Hire employees in Paraguay using an Employer of Record

Paraguay requires 14-month salaries, mandatory profit-sharing, and complex labor court procedures. Miss these requirements and you'll owe back payments plus 20% penalties when employees find out during their annual labor rights review.

Your perfect candidate accepted the offer. Now you need to actually hire them legally in Paraguay. Setting up a local entity costs $15,000-40,000 upfront and takes 4-6 months minimum. Your hire can't wait that long, and neither can your business.

Here's the reality: you've got three options to hire in Paraguay, each with different costs, timelines, and headaches.

Option 1: Set up your own entity

• Cost: $15,000-40,000 upfront, $8,000-15,000 annual maintenance
• Timeline: 4-6 months minimum
• Complexity: Tax registration, labor ministry filings, social security setup, accounting infrastructure
• Makes sense when: Hiring 20+ people long-term, permanent market presence

Option 2: Hire contractors

• Cost: None upfront, but limited control
• Timeline: Immediate
• Risks: Misclassification fines ($5,000+), back taxes, mandatory employee reclassification
• 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
• Makes sense when: 1-50 employees, testing markets, multi-country teams

If you're hiring 1-10 people, entity setup costs more than 4-5 years of EOR fees ($179/month = $2,148/year per employee). An EOR like Hire with Columbus handles employment contracts, 14-month salary calculations, profit-sharing distributions, tax filings, and labor law compliance updates. Example: Hiring 3 people costs $537/month vs $25,000+ entity setup plus $12,000/year maintenance.

Ready to hire in Paraguay without the legal complexity? Get started with Hire with Columbus and have your team member onboarded this week.

What employment types can you use?

You found the perfect candidate in Paraguay. Now comes the fun part: figuring out how to legally employ them without setting up your own company or accidentally creating a compliance nightmare.

You've got three paths here, and the costs vary wildly. Let's break down what each approach actually means for your timeline and budget.

How can you hire in Paraguay?

Here's your decision matrix with real numbers:

Set up your own entity

This is the traditional route. You'll incorporate a local subsidiary, register for taxes, set up payroll systems, and handle all employment law compliance yourself.

• Upfront costs: $15,000-25,000 for incorporation, legal fees, and setup
• Timeline: 4-6 months to get everything running
• Ongoing: $2,000-3,000 monthly for accounting, legal, HR, and compliance
• When it makes sense: You're planning to hire 20+ people long-term and want full control

The math only works if you're committed to Paraguay for the long haul. For most companies testing the market, it's overkill.

Hire contractors/freelancers

Fast and cheap upfront, but Paraguay's labor authorities don't mess around with misclassification.

• Speed: Start immediately with a contractor agreement
• Risks: Fines up to $50,000 for misclassification, plus back taxes and benefits
• Limitations: Can't control how they work, when they work, or integrate them like employees
• When it works: Projects under 6 months, truly independent specialized work

Paraguay looks at the actual working relationship, not just your contract. If they work your hours, use your tools, and take direction like an employee, you'll get hit with penalties.

Use an employer of record (Recommended)

This is where Hire with Columbus comes in. We become the legal employer in Paraguay while you manage the day-to-day work.

• Cost: $179/month per employee
• Timeline: Hire in 2-3 days instead of months
• We handle: Contracts, payroll, taxes, benefits, compliance, terminations
• You handle: Managing their work, performance, and daily tasks
• ROI example: 5 employees costs $895/month vs $25,000+ entity setup

For most companies, this is the sweet spot. You get compliant employment without the entity overhead.

Employment contract types in Paraguay

Once you've decided on your hiring approach, you need to pick the right contract type. Paraguay recognizes several employment arrangements, each with specific rules.

Indefinite-term contracts (permanent)

This is your standard full-time employment contract with no end date.

