mandatory bonuses:

• Christmas bonus (Aguinaldo): One month's salary paid in December
• Vacation bonus: 50% of monthly salary when employees take vacation
• Profit sharing: Up to 25% of annual profits distributed among employees (for companies with profits over ~€27,000)

These bonuses aren't optional perks. They're legal requirements that add roughly 15-20% to your annual salary costs.

Total employment cost example

Let's break down what a €60,000 annual salary actually costs you:

Base salary: €60,000 Employer social contributions (4.35%): €2,610 Christmas bonus: €5,000 Vacation bonus (assuming 15 days): €2,500 Work accident insurance variations: €300 Administrative and compliance costs: €1,500

Total annual cost: €71,910

That's a 20% markup before you factor in equipment, office space, or management time. And this assumes no profit-sharing obligations.

For higher salaries, the costs get worse. An €80,000 salary typically runs about €98,000 all-in once you include all mandatory contributions and bonuses.

Payroll cycle and deadlines

Chile's payroll calendar is strict. Miss these dates and penalties start immediately:

Monthly cycle:

• Payroll must be processed by the last business day of each month
• Tax withholdings due by the 12th of the following month
• Social security contributions due by the 20th of the following month
• Annual tax reconciliation due by April 30th

Quarterly requirements:

• VAT declarations (if applicable) due by the 20th of the month following each quarter
• Profit sharing calculations due within 120 days of fiscal year-end

The Chilean tax authority (SII) doesn't send friendly reminders. Late payments incur immediate interest charges of 1.5% per month, plus penalties that can reach 100% of the amount owed.

Common payroll mistakes

Most companies mess up Chilean payroll in predictable ways:

Miscalculating vacation bonuses. The 50% vacation bonus applies to base salary only, not including overtime or commissions. But companies often calculate it wrong and either overpay or underpay, both of which create compliance issues.

Missing profit-sharing deadlines. If your Chilean entity shows a profit, you have exactly 120 days to calculate and distribute profit sharing. Miss this deadline and you'll pay the full amount plus penalties.

Confusing Christmas bonus timing. The Christmas bonus must be paid by December 23rd, not December 31st. Many companies assume they have until year-end and get hit with late payment penalties.

Forgetting work accident insurance variations. The 0.95% rate is average - your actual rate depends on your industry risk classification. Office work might be 0.5%, while manufacturing could hit 3.4%. Using the wrong rate creates problems during audits.

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Setting up payroll in Chile yourself:

• Local accounting firm: €800-1,200/month
• Payroll software: €200-400/month
• Compliance risk: Fines up to €15,000 for calculation errors
• HR expertise needed: €45,000+ annual salary

With Hire with Columbus: $179/month per employee, fully compliant, zero penalty risk. We handle all calculations, deadlines, and regulatory changes automatically.

What benefits and leave are required?

Chile employees get 15 working days minimum vacation after one year of employment, and you can't just let it pile up forever. Unused vacation must be compensated at termination, and employees can only carry over a maximum of 10 days to the following year with employer approval.

Here's what gets expensive fast: beyond the vacation days, you're looking at mandatory health insurance contributions, pension payments, and unemployment insurance that add about 23% to your total employment costs.

Annual vacation leave

Every employee earns 15 working days of vacation after completing one full year of service. The vacation accrues progressively throughout the year, so employees earn about 1.25 days per month worked.

You can't force employees to take vacation during specific periods unless it's operationally necessary and agreed upon in the contract. Employees with 10+ years of service get one additional day per year, maxing out at 20 working days.

Vacation payout rules:

• Unused vacation must be paid out at termination
• Payment calculated at current salary rate
• Maximum carryover of 10 days requires written employer approval
• No "use it or lose it" policies allowed

Sick leave entitlements

Employees can take up to 3 days of sick leave without a medical certificate - after that, they need a doctor's note from a public health service or certified private provider.

The employer pays 100% of salary for the first 3 days. From day 4 onwards, Chile's social insurance system (FONASA or ISAPRE) covers sick leave payments, typically at 100% of salary for up to 11 months depending on the condition.

Key sick leave requirements:

• No limit on annual sick leave days (as long as medically certified)
• Employer pays first 3 days at full salary
• Social insurance covers extended periods
• Pregnancy-related sick leave has special protections

Parental leave breakdown

Chile offers some of the most generous parental leave in Latin America, but it's complex to administer correctly.

Maternity leave:

• 18 weeks total (6 weeks before birth, 12 weeks after)
• 100% salary paid by social insurance
• Can transfer up to 6 weeks to the father
• Job protection guaranteed

Paternity leave:

• 5 working days mandatory (employer pays)
• Additional 6 weeks if mother transfers time
• Must be taken within first 18 months of child's life

Public holidays 2025

Chile has 16 public holidays in 2025, including some that move based on government decisions. Employees who work on public holidays get double pay.

