TerraLex Cross-Border Guide to Cross-Border Labor & Employment Guidance

Chile has fairly complex labor legislation, which is mainly contained in the 1994 Labor Code. In this resource, we cover the key issues to be aware of if you are thinking of engaging individuals to work as employees in Chile.

The Labor Code defines the individual employment contract as an agreement under which the employee and the employer are reciprocally committed, the employee to personally render services under dependency and subordination, and the employer to pay the employee the corresponding remuneration. Whenever the relationship described above exists, the law will imply an employment contract, even if there is no written evidence of such contract or the parties have agreed otherwise.

As well as employing individuals to work for you as employees, there are other ways to hire services in Chile – for example, by engaging self-employed consultants (under a contract for services), contractors, or agency workers in the cases authorized by law.

In general, labor law is only applicable to people rendering services under employment contracts, although there are some minor exceptions detailed below.

When a company employs over 25 employees, at least 85% of the same shall be Chilean nationals. This restriction has certain exceptions: (i) foreign technical specialist personnel should not be taken into consideration, and (ii) foreign employees who have resided in Chile for more than five years (without considering accidental absences), as well as those foreign employees married to a Chilean, civil partners of a Chilean, widowed to a Chilean or who have Chilean children, will be deemed as Chilean for these purposes.

Foreign employees are subject to the same labor regulations as Chilean nationals. In general, to legally work in Chile, a foreign employee requires a work authorization under transitory permanence (short time work permit), a Temporary Residence permit, or a Permanent Residence.

In general, there are no nationality or residence restrictions for company directors or managers in Chile. However, for tax purposes, every company in Chile must have at least one legal representative residing in Chile.

In principle, foreign employees are obligated to enroll and pay social security contributions in the Chilean system. There are two ways in which foreign employees may be exempt from enrollment in Chile: (a) based on Law No. 18,156 on Foreign Technicians, provided that the foreigners evidence their professional or technical condition and have a social security system abroad providing at least coverage in case of illness, old age, disability, and death; or (b) based on Social Security Treaties executed between Chile and different countries.

If you employ someone who is not entitled to work in Chile, you may be liable to pay administrative fines. In addition, there may be criminal liability in cases of simulating an employment contract for migratory purposes or if the conduct qualifies as human trafficking.

Employment contracts must be executed in writing, no later than 15 days after the date the employee began rendering the services (or five days if the employment contract is for less than 30 days in duration or the employment contracts are for a specific task or project). The contract must be registered at the Labor Board’s website within 15 days after its execution. If an employer fails to put the employment contract into writing, a fine may be imposed and it will be presumed that the terms and conditions of the employment contract are those stated by the employee (a presumption which the employer may rebut). The Labor Code establishes minimum information that must be included in the employment contract. Additionally, if foreign employees are working under a visa or work permit, it may be necessary to include additional clauses required by the immigration regulations.

All employers shall register an email at the Labor Board’s website, and shall upload some statutory labor documentation (contracts, addenda, terminations, remuneration book, registration of mandatory committees, internal regulations, etc.).

Employees in Chile are entitled to the following mandatory payments:

• Base salary, which as a general rule, shall not be lower than the monthly minimum wage established by law, which depends on the employee’s age and the extension of their workday.
• Profit-sharing, which is mandatory for employers making profits. In this regard, an employer may comply with this requirement by adopting one of the following profit sharing schemes: (i) distributing once each fiscal year among its employees at least 30% of the net profits earned by the employer during that particular year; (ii) paying to each employee an amount equivalent to 25% of the monthly remuneration accrued to the relevant employee during the fiscal year, limited to 4.75 times the legal monthly minimum wage; or, (iii) agreeing with its employees to another profit sharing scheme providing equal or higher benefits than those detailed above.
• Full week, which is only applicable if employees are being remunerated exclusively by the day and employees receiving mixed remunerations (partly fixed and partly variable amounts), and consists of the payment of remunerations for Sundays and holidays not worked. For employees with variable remunerations, whether such payment entitles them to full week pay must be analyzed on a case-by-case basis taking into consideration the criteria as interpreted by the Labor Board and Labor Courts. - Teleworking allowance: If employees render services remotely through teleworking, the law mandates employers to pay a teleworking allowance to compensate the costs in which the employee may incur for the operation, functioning, maintenance, and repair of their equipment.