• Use for: Core team members, long-term roles
• Benefits: Full employment protections, easier to budget
• Termination: Requires cause or severance payments
• Notice: 30-60 days depending on tenure

Most companies hiring through an EOR use indefinite contracts for their core team. It gives employees security and you get full integration.

Fixed-term contracts

These have a specific end date and are heavily regulated in Paraguay.

• Maximum duration: 5 years total (including renewals)
• Automatic conversion: Becomes permanent if you exceed limits
• Use for: Project work, seasonal roles, maternity cover
• Restrictions: Can't use for permanent business needs

Paraguay treats repeated fixed-term contracts as permanent employment. If you keep renewing, you'll automatically convert to indefinite terms.

Part-time contracts

Part-time employees get proportional benefits and protections.

• Hours: Less than 48 hours per week (full-time standard)
• Benefits: Proportional vacation, social security, bonuses
• Flexibility: Can work specific days or reduced daily hours
• Conversion: Can move to full-time with contract amendment

Part-time works well for specialized roles or when testing market demand before committing to full-time positions.

Trial periods

All contracts can include a trial period for new hires.

• Duration: Up to 90 days for most roles
• Extensions: Not permitted - it's 90 days maximum
• Termination: Either party can end with minimal notice
• Benefits: Employee still gets social security and basic protections

The trial period gives you flexibility to assess fit without full termination procedures. After 90 days, standard employment protections kick in.

How Hire with Columbus handles contracts

We draft compliant contracts for any employment type you need. Whether you're hiring a permanent developer or a part-time marketing specialist, we handle the legal language and ensure everything meets Paraguay's requirements.

Our contracts include all mandatory clauses, proper trial periods, and clear termination procedures. You focus on finding great people - we make sure the paperwork protects everyone involved.

How does payroll and taxation work?

Your €60,000 employee in Paraguay actually costs €78,000 per year once you add employer contributions. The 30% markup comes from social security, healthcare, and mandatory bonuses that catch most companies off guard.

Paraguay uses a progressive income tax system, but the real complexity lies in the employer-side contributions and mandatory 13th-month salary payments.

Income tax brackets

Here's what your employees pay on their salaries in 2025:

The good news? Paraguay's income tax rates are relatively low compared to other South American countries. Most of your payroll burden comes from employer contributions, not employee taxes.

Social security and employer contributions

This is where Paraguay gets expensive. You'll pay significant contributions on top of every salary:

The professional risk insurance rate depends on your industry. Office work pays 0.5%, construction pays up to 4%. Most tech companies fall into the lowest bracket.

That family allowance contribution funds benefits for employees with children. You pay it regardless of whether your specific employees have kids.

Payment schedule and mandatory bonuses

Paraguay employees expect monthly salary payments, typically on the last business day of each month. But there's something that trips up most international companies: the mandatory 13th-month salary.

You must pay an additional month's salary in December, calculated as one-twelfth of the employee's total annual earnings. If someone earned €60,000 during the year, their December bonus is €5,000.

Vacation pay works differently too. Employees get 12 working days of paid vacation after one year, increasing to 18 days after five years. When they take vacation, you pay their regular salary plus a 30% vacation bonus.

Total employment cost breakdown

Let's break down the real cost of that €60,000 salary:

Base salary: €60,000 Social security (16.5%): €9,900 Professional risk (0.5%): €300 Family allowance (5%): €3,000 13th month salary: €5,000 Vacation bonus (estimated): €600

Total annual cost: €78,800

That's a 31% markup on the base salary. Plan your budget with this in mind.

Payroll processing deadlines

Paraguay's tax authority (SET) takes deadlines seriously. Your monthly schedule looks like this:

• Salary payment: Last business day of each month
• Tax withholding deposit: 15th of following month
• Social security contributions: 10th of following month
• Monthly tax return: 15th of following month

Miss any of these deadlines and you'll face penalties starting at 75,000 PYG (about €9) plus 1% monthly interest. The penalties escalate quickly for repeat offenses.

