In recent years, Peru has done many free trade agreements and created free-market policies that have reformed its economy. It attracts businesses to invest in emerging markets.
If you also want to explore the business opportunity in the country, then offering the handsome compensation package in Peru will work in your favor to attract top talents.
Peru is the fourth largest country in South America that has a population of approximately 33.9 million with a median age of 31 years. Out of this, approximately 20 million people between the age 15 to 60 that are legally allowed to work as per Peru’s labor law.
To learn more about the compensation and benefits policy of Peru and how labor law can impact it, stay tuned!
What Are Employee Compensation and Benefits?
Compensation and benefits are critical aspects that determine the employee’s job satisfaction and motivates them to perform better.
The first thing an employee may check when you give a job offer is the salary. For a beginner, compensation and salary may be the same. But, as an employer you understand compensation is more than just in-hand salary. It includes the other benefits that employees get along with salary.
Benefits cover indirect monetary compensation for health insurance, life insurance, pension plans, free lunches, overtime, days off, etc. These benefits are divided into mandatory and non-mandatory benefits based on the country’s labor law.
The government understands the needs of citizens, so when they formulate or amend the labor law, they make some benefits mandatory for employers to offer to their employees.
In the case of Peru, employers must offer health insurance and pension plans to their employees.
Compensation Laws in Peru
There is no separate labor law in Peru. Labor rights are mentioned in its constitution. Some of the important labor laws are:
- Law of productivity and labor competitiveness – This law works on improving the worker skills and training, capacity to earn, regulate employment contracts and strengthen existing social benefits.
- Procedural labor law –This law takes care of labor court proceedings and procedures for conciliation and arbitration.
- Law on collective labor relations – It regulates labor’s freedom to associate, collective bargain and right to strike.
- Law on days of work, hours and overtime – It explains minimum days and hours to work, overtime, etc.
- Regulation on safety and health in the workplace – It regulates safety and health standards, enforcement responsibilities and rights and responsibilities of employee and employer
- Some other regulations include legal bonuses act, family allowances act, profit sharing act, rest period act, and staffing service act.
All these labor laws and acts one or other way affect the compensation calculation. Understanding these laws is important before you start formulating the compensation and benefits package in Peru for your employees.
How to Design An Employee Benefits Program For Employees In Peru?
A perfect employee benefits program is one that fits your budget as well as employee’s needs. But, at the same time, it is wise to understand that age, gender, location, etc. change the employee’s needs, accordingly you have to modify and change your employee benefits program.
You can consider below steps to formulate a perfect employee benefits plan for your peruvian employees.
Step 1: Understand objective of employee benefits program and budget
This step gives you a clear picture of what to select and what not to select for designing your benefits program. Some of the important factors you need to consider to have a clear objective are employee location, size, industry and collective bargaining agreements.
Same importance you must give you budget availability for employee benefits programs. You must consider outlining current benefits cost and projected benefits cost to analyze employee benefits budget properly.
Step 2: Analyze employee needs
The best benefits program for employees is the one that fulfills employee needs. In the need assessment you must analyze employee’s needs, competitor’s benefits plans, country’s labor laws and regulations. You can use market research techniques such as employee’s personal interview, questionnaires and other research methods to gather information.
Step 3: Create a benefits plan
Once you have the above information in hand, you can formulate benefits plans easily. Use the collected information and understand what are priorities and plan accordingly.
This is the most complicated step that needs to be completed patiently after considering many factors such as: What benefits are most important as per labor law to include in the plan? What will be the cost? Will employees contribute for this or not and how much should they?
Step 4: Announce benefits plan to employees
It is crucial to make employees understand about the benefits plan then only your plan can be successful. If you get feedback from employees, try to include it in your plan to make it more useful and beneficial for them.
Following this step helps you in recruiting, retaining and motivating your employees.
Step 5: Periodic Review
Evaluation helps you understand what you need to change in your current benefits plan to make it more effective. Any change in business, economy, and employee demographics, etc. ask for a change in benefits plan too. These periodic reviews help you do it properly.
Types of Guaranteed Benefits in Peru
Peruvian employees are entitled to get following benefits:
Every employee is entitled to get minimum wages which is 1,025 PEN per month as of May 2022.
Peruvian employees have to work a minimum 48 hours per week. Employees with age between 12 to 14 shall not be allowed to work more than 20 hours a week.
In Peru, overtime work is voluntary. After standard 48 hours, all work hours are considered as overtime and the employer has to compensate the employees.
Employers have to compensate employees at the rate of 25% increase in hourly pay for the first 2 hours and 35% increase in hourly pay for all the hours after the first 2 hours.
In Peru, it is mandatory to pay 13th and 14th month salaries. Employers pay these additional months’ salary once at the July end and once at the December end.
Employees contributing in activities that generate income are entitled to profit sharing benefit. This applies to companies having more than 20 employees.