Chilean law protects the right to equal remuneration between men and women by establishing a principle according to which men and women rendering the same services for the same employer should be equally remunerated, and providing that every employer should establish an internal procedure applicable to claims based on alleged violation of the equal remuneration principle.

The right to collective bargaining is granted by the Constitution and the Labor Code and must be exercised in the times and conditions established by law. The agreements achieved through a regulated collective bargaining process are called collective employment contracts (“contrato colectivo”). On the other hand, agreements reached through a non-regulated collective bargaining process are called collective employment agreements (“convenio colectivo”).

In principle, all employees (whether full-time or part-time) have the right to engage in collective bargaining. The exceptions comprised by the law are: (i) employees with power of attorney to represent the employer and with general administration faculties; and (ii) trusted personnel leading senior positions, in companies with less than 50 employees.

A regulated collective bargaining process may only commence: (i) 18 months after the business started its activities for a company with up to 49 employees; (ii) one year after the business started its activities for a company with 50 to 199 employees; and (iii) six months after the business started its activities for a company with 200 employees or more. There are no such limitations in a non-regulated collective bargaining process.

Notwithstanding the above, since employers are not allowed to replace striking employees in any way, the law provides that collective bargaining may not start prior to the union and the employer agreeing upon certain “minimum services” to be provided by the union in case of a strike. These services are not intended to allow the employer to operate its business but only to prevent damage to the facilities, equipment, or the environment.

In the regulated collective bargaining process, if there is no collective employment contract in force with the company (and the periods mentioned above are no longer applicable), and there has been agreement by the parties (or a determination by the Labor Board or the Labor Courts) regarding the minimum services, the collective bargaining process may commence at any time by the presentation of a collective bargaining project by the union. If a collective employment contract is already in force, the collective bargaining for a new contract may not start earlier than 60 days or later than 45 days before the existing collective employment contract is due to expire.

Employees are entitled to go on legal strike and are subject to dismissal privilege protection only within a regulated collective bargaining process. In order to be allowed to go on legal strike, it is necessary that the parties have failed to reach an agreement by a certain date.

The Labor Code limits collective bargaining to matters relating to common conditions of employment, such as wages, other monetary and fringe benefits, working hours, etc. All of these conditions of employment should be collectively bargained for at the same time. Matters that limit the employer’s authority to organize, direct, and manage its business and matters unrelated to the business cannot be subject to collective bargaining.

The law allows different unions and different employers to come together by agreement as a bargaining unit (such as two or more unions of different companies, an inter-company union and a federation or confederation). Employers with more than 50 employees may be required to engage in collective bargaining with an inter-company union, provided that said union has members in such employer in a sufficient number or quorum which would otherwise allow those employees to form a union by themselves within such employer.

Collective employment contracts or agreements may only be amended through collective agreement and not by individual agreement. For collective employment contracts, the law stipulates that their effective term or duration may not be less than than two nor more than three years. On the other hand, collective employment agreements will have the duration agreed by the parties, which cannot exceed three years.

The Chilean social security system is a mixture of private and public agencies.

All employees are required to make pension, health insurance, and part of the unemployment insurance contributions on a monthly basis. Although they are on the employee’s account (around 19% of the employee’s remuneration, the latter limited to the legal remuneration cap in effect), it is the employer who is legally bound to withhold them from the employee’s remuneration and pay them to the appropriate institutions.

Employers must pay contributions for: (i) labor accidents and professional diseases insurance; (ii) disability and survival insurance; (iii) insurance for the accompaniment of children with serious illnesses; and (iv) the employer’s portion of the unemployment insurance.