Common payroll mistakes

Most companies stumble on these Paraguay-specific requirements:

Miscalculating the 13th month. It's not just December's salary. It's one-twelfth of total annual earnings including overtime and bonuses.

Forgetting vacation bonuses. That 30% premium on vacation pay isn't optional. Employees expect it automatically.

Wrong social security rates. The 16.5% employer rate applies to all salary levels. There's no cap like in some countries.

Late contribution payments. Social security contributions are due on the 10th, tax withholdings on the 15th. Don't confuse the dates.

Setting up compliant payroll in Paraguay yourself means hiring local accounting expertise (€2,000+ monthly), implementing payroll software (€300+ monthly), and managing constant compliance updates. One mistake with social security contributions can trigger audits costing thousands in legal fees.

With Hire with Columbus, you get fully compliant Paraguay payroll for $179/month per employee. We handle all tax calculations, contribution payments, and regulatory filings automatically. Your employees get paid on time, you stay compliant, and you can focus on growing your business instead of deciphering Paraguay tax codes.

What benefits and leave are required?

Paraguay employees get 12 days minimum vacation after one year, and you'll need to pay it out if they don't use it. But that's just the start – you'll also pay salary 14 times a year thanks to mandatory aguinaldo bonuses in July and December.

Here's what gets expensive fast: beyond the extra salary payments, you're looking at mandatory social security contributions, health insurance through the Instituto de Previsión Social (IPS), and specific leave entitlements that can catch you off guard.

Annual vacation

Paraguay requires 12 working days of paid vacation after one full year of employment. Employees earn one day per month worked during their first year.

Vacation doesn't carry over to the next year – it's use-it-or-lose-it, but "lose it" means you pay cash compensation at full salary rate. Most companies prefer employees actually take the time off rather than deal with the payout calculations.

Employees can split their vacation into two periods minimum, but they need at least one continuous week off. You can't force someone to take vacation in single-day increments.

Sick leave

Employees get unlimited sick leave, but here's the catch: you only pay the first three days. After that, social security (IPS) covers 50% of salary from day 4 onwards.

You'll need a medical certificate for any absence longer than three consecutive days. For shorter periods, a simple notification works, but employees can't abuse this – patterns of Monday/Friday absences will require documentation.

IPS handles the paperwork and payments after day three, but you'll need to notify them within 48 hours of receiving the medical certificate. Miss this deadline and you might end up paying the full salary yourself.

Parental leave

Maternity leave: 18 weeks total – 6 weeks before birth and 12 weeks after. IPS pays 50% of salary, but most companies top this up to full pay to stay competitive.

Paternity leave: 2 weeks at full pay (employer covers this cost). Fathers can take this immediately after birth or split it during the first month.

Breastfeeding breaks: Working mothers get two 30-minute breaks daily until the child turns one. These are paid breaks, and you can't ask them to make up the time later.

Public holidays 2025

Paraguay has 9 fixed public holidays plus moveable dates. Work these days and you'll pay double salary – no exceptions.

If a holiday falls on Sunday, the following Monday becomes a paid holiday. This happens with New Year's Day in 2025.

Mandatory benefits

Social security (IPS): You'll pay 16.5% of gross salary, employees pay 9%. This covers healthcare, pensions, and disability insurance. There's no salary cap, so high earners cost more.

Aguinaldo (13th and 14th salary): Pay one extra month's salary in July and another in December. Calculate this as total earnings divided by 12 – it includes overtime and bonuses, not just base salary.

Severance fund: Set aside 8.33% of each month's salary in case of termination. You can keep this in your books, but you'll owe it immediately when someone leaves (unless they quit or get fired for cause).

Optional competitive benefits

Most international companies offer private health insurance on top of IPS coverage. Local healthcare through IPS works fine for routine care, but private insurance gets you faster specialist appointments and better facilities.

Life insurance isn't required but costs around 0.5% of salary and helps with talent retention. Many companies also provide meal vouchers (up to 20% of minimum wage tax-free) and transportation allowances.

