Hire employees in Uruguay using an Employer of Record

You need someone in Uruguay by next quarter. Your lawyer just said entity setup takes 6 months minimum. The math doesn't work.

Here's the reality: setting up a legal entity in Uruguay costs $15,000-25,000 upfront plus 4-6 months you probably don't have. Your perfect candidate can't wait around while you deal with tax registrations, labor law compliance, and mandatory benefit structures. They'll take another offer.

You've got three ways to hire in Uruguay, and the choice depends on your timeline, budget, and how many people you're planning to hire.

Option 1: Set up your own entity

• Cost: $15,000-25,000 upfront, $8,000-12,000 annual maintenance
• Timeline: 4-6 months minimum
• Complexity: Tax registration, social security enrollment, payroll infrastructure, HR compliance
• Makes sense when: Hiring 15+ people long-term, permanent market commitment

Option 2: Hire contractors

• Cost: None upfront, but limited control and significant risks
• Timeline: Immediate
• Risks: Misclassification penalties up to $50,000, back tax obligations, employment disputes
• Makes sense when: Short projects under 6 months, specialized consulting work
• Note: Hire with Columbus also handles compliant contractor agreements

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

• Cost: $179/month per employee
• Timeline: 2-3 days to hire
• Complexity: Zero — we handle everything
• Makes sense when: 1-15 employees, testing the market, multi-country expansion

The math is pretty straightforward. If you're hiring 1-5 people, entity setup costs more than 4-5 years of EOR fees ($179/month = $2,148/year per employee). An EOR handles employment contracts, payroll processing, tax compliance, mandatory benefits, and legal updates automatically. You get compliant hiring without the overhead, legal risk, or months of waiting.

Ready to hire in Uruguay without the setup delays? Get started with Hire with Columbus and have your team member onboarded this week.

What employment types can you use?

You've got three ways to bring someone onboard in Uruguay. Let's break down how the costs and risks stack up.

How can you hire in Uruguay?

Before we get into contract types, you need to pick your hiring approach. Each option comes with different costs, timelines, and headaches.

Set up your own entity

This means incorporating a subsidiary in Uruguay and handling everything yourself.

• Upfront costs: €18,000-25,000 for incorporation, legal fees, and initial setup
• Timeline: 4-6 months to get fully operational
• Ongoing costs: Annual compliance (€3,000), accounting (€1,500/month), legal fees (€800/month)
• When it makes sense: 20+ employees long-term, permanent market commitment
• Complexity: Full tax registration, payroll system setup, labor law compliance, HR infrastructure

You'll need a local registered office, minimum capital of €2,000, and ongoing board meetings. Plus someone who actually understands Uruguay's labor laws.

Hire contractors/freelancers

Looks tempting because of the speed, but Uruguay's labor authorities don't mess around with misclassification.

• Speed: Can start immediately with a contract
• Risks: Misclassification fines up to €15,000 per employee, plus back taxes and social security contributions
• Limitations: Can't control how or when they work, limited integration with your team
• When it makes sense: Short-term projects under 6 months, specialized consulting work

Uruguay uses a "reality over form" test. If someone works set hours, uses your equipment, or follows your processes, they're likely an employee regardless of what your contract says.

Note: Hire with Columbus also handles compliant contractor agreements and payment processing if you genuinely need freelancers.

Use an employer of record (Recommended)

We become the legal employer in Uruguay while you manage the day-to-day work.

• Cost: $179/month per employee
• Timeline: Hire in 2-3 days instead of months
• We handle: Employment contracts, payroll, tax compliance, benefits administration, legal requirements
• When it makes sense: 1-50 employees, testing the market, multi-country teams, avoiding entity setup
• ROI example: 5 employees costs $895/month vs €25,000+ entity setup plus €2,500+ monthly overhead

You get full control over hiring, managing, and (if needed) terminating employees. We just handle the legal and administrative complexity.

Employment contract types in Uruguay

Once you've picked your hiring approach, you need to match the right contract type to your needs.

Indefinite-term contracts (permanent)

This is your standard full-time employment contract. Most companies use this for core team members.

• Use for: Full-time roles you expect to last over a year
• Benefits: Employee gets full job security and benefits
• Termination: Requires notice periods and severance (more on this in compliance section)
• Probation: Up to 90 days where either party can terminate with short notice

Fixed-term contracts

These have specific end dates and strict legal requirements in Uruguay.

• Maximum duration: 5 years total (including renewals)
• Renewal rules: After 4 renewals OR 5 years, automatically becomes permanent
• Use for: Seasonal work, project-based roles, maternity leave replacements
• Termination: If you end early without cause, you owe the remaining salary

Uruguay won't let you use fixed-term contracts to dodge permanent employment obligations. You need a legitimate business reason like seasonal demand or temporary project work.