A new pension system reform has been approved by Chilean Congress, which is not currently in force. By virtue of this new law, employers will have to pay, in addition to the contributions indicated above, contributions for the employee’s pension fund and for a new Independent Social Protection Fund, which will replace the current disability and survival insurance listed on number (ii) above.

The Chilean Constitution recognizes the employees’ right to form, join, and withdraw from unions. Employees are free to organize unions as long as the legal procedure and requirements are fulfilled; these requirements include minimum numbers of employees.

Trade unions are not expressly recognized under Chilean law. Since Chilean law recognizes freedom of unionization, employees may establish inter-company unions as well as upper tier union organizations, such as union federations or confederations. However, upper tier union organizations may only engage in collective bargaining with the employers’ consent. For inter-company unions, whether it is mandatory for the employer to negotiate with them will depend on the size of the company. In this sense, in companies with one to 49 employees it is not mandatory for the employer to negotiate with inter-company unions. On the other hand, in companies with 50 or more employees, such negotiation will be mandatory if the requirements for inter-company collective bargaining have been fulfilled.

The law sanctions unfair union practices by employers. In addition to fines and other sanctions (cease and desist, reinstatement of dismissed employees, increased severances, etc.), an employer found guilty of these practices may be barred from entering into contracts or participating in bids with the State of Chile for up to two years.

In general, an employee cannot work more than ten hours a day or more than 44 hours a week, distributed in five or six days a week. This weekly limit will be reduced to 42 hours on April 24th, 2026, and to 40 hours on April 24th, 2028. Exceptional working days may be established for special cases with prior authorization of the Labor Board.

Additionally, in cases where the services are rendered in remote sites, the parties may agree on a working schedule of up to two consecutive weeks, by the end of which the employer must compensate the employee for the Sundays and holidays that took place during that period, increased by one day.

Employees and employers may agree to distribute the work week in cycles of up to 4 weeks which average 40 hours each week, with a maximum of 45 hours in one week (e.g. 35 hours in week 1 and 3, 45 hours in week 2 and 4).

Certain categories of employees may be excluded from work schedule limits (e.g. managers, administrators, or agents holding broad authority to represent the company and those who work without direct supervision due to the nature of their services).

Except for certain cases, employees who are mothers and fathers of small children have a right to a 2 hour time band, by which they can anticipate or delay the start and end of their workday by one hour.

The employer and employee may agree on overtime work up to a maximum of two hours a day provided that there is no damage to the health of the employee. This agreement shall be written. It should be based on temporary needs or situations affecting the company and its duration may not exceed three months (duration may be extended by mutual agreement of the parties). Notwithstanding the above, and even with no written agreement, time worked in excess of the weekly working day with the knowledge of the employer should be paid as overtime. Under the law, overtime is paid at a rate of 1.5 times the regular working hours. Employees and employers can agree to compensate overtime hours with additional vacation days, at a rate of 1 overtime hour to 1.5 additional vacation hours, with a maximum of 5 full days each year.

The Labor Code provides rest periods for mid-day meal (at least half an hour), a weekly rest day on Sunday, and on national holidays. Certain few categories of works or employees expressly set out in the Labor Code may be totally or partially exempt from resting days on Sundays.

After one year of service for an employer, an employee is entitled to 15 working days of annual vacation with full pay.

In addition, any employee with ten or more years of service for one or more employers has the right to an additional day of vacation for every three years of service in excess of ten years. For these purposes, only ten years worked for previous employers may be taken into account.

An employment contract may only be terminated based on the grounds set forth in the Labor Code, which may be divided into those that do not grant the employee the right to severance pay (i.e. agreement of the parties, resignation of the employee, death of the employee, expiration of the term of a fixed-term employment contract, completion of the specific work or service for which the employee was specifically hired, act of God or force majeure, and fault of the employee) and those that do. The grounds for termination of an employment contract where the employee is entitled to severance pay include: (a) business necessities; (b) “at will”, which applies only to employees with authority to represent their employer (i.e. managers, assistant managers, agents, or those having general powers of attorney), employees who are in positions which by their nature are of the exclusive confidence of the employer and household employees and, (c) employer being subject to a bankruptcy liquidation procedure.

