If you are interested in starting a business in Ecuador, or are already operating in the market, comprehending and steering your way through Ecuadorian employment law will be critical to establishing and maintaining a strong reputation with local authorities and ensuring the success of your business.
Employment law in Ecuador is overseen by the Works Ministry, and although it shares similarities with many other countries in the region, you will also encounter a number of particularities in the regulations.
For that reason, you will need to find a reliable corporate lawyer in Ecuador with experience working with foreign investors and overseeing market entries.
This guide to Ecuadorian employment law outlines the rules you must follow when operating in the South American market. It includes information on working hours, statutory leaves allowances under different circumstances, and taxes that are related to employment.
If you are interested in knowing more about how we can help your company understand and comply with Ecuadorian employment law, or would like to know more about the wide range of back-office services we offer, contact us today.
Working hours under Ecuadorian employment law
Employment law in Ecuador stipulates that an employee should work no more than 40 hours as part of a standard working week, with each working day lasting no longer than eight hours.
While it is possible to work additional hours, they must be paid in proportion to the amount of time worked.
There are usually between 11 and 12 national holidays in Ecuador that fall on weekdays each year.
Employment law in Ecuador: most common types of contract
While there are at least 16 different types of contract that can be used in different circumstances under employment law in Ecuador, there are three main ones that companies and foreign investors tend to use when operating in the market.
- Indefinite contracts are the most commonly used type of contract in Ecuador, running until both parties mutually agree to termination. Employers must show just cause to the appropriate authorities or pay the employee compensation in order to unilaterally terminate such a contract. Indefinite contracts must be in writing, and in 2021 must pay a wage of at least $400 per month, while any stipulated trial period cannot last longer than 90 days
- Temporary contracts may be provided in circumstances that warrant them, such as for maternity leave or extended sick leave cover. Temporary contracts can only last 180 days in a 365-day period. If the employee continues to work beyond that time, the contract will automatically be converted into an indefinite contract. The employer must be able provide documentation to support the need to employ someone temporarily. Termination is when the employment period stated in the contract ends. Temporary agreements must be in writing. They must also include a minimum salary of $400 per calendar month.
- Occasional contracts can be provided to cover emerging or extraordinary needs that are not linked to a company’s core business activities. An occasional contract may last for 30 days and be renewable for a maximum of 365 days. After that period, the contract automatically becomes indefinite. Employers must be able show that they have the need to employ someone on an occasional basis. Termination is the end of the employment term. Occasional agreements must be in writing. They must include a minimum salary of $400 per calendar month.
Vacations, leave, and other absences
According to employment law in Ecuador, workers who have completed one year of work for the same employer are entitled to 15 consecutive calendar days of leave. Employees can accrue one day of additional leave for every five years of work, and another day for each additional year.
If an employee leaves a company before they have completed one year of service, they will be entitled for payment for the number of vacation days they worked during that time.
For example, an employee who has completed eight months of service will be entitled to payment for two-thirds of a year’s leave allowance, meaning 10 days of pay.
An employer must grant an employee any leave required to recover from sickness, as long as it has been authorized by a registered doctor.
Maternity and paternity leave
Under employment law in Ecuador, women are entitled to 12 weeks of paid maternity leave when they have a child. The period is extended by 10 working days for multiple births. Thus, there are 14 weeks of paid leave.
Fathers receive 10 days of paternity leave, which is extended to five additional days in the event that multiple births occur or a cesarean delivery.
Employees are entitled to three days of paid bereavement leave in the event of the death of any relative to the first or second degree. This includes spouses and common law partners, parents, siblings and children, grandparents, aunts, uncles nieces, nephews and half-siblings.
Statutory contributions under Ecuadorian employment law
Under employment law in Ecuador, a total of 9.45% of an employee’s salary is deducted to contribute towards social security. Income tax is applied progressively, with salaries exceeding $14,400 per annum not subject to income taxes. The highest income tax band is 35% which is applied to salaries above $115,000 per calendar year.
Employers and employees should be aware of the income tax structure, as it plays a crucial role in determining the tax deduction benefits for individuals and companies operating in Ecuador.
Employers must contribute the equivalent of 11.5% of an employee’s salary towards social security.
Under Ecuadorian employment law, companies must share 15% of net annual profits with their employees. This expense is tax deductible when calculating the company’s taxable base.
Biz Latin Hub can assist you doing business in Ecuador
At Biz Latin Hub, our multilingual team of corporate support experts has the experience and expertise to assist you in navigating employment law in Ecuador. Our portfolio of services includes company formation, accounting, legal services, and tax advisory, among others, and we provide tailored packages of integrated back-office solutions to our clients, acting as a single point of contact for doing business in Ecuador, or any of the other 17 markets around Latin America and the Caribbean where we are able to offer our services.
Contact us now To discuss how we can help your business.
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