Flexible work arrangements are becoming standard, especially for tech roles. Paraguay's labor code doesn't specifically address remote work, so you'll need clear policies in employment contracts.

Common benefit mistakes

Aguinaldo calculation errors: Include all variable pay – overtime, commissions, bonuses. Companies often forget this and face labor ministry fines starting at $2,000 USD per violation.

IPS registration delays: Register employees within 48 hours of start date. Late registration means retroactive contributions plus penalties of 2% monthly interest.

Vacation payout miscalculations: When someone leaves, calculate unused vacation based on their current salary, not what they earned when they accrued the days. This trips up companies with employees who got raises.

Missing severance provisions: If you don't set aside the 8.33% monthly severance fund and can't pay immediately upon termination, you'll face additional penalties and potential labor court issues.

Administering these benefits correctly requires local HR expertise (€45,000+ annual salary), benefits software (€300+/month), and legal review (€5,000/year). Risk of calculation errors can cost €10,000+ in fines and back payments.

Hire with Columbus handles all benefit administration, IPS registrations, and aguinaldo calculations for $179/month per employee. We also maintain your severance fund calculations and ensure compliance with all leave requirements automatically.

What are the compliance requirements?

Written contracts aren't optional in Paraguay. They're mandatory. Verbal agreements don't count and will expose you to claims. The Labor Code requires every employment relationship to be documented in writing within 30 days of the start date, or you'll face automatic penalties.

Employment contract requirements

Every contract must be written in Spanish and include specific mandatory clauses. You can't skip these. Missing even one can void the entire agreement.

Required contract elements:

• Employee's full name, nationality, and civil status
• Job title and detailed description of duties
• Workplace location (specific address)
• Start date and contract duration (if fixed-term)
• Salary amount and payment frequency
• Working hours and schedule
• Vacation entitlement details
• Termination notice periods

The contract must be signed by both parties and registered with the Ministry of Labor within 15 days. Skip this registration and you're looking at fines starting at 10 minimum wages (around $3,200 USD in 2025).

Probation periods

Standard probation in Paraguay is 90 days for most positions. You can extend this to 180 days for technical or managerial roles, but only if it's specified in the original contract.

During probation, either party can terminate with just 24 hours' notice. After probation ends, full employment protections kick in and termination becomes much more complex and expensive.

Working time regulations

Maximum working hours are 48 per week (8 hours daily). Overtime kicks in after 8 hours in a day, not after 40 hours in a week like some countries.

Overtime rates:

• Weekday overtime: 50% premium
• Sunday/holiday work: 100% premium
• Night work (10 PM - 6 AM): 30% premium

You must maintain detailed time records for all employees. The Labor Ministry can audit these at any time, and missing records result in automatic fines of 5-15 minimum wages per violation.

Notice periods

Notice requirements depend on how long someone's worked for you. Both employee and employer notice periods are the same in Paraguay.

Notice must be given in writing. Verbal notice doesn't count and you'll still owe the full notice period payment if you terminate without proper written notice.

Termination process

You can only terminate employees for "just cause" or economic reasons. Personal performance issues rarely qualify as just cause under Paraguay law. You need documented serious misconduct.

Just cause examples:

• Theft or fraud
• Repeated absences without justification
• Insubordination or violence
• Breach of confidentiality

For economic dismissals, you need approval from the Labor Ministry if you're terminating more than 10% of your workforce. The process takes 60-90 days and requires detailed financial documentation.

Severance pay

Severance is mandatory for most terminations except just cause dismissals. The calculation is complex and depends on tenure and termination reason.

The calculation uses average salary over the last 12 months, including bonuses and overtime. Get this wrong and you'll face additional penalties equal to the miscalculated amount.

Data protection

Paraguay follows its Personal Data Protection Law (similar to GDPR principles). You need explicit consent to process employee personal data beyond what's required for employment.