In some cases a termination notice should be served to the employee with a copy sent to the Labor Board. If the termination is based on a reason which entitles the employee to severance pay, the employee has to be notified at least 30 days in advance, with a copy sent to the Labor Board. The requirement for 30 days advance notice may be waived if the employer pays the employee a severance payment equivalent to one monthly wage, with a legal cap of 90 UF (approximately US$3,724).

Where the employment contract has been in effect more than one year and the termination is based on the grounds of business necessities, at will, or bankruptcy, the employee is entitled to a severance as expressly agreed by the parties. Where there is no agreement (or the agreed amounts are less than the ones set out by statute), the employer should pay the legal severance equivalent to 30 days of remuneration for each year of service (and a fraction thereof equal to or greater than six months) with a legal cap of 90 UF per monthly remuneration and eleven years of service.

The Labor Court may increase severances by 30% to 100% if the dismissal is considered unlawful. If the dismissal is a result of an anti-union practice, the employer may be liable to pay an additional six to eleven monthly wages. The employer may be sanctioned in the same manner if the Labor Court determines that it violated the employee’s constitutional rights in connection with the dismissal. If a dismissal is deemed as an anti-union practice or a violation of the employee’s constitutional rights, the employer may be barred from entering into contracts or participating in bids with the State of Chile for two years. Furthermore, if the Labor Court determines that the dismissal has been discriminatory, it could order the reintegration of the employee to the company if the employee so wishes.

A general labor discharge and release should be executed upon termination. In order to be valid in trial, the labor discharge should be signed by the employee and the president of the union, or signed and ratified by the employee before a notary public or a Labor Board Inspector. This document can also be granted and signed through the Labor Board’s website if the employee agrees to do so.

In certain cases, an employer may not terminate an employment contract without demonstrating to the employee (by producing the appropriate receipts) the due payment of all social security contributions corresponding to the entire length of the employment relationship. If the employer has not paid all of the employee’s due social security contributions, the termination will be null and void, and the employee will be entitled to receive remuneration until the employer pays all due amounts and such circumstance is communicated to the employee.

The employment contracts of some employees cannot be terminated without prior Labor Court approval (e.g. union leaders; pregnant women during pregnancy, while on maternity leave, and within the year following the end of the postnatal maternity leave; employees involved in collective bargaining, among others). If an employee is on paid sick leave, his employment contract may not be terminated on the grounds of business necessities or at will.

Finally, employees can terminate their employment contracts with severance payments by means of a constructive discharge, which must be triggered by a termination notice and followed by court litigation. A constructive discharge can be filed by an employee when the employer incurs -generally- in serious breach of the employment contract. If the employee obtains a favorable ruling, the company will be forced to pay the severance in lieu of prior notice and the severance per year of service with a surcharge of 50% to 80%, depending on the ground of termination.

Chilean labor law does not recognize redundancy as a ground for dismissal or set out any special procedures for these cases. Whenever an employer needs to reduce the size of a workforce the reason usually used for termination is “business necessities” or “at will” (if the employee qualifies), according to the considerations explained above.

If you are considering taking on employees as a result of a business sale in Chile, be aware that, pursuant to the Labor Code, the changes in connection with the ownership, possession, or holding of the business will not affect the rights and obligations of employees pursuant to their individual or collective employment contracts, which will maintain their effects and continuance with the new employer. Thus, if there is a transfer of the business, the employment contracts will continue in full force and effect, with the same rights and obligations for the employees, including their seniority and past services for all legal purposes. Employee transfer is automatic, so employees do not need to agree to the transfer.

No notice to the employees, unions, or authorities is legally mandatory before or after the transaction. However, from a human resources perspective, it is highly advisable to inform them beforehand.

