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Payroll in Chile: Comprehensive Guide for Employers

Chile is one of the best economically performing nations on the South American continent. The World Economic Forum has ranked Chile as one of the most competitive countries in Latin America in 2019. 

It promotes several industries like manufacturing and services and is known for having an open economy that supports dynamic businesses. As per the World bank, Chile is categorized as a high-income country. Therefore, expanding your business into Chilean territories can bring you immense growth and profits. 

Having a payroll is essential to workforce management; hence, as soon as you incorporate your company, you should have a standard payroll system. Also, when establishing a payroll system in Chile, you must ensure that it complies with the Chilean Labor Laws.

You can also get assistance from a Global PEO like Multiplier, who can help you establish a well-defined and compliant payroll system in Chile.

How Is Payroll Calculated in Chile?

Setting up the payroll system is integral to a company’s smooth functioning. Therefore, before hiring employees, set up payroll in Chile for your companybefore you build your team.

The general payroll process includes gross pay, net pay, tax deductions, and other elements. Gross salary is the aggregate amount that an employee earns. It has all the components of your salary: basic pay, allowances, taxes, etc. The net salary is the amount credited to the employee’s bank account after implementing all kinds of deductions like taxes, etc. 

According to the Labor Laws, a company in Chile with more than 25 employees must have 85% Chilean employees. For the remaining 15%, the company can choose to hire expats to fill in the available positions. However, employers have to process the payroll for both categories of employees similarly. 

When establishing a Chilean payroll process, you must adhere to the laws that determine minimum wages, payment of bonuses, tax deductions, etc. Also, it is crucial to maintain a payroll record for every business transaction that you make via the company’s bank account.

Essential Elements of Salary Structure in Chile

The different components of the salary structure in Chile are:


Cost to Company (CTC) is the total cost a company incurs on onboarding an employee. The CTC contains all the components that are a part of the payroll system, such as gross salary, allowances, net salary, etc. However, the CTC does not represent the amount employees get after every payroll cycle.

Gross salary

Gross salary is the aggregate salary of the employee before considering any deductions. It includes taxes, deductions, basic pay, etc.

Net salary

Post all kinds of deductions, the remaining amount is the net pay. It can also affect the take-home pay of the employees.

Basic salary

The basic salary is the primary component of the salary structure. The company decides on other payroll components based on the basic salary. Basic pay accounts for almost 35-40% of the employee’s gross income. The basic salary depends on several factors like industry standards, the designation of the employee, etc.


Different countries have different allowance policies for employees. In Chile, most employees choose to pay the following allowances:

  • Meal allowance
  • Fuel allowance
  • Mobile allowance


Payment of a 13th month bonus is not mandatory. However, an employer can choose to incentivize their employees by giving them a bonus. The company must duly pay the component if they promise a bonus.

How to Set Up a Payroll in Chile?

You must have a well-defined Chile payroll process in place for your company. You can begin setting up payroll as soon as your company is incorporated. Some steps involved in setting up a payroll in Chile are:

Step 1

The company should have an incorporation certificate. Also, the company should register itself to the Registrar of Companies.

Step 2

For easy transactions, the company must open a bank account in any of the banks in Chile.

Step 3

Once you have an active bank account, you must register your company with the federal and state tax authorities. You should procure all the necessary documents and establish a timeline for regular tax payments.

Step 4

You must calculate the gross pay of your employees. For this, you need to check the hourly schedules of all your employees to determine the overtime pay for the additional work hours.

Step 5

Now, calculate the gross salaries of all your employees. Then, factor in the deductions and calculate the net salaries.

Step 6

Define a payroll structure in Chile for your company.

Step 7

Decide a payroll cycle and a timeline for paying salaries to different categories of employees.

Step 8

Decide a date to make all your tax payments and social security contributions to the relevant authorities.

A Step-by-step Process of Payroll Processing in Chile

You should try to understand the local labour laws before setting up the payroll system. Let’s look at some essential steps of payroll processing in Chile:

1. Select a payroll system

You can opt for a payroll system that fits the budget and meets payroll requirements. You can use manual payroll, outsourced payroll, or payroll software. 

  • Manual payroll: This is processed manually, and you need to hire resources, like the HR team. 
  • Outsourced payroll: An external team is hired or outsourced to manage the payroll, including taxes and bookkeeping. 
  • Payroll software: Payroll software offers payroll assistance, time tracking, and others. You can outsource the entire function to a Global PEO like Multiplier and focus on other vital activities like expanding the business, reaching out to new consumers, coming up with new products and services, etc. 

2. Payroll policy

You need to have a payroll policy so employees can refer to it if they have any confusion about payroll processing. Draft a payroll policy and circulate it to all your employees. It should act as a go-to document for any payroll concerns. The policy should include details about the payroll cycle, clauses governing the payments of allowances, and any other clause that will decide the payroll procedure.

3. Add employees to the payroll system

Once you select a payroll system, you will have to add all the details of your existing employees to the system. It will store the information and use it as and when required. The company will also have to add some essential details about their staff like:

  • The total number of employees working for the company
  • The payroll software used to process transactions
  • Timeline for salary payments
  • The primary data of employees like names, date of birth, etc.

4. Set up bank accounts for your employees

All employees in Chile must have a bank account, and you should try collaborating with a bank and get these accounts opened.. Once the accounts are opened, you can make all kinds of payments to these accounts.

5. Timesheet verification and salary calculation

In Chile, employees have to work 45 hours a week. Employers can refer to the timesheet to calculate the total working hours and overtime compensation, complying with the company’s policy and Chilean labor laws.

