Processing payroll on time should be carried out by businesses monthly.
Payroll management can be challenging for several businesses considering factors such as calculating consolidated hours worked, determining and processing annual compensation, overtime pay, and payroll taxes. This is especially true when you employ a global team.
If you are looking to hire Peruvian employees or already have a few on your company’s payroll, it is crucial to understand the Peruvian payroll requirements to ensure regulatory compliance and employee satisfaction.
This article covers payroll policies and procedures in Peru and everything you need to know about the Peruvian payroll requirements.
How is Payroll Calculated in Peru?
According to payroll rules and regulations in Peru, employers must collect all employee information to calculate payroll accurately. The employee information includes but is not limited to:
- Employee designation and hires date
- All necessary tax forms
- Health insurance and retirement savings deductions
- Bank details to facilitate salary distributions
- Reimbursement claims
Employers must also process the following information when calculating payroll in Peru:
Gather timesheet data
When calculating payroll, an employer must calculate the total number of payable days, expected working days, and the number of days worked.
Employers commonly outsource this function to an HR software that ensures timesheets are maintained, attendance tracking, and leaves taken are maintained. Through the insights offered by the HR software, employers can easily gather information on the total working hours and the leaves taken by each employee.
In the step here, employers must be cautious about double-checking all the data. A small error can lead to overpaying or underpaying your employees. Verifying all data can include checking all active employees’ payroll data and ensuring that their paychecks are processed on time.
Calculate net pay
Once employers determine the final pay (also predetermined by the employers as gross pay), calculating the final net pay is relatively easy.
Employers can calculate the net pay by withholding tax deductions and social contributions. This also includes any voluntary deduction toward employer-sponsored funds.
Working closely with the finance department allows employers to better understand different deductions that apply to active employees.
Coordinate with your HR team to understand salary revisions and employee benefits that apply to each employee.
It is essential to ensure you are consistent with your organizational policies and comply with the local labor laws, Peruvian payroll requirements, and compensation policies.
Process payroll and distribute payslips
Once the net pay and payroll deductions are finalized, you can process the salaries on the predetermined payday based on organizational policies.
Most Peruvian employers process employees’ salaries on the same date each month. After processing salaries, employers must offer payslips.
A payslip helps employees understand different components of their paychecks. To offer a payslip, employers commonly use a self-service platform that allows employers to upload payslips and employees to download and view them.
Maintain payroll records
As a part of the Peruvian payroll process, employers must maintain payroll records. Employers must document all salary deductions and employee benefits to avoid salary disputes, license cancellations, and penalties.
Important Elements of Salary Structure in Peru
Providing a payslip is an important part of the Peruvian payroll process. Therefore, it is important to understand what a salary structure in Peru contains:
A basic salary is an employee’s base income. The amount accounts for about 35-50% of their overall pay. An employer offers a predetermined figure before any additional amount (which accounts for bonuses, overtime, or deductions of any allowances).
Net salary is an amount an employee receives after all payroll deductions in Peru. These deductions include income tax and any mandatory social contributions.
Income tax deductions
The payroll tax rate in Peru is 30%, irrespective of income earned by an employee. A payslip must have an amount deducted from income tax deductions.
According to payroll rules and regulations in Peru, employers must offer overtime pay to employees working additional hours over eight hours a day. The overtime pay in Peru is 30% for every additional hour worked.
Therefore, overtime pay must be clearly outlined in the payslip.
Certain employers offer housing allowance to all employees or key employees. An employer pays a housing allowance monthly (over the basic salary) to assist their employees in paying the rent. Housing allowance is especially given when employees relocate to a different city due to work requirements.
Bonuses and incentives
13th and 14th-month pay are mandatory in Peru. Peruvian employers offer the 13th and 14th-month pay semi-annually in July and December.
Employers additionally offer bonuses and performance-based incentives. All amounts offered as a part of bonuses and incentives must be clearly outlined in the payslip.
Employers commonly offer travel allowances to cover commuting costs. Travel allowances are also offered to cover expenditures incurred to travel from one location to another.
How to Set Up a Payroll in Peru?
When hiring Peruvian employees, setting up a payroll in Peru is important. Due to the Peruvian payroll requirements, businesses must set up a local entity, such as a subsidiary or an LLC.
Setting up a new entity in Peru might take weeks or months, based on the business structure and the place of incorporation. Businesses must also open in-country bank accounts in Peru to pay their local staff.
To make payroll in Peru a smoother process, outsourcing it to a global EOR platform such as Multiplier can help. Multiplier’s team of professionals in Peru helps businesses compliantly process payroll.
A Step-by-step Process of Payroll Processing in Peru
The payroll process can be lengthy and costly, especially considering Peruvian payroll requirements.
With the changing payroll rules and regulations in Peru, employers must monitor the policies and follow the steps commonly used in the payroll process by Peruvian employers.
Peruvian employers commonly follow steps when processing payroll, including:
1. Onboard employees after the hiring process
The first step is onboarding all new hires. When onboarding new hires, it is important to simultaneously prepare a list that will help to add the employees to the company payroll.