Profit sharing percentage varies from 5% to 10% depending on the industry.
Employees having children under the age of 18 or older children pursuing higher education (until the age of 24) are entitled to get family allowance i.e. 10% of minimum salary.
Employees are entitled to 12 national holidays.
- New year
- Maundy Thursday
- Good Friday
- Easter Holiday
- Labor Day
- Feast of St. Peter and St. Paul
- Independence day of Peru
- Saint rose of Lima day
- Battle of Angamos
- All Saints day
- Immaculate conception
Full time employees are entitled to 30 days of annual leave. Employees can use these leave in two parts after discussing with employers. Employers cannot replace these leaves with other leaves such as maternity or sick leaves.
Full time employees are entitled to 12 days of sick leave. To take benefits of sick leave, employees must submit a medical certificate to employers.
Employees are compensated 100% by the employer for the first 20 days of sick leaves. If the employee is on long sick leave, then after the first 20 days till 245 days, they will be compensated by the government through social security.
Full time female employees are entitled to 98 days of maternity leave. Out of these 49 days leaves can be taken before the childbirth and rest 49 days after the childbirth.
In case of complicated birth or multiple births, employees can request for an additional 30 days of maternity leave.
In Peru, the National health system (EsSalud) or Private health system (Entidades Promotoras de Salud or EPS) is obliged to pay maternity pay.
Female employees who adopt a child under the age of 12 years old are entitled to paid adoption leave of 30 days.
Employees are entitled to 10 days of paternity leave. In case of multiple births, it can be increased to 20 days.
Compensation of years of service (CTS) / Unemployment insurance
All full time employees are entitled to this compensation. It is calculated based on the number of complete months of service in the corresponding semester (November – April, May -October). For each month of service, one twelfth of the monthly remuneration is calculated.
Social Health Security: It is mandatory for employers to contribute to employee’s health insurance. But, there is no obligation for employees to contribute for the same.
Though, employees can choose between the National health system and Private health system for their health insurance benefits.
The rate at which employers contribute for health insurance:
Social Security Fund
Employers must withhold the employee contribution amount every month for the pension fund.
Social Security Fund
Employees enrolled with the National Pension System (alternatively known as Circa): 13%
Employees enrolled with the Peruvian Private Pension System: 12.50%
Employee Benefits for Expatriates
Expats get similar benefits like native workers. Minimum wages, leaves, medical benefits, injury during work benefits are some of the common and applicable to expats also.
There are no other special benefits offered to expatriate employees.
Supplemental Benefits For Employees in Peru
Supplemental benefits plan helps employers to make their compensation package worthy.
- Life Insurance for employees and their family
- Medical insurance for employees and their family
- Workplace accidental insurance
- Food allowance
- House and car allowance
- Education allowance
These are some of the common fringe benefits in Peru.
How Are Employee Benefits Taxed in Peru
Gross income includes salaries, bonuses, housing, school allowances or any kind of cash payment that employees received in Peru is taxable irrespective of nationality.
Houses and cars owned by companies and given to employees do not qualify as taxable.
Foreigners shifting to Peru get three month tax free holidays and they don’t need to pay tax on mobility costs and accommodation expenses. Cost of home-leave fares, airfares to the home country for holidays are also not considered as taxable income.
Severance indemnities and indemnities for vacation not taken paid to terminated employees are not taxable incomes.
Non-domiciled employees have to pay 30% income tax on their peruvian source income. No deduction or credits are applicable on expats.
Income tax rate for domiciled employees:
Tax rate (%)
Up to 5
5 to 20
20 to 35
35 to 45
1 Tax Unit = 4600 PEN
Restrictions for Peru Benefits and Compensation
One of the major restrictions a business can face is not having a business entity to offer employee benefits. Establishing a business entity in foreign country is a difficult task for small and medium sized businesses as it needs a good amount of funds.
In case of the large scale businesses, if funds are not issues, complexity of process can cause delays.
To handle these restrictions you can collaborate with EOR like Multiplier. EOR works as a co-employer and takes care of onboarding, payroll processing and benefits administration.
EOR are labor law experts as well which understand collective bargaining agreements and can help you develop good benefits plans for your employees and manage them as well.
How Can Multiplier Help with Benefits Management in Peru?
If you wish to expand your business in Peru, you should start preparing for capturing top Peruvian talents. Employee benefits programs play a great role to attract and retain top talents.
The two important requirements – Own Entity and extensive knowledge of Peruivan labor law are needed to offer employee benefits for you.
If you have no entity in Peru then you can collaborate with Multiplier and get our EOR services. Along with EOR, we will help you perfect benefits plans for your new employees. You can sort both issues with this one solution.
EOR helps you with onboarding new employees, payroll management, benefits management and other HR related compliances.
To learn more about it you can book a demo with us!