Important: Some holidays may be moved to create long weekends. The government typically announces these changes in January.

Mandatory benefits and contributions

You'll pay these contributions on top of salary every month - there's no way around them.

Employer contributions (23% of gross salary):

• Health insurance: 7% (FONASA or ISAPRE)
• Pension fund: 10%
• Unemployment insurance: 2.4%
• Work accident insurance: 0.95% (average rate)
• Training fund: 1%
• Severance fund: 1.65%

Employee deductions:

• Pension fund: 10%
• Health insurance: 7%
• Unemployment insurance: 0.6%

The employee's take-home pay gets hit with these deductions plus income tax, while you're paying the employer contributions on top of their gross salary.

Bonus payments (gratificaciones)

Most Chilean companies pay a 13th-month bonus, though it's not legally mandatory. However, if you promise it in the contract or it becomes customary, it becomes legally binding.

The bonus is typically paid in December and equals one month's salary. Some companies split it between September (Fiestas Patrias) and December.

Optional competitive benefits

To attract talent, many companies offer benefits beyond legal minimums:

• Private health insurance upgrades
• Life insurance
• Meal vouchers or cafeteria services
• Transportation allowances
• Flexible working hours
• Additional vacation days
• Training and development budgets

Common benefit administration mistakes

Missing contribution deadlines: Social security contributions are due by the 10th of each month. Late payments trigger penalties starting at 1.5% per month.

Incorrect vacation calculations: Remember that vacation is calculated in working days, not calendar days. A common mistake is using calendar days for calculations.

Health insurance enrollment errors: New employees must choose between FONASA (public) or ISAPRE (private) within 30 days. If they don't choose, they default to FONASA.

Severance fund miscalculations: The 1.65% severance contribution applies to all employees, not just those with indefinite contracts.

Administering these benefits correctly requires significant local expertise and systems. You're looking at hiring local HR specialists (around $35,000-50,000 annually), benefits administration software, and legal reviews to avoid costly mistakes.

Hire with Columbus handles all benefit administration, contribution calculations, and compliance requirements for $179/month per employee. We ensure your team gets their benefits on time while you focus on growing your business instead of wrestling with Chilean payroll regulations.

What are the compliance requirements?

Written contracts are mandatory in Chile within 15 days of an employee's start date. Skip this deadline and you're looking at fines up to 5 UTM (about $400 USD) per employee, plus the contract gets deemed indefinite-term with full employment protections.

Employment contract requirements

Every employment contract in Chile must be written in Spanish and include specific mandatory clauses. You can't just translate your standard agreement and call it done.

Required contract elements:

• Employee's full name, nationality, age, marital status, and profession
• Nature of services and workplace location
• Start date and contract duration (if fixed-term)
• Working hours and schedule
• Salary amount and payment frequency
• Vacation entitlements and calculation method

The contract must be signed by both parties and registered with the Labor Directorate within 60 days if it's a fixed-term agreement. Miss the registration and the contract automatically becomes indefinite-term.

Hire with Columbus handles all contract drafting in compliant Spanish and manages registration requirements, so you don't accidentally create indefinite employment when you meant fixed-term.

Probation periods

Probation periods in Chile max out at six months for most employees. For senior management roles, you can extend this to 12 months, but only if explicitly stated in the contract.

During probation, either party can terminate with just five days' written notice. After probation ends, full employment protections kick in and termination becomes much more complex and expensive.

Key probation rules:

• Must be clearly stated in the employment contract
• Cannot be extended once the employee starts working
• Applies only to the employee's first contract with your company
• If you rehire someone later, no new probation period allowed

Working time regulations

Chile's standard work week is 45 hours maximum, typically spread across Monday to Friday. Employees can work up to 10 hours per day, but weekly limits still apply.

Overtime kicks in after 45 hours per week and must be paid at 150% of regular hourly wage. You need written employee consent for overtime work, and it's capped at two hours per day.

Rest requirements:

• Minimum 30-minute lunch break for shifts over six hours
• 11 consecutive hours of rest between workdays
• One full day off per week (typically Sunday)

You're required to maintain detailed records of working hours, overtime, and rest periods. Labor inspectors can request these records during audits, and missing documentation results in fines.

Notice periods by tenure

Notice requirements in Chile depend on how long the employee has worked for you. Both employee and employer notice periods are the same.

You can pay in lieu of notice, but the employee must agree in writing. If they refuse payment and demand to work the notice period, you can't force them to leave early.

Termination process

Firing someone in Chile requires "just cause" or proper economic justification. You can't terminate at-will like in some countries.