Part-time contracts

Part-time employees get the same rights as full-time workers, just prorated.

• No minimum hours: But you must specify exactly how many hours they'll work
• Benefits: Full healthcare, vacation days (prorated), social security
• Overtime: Anything over contracted hours counts as overtime
• Use for: Roles that genuinely require fewer hours, not cost-cutting

Trial periods and probation

All employment contracts can include a probationary period.

• Duration: Maximum 90 days for most roles
• Notice: Either party can terminate with 7 days' notice during probation
• Benefits: Employee still gets social security and basic protections
• Extension: Cannot be extended beyond 90 days

Which contract type should you choose?

The practical breakdown:

For full-time core team members: Indefinite-term contract with 90-day probation. Gives you flexibility early on and standard employment relationship after.

For project work: Fixed-term contract only if you have a genuine end date (like a 6-month software project). Don't use this to avoid permanent employment obligations.

For reduced hours: Part-time contract with specific hours clearly defined. Remember they get full benefits prorated.

For senior roles: Indefinite-term with longer notice periods (you can negotiate up to 3 months for executive positions).

When you use Hire with Columbus, we draft the right contract type based on your specific situation and make sure it complies with Uruguay's labor laws. We'll also handle any contract modifications or renewals as your needs change.

The key is matching the contract type to your actual business needs, not trying to reduce obligations. Uruguay's labor authorities focus on the reality of the working relationship, not just what's written in the contract.

How does payroll and taxation work?

Your €60,000 employee actually costs €81,600 per year in Uruguay. Employer contributions add 36% to the base salary, which catches most companies off guard when they're budgeting for their first hire.

Uruguay's payroll system runs on monthly cycles with a twist. Employees receive 14 monthly payments per year instead of 12. The extra payments come as an aguinaldo (13th month bonus) in December and a vacation bonus in June. Factor this into your cash flow planning.

Income tax brackets

Personal income tax in Uruguay follows a progressive structure. Your employees will pay these rates in 2025:

Social security contributions breakdown

This is where the real employer costs hit. You'll pay way more in contributions than your employee:

The work accident insurance rate depends on your industry risk level. Office work typically gets the lowest rate at 0.5%. Manufacturing can hit 2.5%.

Payment schedule and bonuses

Salaries must be paid monthly, typically by the last working day of each month. But Uruguay's different in a few key ways:

Required additional payments:

• Aguinaldo (13th month): Paid in two installments. 50% in June, 50% in December
• Vacation bonus: One month's salary paid before the main vacation period (usually December)
• Salary adjustment: Annual inflation adjustment, typically applied in January

Total employment cost example

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

Base salary: €60,000 Employer contributions (20%): €12,000 Aguinaldo (8.33% of annual): €5,000 Vacation bonus (8.33% of annual): €5,000 Administrative costs: €600

Total annual cost: €82,600

That's 38% more than the base salary. Most companies budget just the salary amount and get surprised by the additional costs.

Payroll cycle and deadlines

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

By the 12th of each month: Submit and pay social security contributions for the previous month By the 20th of each month: File income tax withholdings By December 20th: Pay first half of aguinaldo By June 20th: Pay vacation bonus and second half of aguinaldo

Miss these deadlines and penalties start at 20% of the amount owed, plus daily interest charges.

Common payroll mistakes

Miscalculating the aguinaldo: It's based on the best six months of earnings in the year, not just base salary. Include overtime, bonuses, and commissions.

Wrong vacation bonus timing: Must be paid before employees take their main vacation. Most companies pay it in December, but some employees vacation earlier.

Forgetting inflation adjustments: Uruguay requires annual salary adjustments based on official inflation rates. Skip this and you're violating labor law.

Late social security payments: The 12th of the month deadline is firm. Weekend or holiday? Payment is still due the business day before.

Setting up compliant payroll in Uruguay yourself means hiring a local accounting firm (€800-1,200/month), buying payroll software (€200/month), and hoping you don't make costly mistakes. Penalties for payroll errors can reach €10,000 per violation.

With Hire with Columbus, all payroll processing, tax calculations, and compliance deadlines are handled for $179/month per employee. Your team gets paid correctly and on time while you focus on growing your business instead of wrestling with Uruguayan tax forms.

What benefits and leave are required?

You'll pay salary 14 times a year in Uruguay, not 12. Employees get two mandatory bonus payments called "aguinaldo" - one in June and one in December. But that's just the beginning of what you'll owe beyond base salary.