The Labor Board (“Dirección del Trabajo”) is the administrative agency responsible for ensuring compliance with labor law. Among its many duties, it may assume an active role in avoiding and resolving labor conflicts by acting as a mediator in case that an employee files a labor claim before the Labor Board.

In Chile, the Labor Courts are the special courts for the resolution of labor disputes. Employees or their unions may sue employers in the Labor Courts when an infringement of labor law is alleged and to resolve disputes originated in the application of employment contracts. Labor Courts are predominantly employee protective.

Under Chilean Labor Law, if an employer grants the employees any rights, benefits, or privileges on a regular basis, such benefits may be deemed to be part of the corresponding employment contracts as implied terms. The latter is notwithstanding the fact that the benefits have not been offered or agreed in any written labor document. If such benefits are implied, the employer will not be able to change, suspend, or terminate the benefits or change their terms without the agreement of the employee.

The law provides for paid maternity leave of six weeks before birth (“prenatal”) and twelve weeks after birth (“post-natal”). If the birth occurs before the 33rd week of pregnancy or if the child weighs less than 1,500 grams at birth, the post-natal leave will be extended to 18 weeks. Once the post-natal leave has expired, female employees are entitled to an additional paid maternity leave after birth of another twelve weeks (“parental post-natal”). During the parental post-natal leave, female employees may decide to go back to their work for half day, in which case the parental post-natal is extended to a total of 18 weeks. Maternity leave is paid through a subsidy by the employee’s health insurance up to a monthly cap, which is readjusted every year.

Employees are entitled to sick leave, which requires a doctor's certificate and immediate notice to the employer. Sick leave is paid through a subsidy by the employee’s health insurance or work accidents and professional illnesses insurance depending on the nature of the illness. The subsidy for these leaves is subject to the same monthly cap as maternity leave.

Employees are entitled to paid leave in case of death or sickness of certain relatives.

Employers employing 20 or more female employees must provide day care for infants younger than two years of age.

Underage employees may only exceptionally enter into a legally binding employment contract under very strict conditions.

Firstly, individuals under 18 but over 15 years old may execute employment contracts only to perform work that is not considered as dangerous and does not affect their health, education and development, as long as:

• They have the express authorization of the father or mother, or in the absence of them, of whoever has the personal custody of the minor, or in the absence of them, of whoever has the legal representation of the minor, or in the absence of all the abovementioned, of the respective labor inspector; and
• That the child previously provides proof that he/she has finished school or is currently studying in it. In this case, the work shall not prevent or impair their regular attendance to class and related activities.

Minors under 18 attending school may not work for more than 30 hours per week, distributed in no more than six hours per day during the school period and no more than eight hours per day during vacations. Secondly, exceptionally the law allows children who are under 15 years old to execute employment contracts to participate in theatre, cinema, radio, television, circus spectacles, and other similar activities, provided that they comply with the above said requirements. Additionally, an authorization from a Family Court is necessary.

There are also special rules forbidding (or restricting) the employment of children in underground mining, in cabarets or similar establishments, artistic media, and night work.

Regarding young persons, there are special regulations for part-time work of students. These regulations are applicable to students, who (i) must be between 18 years and 24 years old; and (ii) are regularly studying or in the process of obtaining their degree, either in a undergraduate professional/technical university, or in entities which provide studies in order to level their education (aimed at people who were not able to complete their elementary/high school studies).

The main aspects regulated by this law are the following: (i) The daily hours effectively worked may not exceed ten hours; (ii) The employer and the employee may agree on a daily interruption of the working schedule (in addition to lunch time) to allow the employee to attend classes; (iii) the addition of working hours, overtime, and the interruption set forth in number (ii) above, may not exceed twelve hours a day; (iv) regarding health insurance contributions, the employee may either opt for entering his/her contribution to his/her own health insurance or to the one in which the employee is a beneficiary (e.g. one of the employee’s parents’ health insurance).