Creating a list will help eliminate duplication of adding the same employee data multiple times or the chances of missing an employee.
2. Define organizational payroll policies
The next step is to define company payroll policy elements for all new employees.
Explaining the company payroll policies will help clarify important payroll aspects of the company. This can include leave structure, monthly salary, employee benefits, payment cycle, etc.
You must also get the senior management’s approval to execute this step of the payroll process.
3. Gather necessary employee data
You must gather the necessary employee information from all employees, which includes address, ID proof, bank details, social security numbers, etc., to process payroll accurately.
Gathering all necessary employee information is important as it avoids unnecessary payroll errors and ensures compliance with the Peruvian payroll requirements.
4. Validate employee data
After collecting the relevant information, employers must validate the employee details. Validating information such as bank details, social security numbers, and ID proofs helps ensure the details align with the Peruvian payroll requirements and the company policies.
At this step, employers must also double-check that they include only active employees of the organization in the payroll list.
5. Input all valid data to the system
This step involves feeding valid data into the payroll processing system.
After making all necessary payroll deductions, the payroll processing system calculates the employees’ net payments that must be disbursed.
The payroll deductions in Peru include withholding income taxes, social security contributions, and other voluntary contributions.
6. Process employee paychecks
After inputting necessary information and calculating net pay, employers can disburse final payments to the respective teams and departments.
Employers must ensure they withhold amounts (deductions) and make payments to the Peruvian tax departments.
7. Offer payslips
Peruvian payroll requirements mandate all employers to offer payslips to their employees.
With the payroll processing system, employers can now automatically update employee payslips.
Employees can access their net salaries and deductions by downloading the payslips through their personal accounts.
Contributions toward the Peruvian social security are mandatory. Therefore, employers must ensure that they withhold employee contributions as a part of the payroll process.
The Peruvian social security comprises
- Health insurance: Employers must contribute 9% of the gross salary offered to an employee every month.
Employees are entitled to choose affiliation with
- The National Health System (EsSalud)
- The Private Health System (EPS or Entidades Promotoras de Salud)
25% of the contributions made to the EPS can also be used as a credit towards EsSalud.
- Pension funds: Monthly withholding of an amount that must be contributed toward the pension fund is mandatory. Employers must contribute an amount equal to 13% of an employee’s gross salary:
- 13% toward the National Health System
- 12.50% toward the Private Health System (This includes 10% to the pension account and 2.5% as a part of commissions and insurance to manage the fund).
Therefore, the contributions include –
Social Security Fund
Contributed by the employer
Contributed by the employee
Employees affiliated with the National Pension System (alternatively known as Circa): 13%
Employees enrolled with the Peruvian Private Pension System: 12.50%
Employers in Peru commonly pay their employees monthly. Additionally, employers must offer 13th and 14th-month pay semi-annually (in July and December).
Peruvian Payroll Options for Companies
There are three main payroll options for businesses:
- In-house payroll processing: Businesses can opt for processing payroll internally by hiring a competent internal team. Employers must also note that to process payroll in Peru, all employers must have a local entity set up.
- Peruvian payroll processing firm: Working with a local payroll processing firm will help the internal teams to relieve the burden of payroll processing. However, the employers will remain responsible for compliance with the local laws.
Therefore, outsourcing payroll to a local payroll processing firm might result in higher legal fees to meet compliance requirements.
- Partnering with a global PEO: Partnering with a global PEO like Multiplier can help ensure payroll is accurately processed while complying with Peruvian payroll requirements.
Entitlement and Termination Terms
The termination process in Peru varies based on the:
- Terms agreed in the employment contract
- Type of employment contract
- Collective agreement
- Reason for termination
In cases where the services offered by employees are terminated without a just cause, they are entitled to a written notice of a minimum of six days and severance pay of twelve months. Employers must provide written notice of termination to the:
- Peruvian trade union
In cases where an employee is resigning, a notice period of a minimum of thirty days is mandatory. There is no provision under the Peruvian employment law on redundancy pay.
Peruvian Payroll Processing Company
In today’s time, having a global workforce is extremely important for the growth and expansion of businesses. However, when hiring and employing global talent, compliantly managing their payroll and juggling other operational tasks can get challenging.
Working with Multiplier as your employer of record (EOR) would allow you to focus on business operations while our professionals handle all payroll requirements and ensure efficient global team management.
If you are looking to have a competitive advantage, partnering with a global PEO firm such as Multiplier can help streamline your payroll processes.
How Can Multiplier Help With Global Payroll?
Payroll processing can be relatively challenging, especially in Peru, given the economy’s stringent requirements. To simplify your payroll processing, you can now outsource it to Multiplier.
Multiplier is a global EOR platform that helps international businesses onboard employees and compliantly process payroll for their global teams. You can now pay your Peruvian employees in their local currencies on time, offer a competitive benefits package, and manage their payroll with a click of a button.
Get in touch with our team to learn more about how we can help you compliantly process payroll in Peru.