Employer of Record in Peru | Employment Law

Employment Law in Peru

Contracts

In Peru, employment contracts can be fixed-term (contrato a plazo fijo) or indefinite, per the Labor Productivity and Competitiveness Law. Indefinite contracts must include benefits such as social security, paid leave, and severance pay. Fixed-term employees receive equal benefits after three months.

Termination and notice periods

In Peru, labor laws require employers to provide written notice of termination or pay in lieu of notice, with a minimum of six days for employees who have completed at least three consecutive months of continuous employment. In most cases, terminated employees are entitled to a fair process. Just cause for dismissal includes theft, insubordination, habitual negligence of duty, lack of capability, serious misconduct, redundancy, or prolonged illness.

Employees with at least 12 consecutive months of continuous employment are entitled to severance pay equivalent to 1.5 months of wages for each completed year of service, up to a maximum of 12 months’ wages. There is no statutory gratuity payment in Peru; however, additional compensation may be provided based on employment contracts or collective agreements. As your employer of record (EOR) in Peru, we can assist you in managing employee terminations by providing legal guidance and a personalized process to ensure compliance with national labor standards and minimize legal risks.

Probation periods

In Peru, probation periods are explicitly addressed in local law. Probation periods are generally set at three months for standard positions, extendable up to six months for managerial roles and up to 12 months in exceptional cases. Probation period lengths are similar across sectors, as specified in employment contracts.

Working hours and overtime

In Peru, the standard workweek is typically Monday through Saturday, with eight hours per day, totaling 48 hours per week. Employees are prohibited from working for more than eight hours a day without appropriate compensation.

Any work beyond eight hours a day is considered overtime, and employees are entitled to additional compensation of at least 25% over their regular hourly rate for the first two hours, and 35% for subsequent hours. For work performed on rest days or public holidays, the overtime pay rate is higher, as specified by Peruvian labor laws.

Taxes

In Peru, withholding tax is known as Retención del Impuesto a la Renta and is deducted by employers before paying salaries to employees. Employers must deduct income tax from employee salaries based on applicable income tax brackets and submit it to the National Superintendency of Tax Administration (SUNAT).

Employers in Peru must adhere to various taxation and regulatory requirements to operate legally and avoid penalties.

• Corporate tax: Domestic companies are taxed at 29.5% on their worldwide income.
• Value added tax (VAT): VAT applies to businesses with an annual turnover exceeding specific thresholds. Employers must register, file monthly returns, and pay VAT at a standard rate of 18% on applicable goods/services.
• Withholding tax (WHT): Employers must deduct WHT from employee salaries, vendor payments, and contractor fees. WHT must be deposited by the 12th of the following month, and relevant returns must be filed.
• Income tax returns (ITR): ITRs are filed annually based on company profits. Companies must also file annual financial statements with the Superintendencia Nacional de Administración Tributaria (SUNAT) and comply with electronic filing requirements.

Employer payroll contributions

Peru’s social security system requires employer contributions that are dependent on the total number of employees, and these contributions cover pensions, medical care, disability insurance, and gratuity payments. In addition, workers’ compensation is financed by contributions from state governments, employers, and employees.