The Chilean Labor Code prohibits any discrimination on the basis of race, color, sex, gender, maternity, breastfeeding, age, marital status, union membership, religion, political opinion, nationality, national origins, socioeconomic status, language, beliefs, participation in trade organizations, sexual orientation, gender identity, affiliation, personal appearance, illness or disability, social origin or any other reason, and in general, any discrimination that is not based on the capacity and suitability of an employee for a position.

On the subject of discrimination, risk prevention regulations prevent employees with a special sensibility to certain risks (such as people with physical, cognitive on sensorial disabilities, pregnant employees, amongst others) from executing works in which their special sensibility puts their life and health, or those of third parties, at serious risk. In some cases this will require moving the employee to a different position, which may be impossible if there are no other jobs or positions that can be assigned to the employee. Under these circumstances, terminating the employment contract of an employee with a special sensibility to certain risks becomes challenging, as they can claim that they are being fired due to this disability or special condition, and thus being discriminated against.

Additionally, Chilean Labor Law contemplates specific protections against infringement of employee fundamental rights by employers. The law protects the employees’ rights to their physical and psychological integrity, honor, privacy, inviolability of private communications, freedom of consciousness, freedom of opinion and to inform, freedom to work and the discrimination cases stated above. This protection includes a special judicial procedure in which if the employer is found guilty of infringing on these rights the Court will determine the necessary measures to uphold the infringed rights. These measures can include a cease and desist order and/or an order to revert the action causing the infringement, and if the infringement occurred in connection with employment termination, the payment of a punitive severance between 6 to 11 monthly remunerations (uncapped), payment of pain and suffering. Furthermore, a company found guilty of said infringements will be barred from entering into contracts or participating in bids with the State of Chile for up to two years.

Retaliations (including by employment termination) against employees for filing claims with the Labor Board, the Labor Courts or other authorities,or for participating in Court proceedings as witnesses or being offered as a witness in such proceedings are forbidden and will be considered an infringement of the employees’ fundamental rights.

Finally, Chilean labor law requires that Companies with more than 100 employees hire a number of employees with disabilities equal to one to two percent of their total employees.

Any services may be outsourced, but the principal company will become jointly and severally liable for the labor and social security obligations of the contractor with the employees rendering the services. Such liability may be reduced to a “subsidiary” liability if the principal company requires the contractor to evidence the fulfillment of all the labor and social security obligations of its employees. Services contracted on an occasional basis may not give rise to these liabilities.

Personnel supply is only authorized for particular temporary events and for the terms expressly set forth by the law. The personnel supply may be executed only by specialized temporary personnel agencies called “Empresas de Servicios Transitorios”, registered as such in the Labor Board, which shall comply with several special requirements.

Employees cannot waive their legal rights while their employment contracts are in force and effect.

Employers must protect the rights of their employees, especially protecting employees against sexual harassment, mobbing and violence in the workplace. On this matter, employers must have an investigation procedure for claims of this kind in their internal regulations of order, hygiene and safety, or informed to the employees upon hiring and incorporated to the internal regulations of hygiene and safety. Furthermore, they must enact and periodically update a sexual harassment, labor harassment and workplace violence prevention protocol., which has certain minimum regulations set forth by the Labor Code. Additionally, employers must adopt measures to prevent the occurrence of sexual harassment, labor harassment and workplace violence in the company. Failure to comply with these protections exposes employers to fundamental rights infringement claims, constructive discharges and administrative fines.

Employers must adopt all necessary measures to effectively protect the life and health of employees, creating the correct hygiene and safety conditions on site, as well as providing equipment to prevent accidents and work-related illnesses. On this matter, Chile’s Supreme Court has held that “effectively” means the highest level or standard of care through which the employer must comply with its prevention and safety obligations. Likewise, a company having contractors’ or subcontractors’ employees at its site must adopt all measures necessary to effectively protect the life and health of workers who are active at its works, facilities, or worksite, regardless of the ties of subordination involved.