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Payroll in Ecuador

How to Hire Employees in Ecuador: A Comprehensive Guide

Among all Latin American countries, Ecuador has been attracting foreign investments in substantial amounts over the years. The government released a slew of liberalization reforms in the 90s, leading to a steady stream of foreign investments.

Hiring in Ecuador makes sense owing to its low wage rate, political stability, and abundant natural resources that make industrial growth scalable. The Ecuadorian Constitution and several pro-investment bodies, such as the Foreign Trade and Investment Council of Ecuador and the Export and Investment Corporation of Ecuador, make investments for foreign companies more streamlined and hassle-free.

The top sectors in Ecuador are agricultural, mineral, construction, telecommunications, and oil, with its GDP touching $106.17 billion in 2021.  All rules for recruitment and selection in Ecuador stem from the Ministry of Labor Relations, the Labor Code of 2005, and the country’s Constitution. 

Employers have to figure out how to hire employees in Ecuador in tune with the recommendations. As you engage in recruitment and selection in Ecuador, here are some things employers must be aware of! Read on!

Things to Know Before Hiring in Ecuador

Once you begin to work on a plan for recruitment and selection in Ecuador, check the labor codes to hire employees in Ecuador. By following the rules, employers can easily avoid penalties or administrative issues while engaging in recruitment and selection in Ecuador.

  • As per local laws, affiliating your employees to the Instituto Ecuatoriano de Seguridad Social is compulsory from day one of work. 
  • Companies need to distribute their profits at the rate of 15% among their workers.
  • Employees can access a Reserve Fund if they complete a year of service with the company.

Here are some of the other things employers must know before hiring staff in Ecuador:

Employment Contract

While an employment contract in written form is not mandatory for an employment relationship in Ecuador, it is common to have one drafted in writing. Register via the online Unified Workers System with the Ministry of Labor.

  • Such work contracts are in Spanish, with a copy available in English.
  • Work contracts for recruitment and selection in Ecuador could apply to an indefinite tenure, but an employer may have one for spans as short as six months. 
  • These contracts apply to both full-time and part-time work profiles.
  • All financial figures must be mentioned in US Dollars in the employment contract.

For all purposes of recruitment and selection in Ecuador, the work contract mentions the following details-

  • Employer details
  • Employee role 
  • Employee duty 
  • Duration of contract
  • Probation or notice period
  • Collective bargaining terms
  • Salary and bonuses
  • Work hours and overtime pay
  • Annual leaves and holiday details
  • Termination and severance details

Probation

Per the Labor Law in Ecuador, the probation period for employees is three months at the most. However, it is mutually affixed while finalizing the work contract terms.

Working hours and breaks

  • If you hire staff in Ecuador, note that the standard work hours for employees in Ecuador are 40 hours per week for five days each week.

Overtime

  • Employees can work overtime up to four hours daily or 12 hours weekly.
  • Overtime payment is subject to Local Labor Inspector analysis and is paid at 150-200% extra payout over and above the original salary.
  • In Ecuador, overtime work before midnight is categorized as “supplementary hours” and is compensated with a 50% surcharge on the regular hourly wage. 
  • Overtime work between midnight and 6:00 a.m. is classified as “extraordinary hours” and compensated with a 100% surcharge.
  • Furthermore, work on Saturdays and Sundays, obligatory rest days, must be compensated with a 100% surcharge. This means that employers in Ecuador must pay their employees to double the regular hourly wage for any work carried out on weekends.

Payroll

  • When you hire employees in Ecuador, it is usual to make a monthly salary payout.

Minimum wage

  • The average wage to hire employees in Ecuador is 450 USD monthly.

Bonuses

  • As part of the hiring process in Ecuador, employers must adhere to labor laws regarding employee bonus compensation. 
  • Employers must pay the 13th and 14th-month salary, equivalent to one month’s pay for each period. 
  • The 13th-month salary must be paid by December 22 of each year, while the 14th-month salary, equivalent to the government’s minimum wage, must be paid in either March or August.