Annual vacation leave

Uruguay employees get 20 working days of paid vacation after one full year of employment. New hires earn vacation days proportionally throughout their first year - roughly 1.67 days per month worked.

Vacation days don't roll over. Employees must use them within 18 months of earning them, or you have to pay them out at their current salary rate. You can't force employees to take vacation, but you're financially responsible if they don't.

Employees can sell back up to 10 vacation days to you each year if they want cash instead of time off. The payment equals their regular daily wage multiplied by the days sold.

Sick leave entitlements

Employees get unlimited sick leave, but the payment structure changes based on duration. For the first three days, you don't pay anything - it's unpaid leave. From day four onwards, social security (BPS) covers the cost.

BPS pays 70% of the employee's salary starting from the fourth day of illness. You're not required to top up the remaining 30%, though some companies do this as a competitive benefit.

Employees need a doctor's certificate for sick leave lasting more than three consecutive days. For shorter periods, they can self-certify. The medical certificate must come from a doctor registered with the public health system or approved private providers.

Parental leave breakdown

Maternity leave lasts 14 weeks total - 6 weeks before the due date and 8 weeks after birth. BPS pays 100% of the employee's salary during this period, up to a maximum monthly cap of approximately $2,800 USD.

Fathers get 10 days of paid paternity leave, also covered by social security at 100% salary. These days must be taken within the first 30 days after the child's birth.

Adoptive parents get the same benefits as biological parents. The leave period starts from the date they receive custody of the child.

Public holidays in 2025

Employees who work on public holidays earn double pay for those hours. Most businesses close on these days, so budget for the extra cost if you need coverage.

Mandatory benefits and contributions

You'll contribute 12.5% of each employee's gross salary to social security (BPS). This covers health insurance, pension, and unemployment benefits. Employees contribute 15% of their salary to the same system.

Health insurance is automatic through the public system, but employees earning above approximately $2,400 USD monthly must join a private health insurance provider (IAMC). You'll contribute about 5% of their salary to their chosen provider.

Work injury insurance is mandatory and costs about 1% of payroll. You purchase this from the state insurance bank (BSE) or approved private insurers.

Optional competitive benefits

Many companies offer private health insurance for all employees, not just high earners. This typically costs $50-150 USD per employee monthly and really improves healthcare access.

Meal vouchers are popular and tax-efficient. You can provide up to 20% of an employee's salary in meal vouchers without additional tax burden. Most companies offer $200-400 USD monthly in vouchers.

Life insurance, additional vacation days beyond the 20-day minimum, and 13th/14th month salary bonuses help attract talent in competitive markets.

Common benefit administration mistakes

Companies often miscalculate the aguinaldo payments. The June payment equals 50% of the highest monthly salary earned between December and May. The December payment covers the other 50% based on the highest salary from June to November.

Missing social security registration deadlines triggers immediate penalties starting at $500 USD per employee. You must register new hires with BPS within 48 hours of their start date.

Failing to maintain proper sick leave documentation can void your social security reimbursements. Keep all medical certificates and maintain detailed absence records for audits.

Administering these benefits correctly requires:

• Local HR expertise: $45,000+ annual salary
• Benefits software: $300-800/month
• Legal compliance review: $8,000/year
• Risk of calculation errors: $2,000+ in potential fines per mistake

Hire with Columbus handles all benefit administration, social security filings, and aguinaldo calculations for $179/month per employee. We maintain compliance documentation and manage all government interactions so you can focus on growing your team.

What are the compliance requirements?

Written contracts aren't optional in Uruguay. Verbal agreements don't count and expose you to claims that can cost you months of back pay plus penalties.

Employment contract requirements

Every employment contract in Uruguay must be written and signed within 30 days of the employee's start date. Miss this deadline and you're facing fines starting at $2,500 plus potential invalidation of the entire agreement.

The contract must include specific mandatory clauses: job description, salary details, work location, working hours, and probation period terms. It must be written in Spanish, even if your company operates in English. You don't need to register the contract with government authorities, but you must keep copies for labor inspections.

What trips up most companies: the contract must specify whether the position is indefinite-term or fixed-term. Fixed-term contracts can only be used for temporary work and are limited to one year with one renewal. Use them wrong and the contract automatically converts to indefinite-term with full employment protections.

Probation periods

Probation periods in Uruguay max out at 90 days for most positions. Senior management roles can extend to 6 months, but you need to justify this in writing. During probation, either party can terminate with just 7 days' notice and no severance requirements.

After probation ends, full employment protections kick in immediately. This means standard notice periods, severance calculations, and just-cause requirements for termination. You can't extend probation periods or restart them with the same employee.

Most companies use the full 90 days to properly evaluate fit. It's your only window for low-cost termination if things aren't working out.