Valid termination reasons:

• Serious misconduct or breach of duties
• Economic necessities (company restructuring, financial difficulties)
• Technological changes affecting the role
• Employee's lack of performance after proper warnings

For economic dismissals affecting 10+ employees within 90 days, you need prior approval from the Labor Directorate. The process includes a 30-day consultation period where employee representatives can challenge the dismissal.

Terminations without just cause are considered "unfair dismissal" and result in additional compensation on top of standard severance.

Severance pay calculations

Severance pay in Chile depends on the reason for termination and length of service. The calculations get complex quickly.

Severance is calculated using the employee's average monthly salary over the last three months, including bonuses and commissions. You must pay severance within 60 days of termination or face additional penalties.

For employees with over one year of service, you're also required to pay "años de servicio" (years of service compensation) equal to 30% of monthly salary per year worked.

Data protection obligations

Chile's Personal Data Protection Law requires explicit consent for processing employee data. You can't just assume consent because someone accepted a job offer.

Employee data requirements:

• Written consent for data collection and processing
• Clear explanation of what data you're collecting and why
• Right to access, correct, and delete personal information
• Secure storage and transmission of employee data

Cross-border data transfers require additional safeguards. If you're storing employee data outside Chile, you need adequate protection measures and often explicit consent for the transfer.

The National Transparency Council can impose fines up to 2,000 UTM (about $160,000 USD) for serious data protection violations.

Common compliance mistakes

Most companies mess up employment contracts by missing mandatory clauses or using incorrect Spanish translations. Invalid contracts get deemed indefinite-term, giving employees much stronger job protection than intended.

Frequent errors we see:

• Using generic contract templates not specific to Chilean law
• Missing employee personal details required by law
• Incorrect vacation calculations (Chile uses a unique formula)
• Failing to register fixed-term contracts within 60 days
• Not obtaining written consent for overtime work
• Improper termination procedures leading to unfair dismissal claims

Another common mistake is misclassifying employees as independent contractors. Chilean authorities actively audit contractor relationships, and misclassification results in back payments for all employment benefits plus penalties.

Penalties for violations

Chilean labor law violations carry specific fines that add up quickly. The Labor Directorate doesn't negotiate on these amounts.

Common compliance failures in Chile:

• Invalid employment contract: 1-5 UTM fine ($80-$400 USD) + contract deemed indefinite-term
• Wrong termination process: Additional 20-80% severance + legal fees + potential reinstatement order
• Missing mandatory contract clauses: Contract voided, back payments for all benefits owed
• Improper overtime payments: Double payment of owed overtime + 1-20 UTM fine ($80-$1,600 USD)
• Workplace safety violations: 1-1,000 UTM ($80-$80,000 USD) depending on severity
• Data protection breaches: Up to 2,000 UTM ($160,000 USD) for serious violations

Hire with Columbus ensures every contract, termination, and employment practice follows Chilean law exactly. Our local legal team reviews all documentation and handles government filings, so you avoid these costly compliance failures entirely.

What has changed recently?

Chile's been busy with workplace reforms in 2025, and honestly, some of these changes are going to make your life more complicated if you're trying to hire there.

The biggest shift? Chile updated its Labor Code in March 2025 to strengthen remote work protections. Companies now have to provide a monthly technology allowance of at least CLP $45,000 (about $47) for remote employees, plus cover internet costs up to CLP $25,000 monthly. You can't just say "work from home" anymore and leave employees to figure out their setup.

New mandatory benefits hitting your budget

Starting July 2025, Chile introduced a mandatory mental health benefit. Employers with 15+ employees must now provide access to psychological counseling services either through their health insurance or by contracting external providers. The minimum coverage is 6 sessions per employee annually, costing roughly CLP $180,000 per employee per year.

Parental leave got an upgrade too. As of January 2025, paternal leave increased from 5 to 15 working days, and it's fully paid by the employer (not social security). For a company with 20 male employees, you're looking at potentially 300 extra paid days off annually if everyone becomes a dad.

Salary transparency is now the law

Chile's new pay equity law took effect in April 2025. You must include salary ranges in all job postings and provide annual compensation reports to employees upon request. The penalty for non-compliance? Up to CLP $15 million (about $15,600) per violation.

Companies with 50+ employees also need to conduct annual pay gap audits and submit reports to the Labor Directorate by March 31st each year. Miss the deadline and you're facing fines starting at CLP $5 million.

Severance calculation changes

The severance cap increased substantially in 2025. Maximum severance is now 11 months of salary (up from 10.4 months), and the calculation base includes variable compensation like bonuses and commissions earned in the last 12 months.

If you're using an EOR like Hire with Columbus, these changes are already built into our compliance framework. We handle the technology allowances, mental health benefit administration, and keep your job postings compliant with the new transparency requirements, all for $179/month per employee. Way easier than trying to track every regulatory update yourself.