Holidays for employees 

Official public holidays in Ecuador are as follows:

January 1

New Year Day

February 20-21

Carnival Monday and Tuesday

April 7 (For 2023)

Good Friday

April 9 (For 2023)

Easter

May 1

Labor Day

May 24

Battle of Pichincha Anniversary

August 9

Independence Day

October 9

Independence of Guayaquil

November 1

All Soul’s Day

November 2

Independence of Cuenca

December 6

Foundation of Quito Day 

December 25

Christmas Day

Annual leave

  • The paid annual vacation period in Ecuador depends on the service tenure.

TENURE OF SERVICE

ANNUAL LEAVE

Tenure up to five years

15 days

Tenure above five years

An additional day gets added to the 15 days leave quota for every year of extra service.

Maternity leave

  • The hiring process in Ecuador involves adhering to labor laws and regulations related to recruitment and selection, which includes ensuring compliance with maternity leave policies.
  • Employers are required to offer up to 12 weeks of paid maternity leave, and if the employee has multiple births or a C-section, they are entitled to an additional ten days of leave. 
  • If the newborn has a disability or severe congenital illness, mothers are entitled to three more months of leave.
  • During the maternity leave period, employers must pay 25% of the employee’s salary, while the remaining 75% is paid by social security. 
  • Additionally, mothers are entitled to nine months of shortened workdays, working six hours instead of the standard eight.

Paternity leave

  • Fathers can also take paid paternity leave for ten days for the birth of a single child or 15 days in case of a C-section birth or multiple births.
  • In Ecuador, fathers are entitled to a 25-day leave if the newborn has a severe degenerative disease.

Social security

  • The social security contribution break-up in Ecuador is divided between employer and employee for 12.5% and 9.45%, respectively.

Taxation

  • Ecuador’s corporate tax rate is 25%.
  • The standard VAT rate is 12%, while some sectors, such as exportation, enjoy nil VAT.
  • The income tax brackets in Ecuador follow a progressive structure as outlined below-

Income in USD

Base Tax in USD

Effective Tax on Excess in %

0 to 11,722

0

0

11,722 to 14,935

0

5

14,935 to 18,666

161

10

18,666 to 22,418

534

12

22,418 to 32,783

984

15

32,783 to 43,147

2,539

20

43,147 to 53,512

4,612

25

53,512 to 63,876

7,203

30

63,876 to 103,644

10,312

35

Above 103,644

23,379

37

Termination

  • In Ecuador, employers may terminate employment contracts with just cause and without severance pay, provided the labor authority approves the decision. 
  • Just cause reasons for termination include lack of discipline, dishonesty, severe offenses against the employer, serious incompetence, and non-compliance with regulations.
  • Additionally, in the event of redundancy, employers must provide a 30-day notice period to all affected employees before terminating their contracts due to the company’s final closure. 
  • This notice period is established by Article 193 of the labor code in Ecuador.

Notice period

  • The notice period for terminating a job role in Ecuador varies per work contract terms or collective bargaining agreements.
  • Under Article 14 of the labor code in Ecuador, workers who have served less than a year cannot be dismissed. 
  • This effectively establishes a notice period of three months for workers who have completed nine months of tenure.

Severance

  • When hiring employees in Ecuador, employers must know the country’s severance pay laws.
  • In case of termination before the contract, employees usually receive severance pay and a Desahucio bonus.
  • The severance pay equals one month’s salary for every year of employment till a maximum limit of 25 months.
  • The number of years served multiplied by a quarter of the monthly salary makes up the Desahucio bonus.

The Cost of Hiring an Employee in Ecuador

In the context of the recruitment fees in Ecuador  and costs for the recruitment process in Ecuador, the main expenses are as follows:

  • Advertisement 
  • Hiring practices
  • Background checks
  • Visa and permits
  • Licensing and approval for business
  • Taxes and social security
  • Salary and benefits 
  • Bonus 
  • Vacation and leaves 
  • Onboarding and training expenses 

What Does a Company Need to Hire Employees in Ecuador?