Once you have the overtime amount, you can start calculating the net salaries for all your employees. You must consider all relevant deductions like taxes to come to a final amount. You must also consider the expenses employees have incurred during their work and reimburse them accordingly.

6. Cross-check and reconciliation

Before final payment,  you must check details like the employee details, salary amounts, etc. before the employees receive salaries. Also, you should complete the payroll reconciliation process by reviewing your tax and general ledgers and checking the payroll register. You can check the pay slips of all employees on the payroll software your company uses.

7. Roll out the pay slips

It is mandatory to provide pay slips to all your employees. These pay slips can be digital or printed based on the company’s policy. The payslip must contain some basic information like the company’s name and address, the employee’s name, the gross pay of the employee, etc. It must disclose the proper segregation of all the payroll components, including tax deductions and the contributions made on the employee’s behalf. 

8. Payroll records

Companies in Chile must maintain a payroll record. This record proves that you have made all your salary payments on time. You can keep them safe for at least 10 years.

Payroll Contributions

There are different types of payroll contributions in Chile. Some of these contributions include:

Minimum wage

In Chile, the government has decided on two minimum wage figures. The first one is for regular employees, which amounts to 380,000 pesos. The second limit is for retirees and minors, which is 283,000 pesos. You must pay the employees at least the minimum wage as their salary.


In Chile, the maximum number of hours employees can work is 45 weekly. However, if the employees work additional hours, they receive overtime pay for the extra hours worked. 

  • The employees who work more than their regular hours receive a payment equivalent to 50% of their standard pay.
  • Working on a Sunday or a public holiday is also considered overtime, and employees are compensated for the same.
  • In Chile, overtime cannot exceed 2 hours a day or 10 hours a week.

Employer Contribution

Employers in Chile must contribute towards unemployment insurance and disability and survival insurance. The contributions go directly to the institutions that manage these funds.



Unemployment Insurance


Disability and Survival Insurance


Therefore, an employer makes a total contribution of 4.39% for all its employees. 

Employee Contribution

Employees make necessary contributions towards some insurance funds. The contributions are deducted from their gross pay and are directly credited to the relevant authorities.





Unemployment Insurance


Health Insurance


Employees contribute 17.60% of their salary to different funds and retirement benefits. 


All employees working in Chile must make regular tax payments to the tax authorities. However, the employees don’t pay these taxes directly. The amount is deducted from their gross pay and paid to the tax authorities by the company itself. The tax rates applicable in Chile are as follows:

Tax Unit Slab

Rate of tax

< 13.5 Monthly Tax Units


13.5 – 30 Monthly Tax Units


30 – 50 Monthly Tax Units


50 – 70 Monthly Tax Units


70 – 90 Monthly Tax Units


90 – 120 Monthly Tax Units


120 – 310 Monthly Tax Units


> 310 Monthly Tax Units


Chile follows a tax unit system where one monthly tax unit equals 51,500 CLP.

Payroll Cycle

The financial year in Chile runs from 1st January to 31st December, and all companies follow a monthly payroll system. The work accomplished between the first and last day of the month is paid at the end of the month. Employees receive their pay slips and salary once a month instead of every two weeks, as compared to most other countries. The employer must keep payroll records for each employee for at least ten years.

Chile Payroll Options for Companies

Chile offers different payroll options to all companies. It would help if you weighed all the options before you decided on a system. You must consider your budget, availability of workforce, and other relevant factors while choosing a payroll option.

  • Internal payroll: The company manages the entire payroll in this payroll system. This option is ideal if you have a big company and want to establish all the functions internally. For this option, you will need to onboard resources who are specialized in how to set up a payroll and are well-versed with the Chilean labor laws. 
  • Remote: If you have a parent company, you can register all your employees to the payroll system of the parent company. However, you need to follow the payroll laws of Chile while processing the payroll. 
  • Payroll processing company: You can also outsource your company’s payroll to a payroll processing business in Chile. However, you will have to look after some compliance-related tasks in this case.
  • PEO company: You can onboard a global PEO company to take over your firm’s entire payroll processing. PEO companies like Multiplier will take care of all aspects of the company’s payroll system. 

Entitlement and Termination Terms

You must have entitlement and termination terms before establishing a payroll system in Chile. You must declare the cause of termination in Chile before ending the employment contract. The termination should have a valid reason which can be any of the following:

  • Mutual agreement between the employer and the employee
  • Breach of contract
  • Restructuring of the company

The company must provide a letter of termination with an effective date and the employee must duly sign it. The company should also prepare a severance agreement stating the cause of termination and the severance amount. The employee must sign the document within ten days of termination.

Chile Payroll Processing Company

If you don’t understand how companies handle payroll in Chile, you can find it challenging to expand there. 

There are several businesses out there that can guide you through the procedures of regional legislation and setting up payroll in Chile. You may collaborate with a large PEO company like Multiplier. 

How Can Multiplier Help with Global Payroll?

Establishing a payroll system in Chile can be cumbersome as you need to take care of several factors. You can get in touch with a global PEO like Multiplier to help you with your payroll needs. Our experts are well versed in all the Chilean labor laws and can help you set up a fully compliant payroll system.

We ensure that the operation is flawless and follows all the labor laws.

Frequently Asked Questions

If employees want to separate from the organization voluntarily, they must serve a month’s notice period. Alternatively, the company might decide to waive off the notice period and pay them instead.

Generally, companies have a probation period of 12 months in Chile. Post that, the employee becomes a permanent employee in the company.

Employers might choose a Monday to Friday or a Monday to Saturday work week based on the requirements and the volume of work.

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