Key requirements:

• Written consent for background checks
• Secure storage of employee records
• Right to data access and correction
• Data breach notification within 72 hours

Violations can result in fines up to 2% of annual revenue or $100,000 USD, whichever is higher.

Common compliance mistakes

Invalid employment contracts: Missing mandatory clauses voids the entire agreement. You'll owe back payments as if no contract existed, plus penalties of 10-20 minimum wages.

Wrong termination process: Firing without proper cause or notice triggers automatic severance plus 50% penalty. Legal fees typically add another $5,000-15,000 USD.

Missing wage records: Incomplete time tracking results in presumption that employee worked maximum legal hours. You'll owe the difference plus penalties.

Improper dismissal procedures: Skipping required consultations or approvals can result in reinstatement orders plus back pay for the entire period.

Penalties for violations

Paraguay's Labor Ministry takes employment violations seriously. Fine amounts increased substantially in 2025.

Common violation penalties:

• Unregistered employment contract: $3,200 USD
• Missing mandatory contract clauses: $1,600-4,800 USD
• Improper termination: 150% of owed severance
• Wage payment delays: 20% of delayed amount daily
• Missing overtime payments: Double the owed amount
• Inadequate record keeping: $800-2,400 USD per employee

Hire with Columbus ensures every contract includes all mandatory clauses in proper Spanish translation. We handle the Labor Ministry registration, maintain compliant time records, and manage the entire termination process when needed. Our legal team stays current on Paraguay's frequent labor law changes so your contracts always meet current requirements.

What has changed recently?

Paraguay's employment rules got a major shake-up in 2025. New regulations now affect everything from remote work to tax obligations.

The biggest change? Paraguay launched its new Digital Nomad Visa program in March 2025. This makes it way easier for companies to hire remote workers legally. The visa lets foreign employees work for international companies while living in Paraguay for up to two years, with simpler tax rules and streamlined residency requirements.

New remote work regulations

Paraguay passed new remote work legislation in January 2025 that requires written agreements for all remote positions. Companies must now provide equipment allowances (minimum 15% of salary), cover internet costs, and maintain specific health and safety standards for home offices.

The law also says remote employees get the same rights as office workers. That includes overtime pay and disconnection rights. Employees can refuse to answer work communications outside of agreed hours without getting in trouble.

Tax system updates

The income tax brackets got completely redesigned in 2025. The tax-free threshold jumped from ₲36,000,000 to ₲42,000,000 annually (about $5,600 USD). Paraguay also introduced a new 12% bracket for middle-income earners.

Social security contributions changed too. The employer rate went up from 16.5% to 17.5% to fund expanded healthcare coverage. Employee contributions stayed at 9%.

Employment contract requirements

Paraguay now requires all employment contracts to include specific clauses about data protection and digital rights. Companies must clearly state how employee data will be used, stored, and protected. Non-compliance can cost you up to $50,000 USD.

Probation periods got more flexible. The standard 90-day period can now stretch to 180 days for technical positions with mutual agreement. This gives both sides more time to figure out if it's a good fit.

Holiday and leave changes

Paraguay added two new public holidays in 2025: Digital Innovation Day (May 17) and Environmental Protection Day (September 22). Both are paid holidays that affect payroll calculations.

Parental leave expanded quite a bit. Maternity leave increased from 18 to 20 weeks, while paternity leave doubled from 2 to 4 weeks. Companies with over 50 employees must now offer flexible return-to-work schedules for new parents.

Minimum wage adjustments

The minimum wage increased 8.5% in 2025 to ₲2,680,373 monthly (approximately $357 USD). This affects more than just direct salaries. It also impacts overtime calculations, severance payments, and various allowances tied to minimum wage multiples.

For EOR arrangements, these changes mean updated compliance procedures and contract templates. Hire with Columbus automatically handles these regulatory updates. Your Paraguay employees stay compliant with all new requirements while you focus on growing your team.