Employers in Ecuador may engage in hiring either permanent or part-time employees. When you hire employees in Ecuador, it is mandatory to comply with all laws for employment. A contract for employment in Ecuador lays down all employment details in clear pointers. Here is a list of all documentation you will need for hiring for your Ecuador company:

  1. Work visa or application for work visa
  2. Employee photograph
  3. Age proof of employee
  4. Employment contract with company
  5. Notarized certificate for company registration
  6. Tax registration certificate of company
  7. Certificate of a criminal record that Ecuador police verifies for the employee

Various Options for Hiring Employees in Ecuador                                                      

The process for recruitment and selection in Ecuador takes time and involves dedication.

  • EOR services: Recruitment and selection in Ecuador become more manageable by hiring an EOR service provider. These solution providers have suitable systems in place that help handle hiring and handling of onboarding. Using an EOR can help you focus solely on growing the company instead of spending resources and time on hiring.
  • Internal hiring: This is a traditional way of setting up an HR team to handle all hiring in Ecuador. The team gets involved in hiring via extensive research and closes the cycle by signing a job contract. The HR team also engages in ample research related to local laws to ensure that there aren’t any lapses. 
  1.  

The Steps to Hiring in Ecuador

The recruitment and selection in Ecuador must adhere to all standard norms and a fair hiring process.  Read further to learn how to hire employees in Ecuador.

1. Kickstart the hiring process

  • Advertise all open positions on job boards, social media, and industry hiring portals in Ecuador.
  • Use references and industry networks to access a pool of prospective candidates.
  • Mention the job duties for any open role and mention the minimum qualifications or experience you require of the candidate.

2. Shortlisting a hire for recruitment and selection in Ecuador

  • Candidates send in updated resumes or CVs via email or a job board.
  • Shortlist the most relevant profiles fit for the open job.
  • The next step is to set up an interview round for the candidates. Employers must send a detailed and precise email to the candidates mentioning all related details for the interview.

3. Interviewing for recruitment and selection in Ecuador

  • Schedule the job interview on-site or online to discuss all related work duties for a candidate.
  • The interview is mostly a get-to-know-better session that also gives the employer a position to judge the skill set of the prospective employee.  
  • Steer clear of discriminatory practices or even casual questions that might appear discriminatory to the employee.

4. Final offer and work contract

  • Employers must issue an offer letter and draw up a work contract with the specifics mentioned. All this follows the basic laws for recruitment and selection in Ecuador.
  • Initiate a background check for sealing a round of recruitment and selection in Ecuador.

5. Onboarding and training

  • Onboarding occurs once the employee is ready to begin work. 
  • This is the last step in the recruitment process in Ecuador.
  • Initiate new employees into the training period if required.

Let Multiplier be Your EOR Platform in Ecuador

When companies set out to hire staff and engage in recruitment and selection in Ecuador, things might appear too complicated. Given the nuances and smaller rules related to upkeeping the governing regulations, Ecuadorian hiring might not be easy to process. Choose to collaborate with a PEO-EOR firm of repute, such as Multiplier.

Multiplier provides a Saas-based solution for Employer of Record services, enabling employers to hire employees in a foreign country without establishing a subsidiary. This approach can help businesses test new markets, set up teams in new countries, and attract talent at a lower cost. Our services include managing payroll, contingent workforce management, and EOR/PEO services. With Multiplier handling all aspects of recruitment and selection in Ecuador, you no longer have to wonder how to hire employees in Ecuador.

Frequently Asked Questions

Yes, background checks in Ecuador are a common practice for employment reasons.

The Ecuadorian Labor Code mandates online registration of all employment contracts with the Unified Worker System. The Ministry of Labor can review such contracts and their registrations from time to time.

The official language for business and communication in Ecuador is Spanish.

Need help hiring in Ecuador?

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