Working time regulations

Standard working hours are 48 hours per week, typically spread across 6 days (8 hours per day). You can arrange 5-day weeks with longer daily hours, but you need employee consent in writing.

Overtime kicks in after 8 hours per day or 48 hours per week. Rates are 120% of regular pay for the first 2 hours, then 150% after that. Weekend work pays 150% and holiday work commands 200% of regular wages.

Employees get a mandatory 30-minute break for shifts over 6 hours. You must maintain detailed time records for all employees. Labor inspectors will ask for these during audits.

Notice periods

Notice requirements depend on tenure and who initiates the termination:

You can pay in lieu of notice, which most companies do to avoid productivity issues with departing employees.

Termination process

Terminating employees in Uruguay requires just cause or follows specific procedures for economic reasons. Just cause includes serious misconduct, repeated absences, or performance issues after documented warnings.

For economic terminations, you must demonstrate financial necessity and follow consultation procedures. This includes notifying employee representatives and potentially seeking approval from the Ministry of Labor for larger layoffs.

Wrongful termination claims are common and expensive. Courts favor employees, so documentation is essential for any performance or conduct issues.

Severance pay

Severance calculations depend on tenure and termination reason:

Severance isn't required for just-cause terminations or resignations. Economic terminations require full severance plus additional compensation if you don't follow proper procedures.

Data protection

Uruguay follows GDPR-style data protection rules under its Personal Data Protection Law. You need explicit consent to process employee personal data beyond what's required for employment.

Employee records must be stored securely with access limited to HR and management. You can't transfer personal data outside Uruguay without adequate protection measures or employee consent.

Violations can result in fines up to $50,000 for serious breaches. Most companies struggle with cross-border data transfers when using international HR systems.

Common compliance mistakes

Invalid employment contracts happen when companies miss mandatory clauses or use English-only agreements. This voids the contract and can trigger back-payment claims for benefits.

Wrong termination processes cost companies thousands in wrongful dismissal claims. Skipping consultation requirements or failing to document performance issues properly leads to reinstatement orders plus legal fees.

Missing overtime calculations are caught during labor inspections. Penalties start at $3,000 plus back-pay for all affected employees.

Penalties for violations

Common compliance failures in Uruguay:

• Invalid employment contract: $2,500 fine plus contract void
• Wrong termination process: $5,000-15,000 severance plus legal fees plus potential reinstatement order
• Missing mandatory clauses: Contract deemed invalid, back payments owed
• Improper overtime calculations: $3,000 fine plus back-pay for all employees
• Data protection violations: Up to $50,000 for serious breaches

Hire with Columbus ensures every contract and termination follows Uruguay law exactly. We handle all documentation, maintain compliant HR records, and manage termination procedures to avoid these costly mistakes. At $179/month per employee, it's much cheaper than dealing with compliance violations or maintaining local legal expertise.

What has changed recently?

Uruguay's employment rules got a major shake-up in early 2025 when the government rolled out new digital nomad visa requirements. These changes hit remote work arrangements hard. If you're hiring remote workers in Uruguay, you'll need to double-check their visa status now, and the tax situation just got messier.

The minimum wage jumped to UYU 25,847 per month in January 2025, up from UYU 23,500 in 2024. That's a 10% increase that blindsided plenty of international employers who'd already locked in their 2025 budgets based on last year's numbers.

New employment contract requirements

All employment contracts in Uruguay need specific clauses about hybrid work and data protection as of March 2025. Your standard contract template won't cut it anymore. You need clear language about where employees can work from and how they'll handle company data remotely.

The labor ministry also made digital signatures mandatory for all employment docs. Paper contracts still work, but you need digital versions for government filings. This gets tricky when your HR team is trying to coordinate signatures across multiple time zones.

Social security contribution changes

Social security rates didn't budge, but Uruguay changed how they calculate contributions in February 2025. The government uses a different formula now for the contribution base. Translation: you'll probably pay more.

Employee contributions stay at 15% of gross salary. Employers still pay 12.5%. But this new calculation method means your actual payments will likely jump 2-3% compared to 2024, even for identical salary levels.

Updated termination procedures

Uruguay "simplified" its termination process in April 2025. The air quotes are doing heavy lifting here. You now file termination paperwork through a new digital platform called "Sistema de Gestión Laboral," and the deadlines got stricter.

Severance calculations stayed the same: one month's salary per year of service, capped at six months. But late filings now trigger automatic UYU 15,000 penalties, and the system shuts down on weekends.

When you work with an EOR like Hire with Columbus, we handle all the digital platform requirements and filing deadlines. We also manage the new contract clauses so compliance changes don't derail your team's productivity.