Labour – Social Security

I am an expat. Do I have to deal with the Chilean Social Security System?

The possibility of a career in a country full of wine and cornered by the Pacific Ocean and the Andes mountain range certainly sounds appealing.

Schools are decent, private healthcare is among the best in the region, and there are no hurricanes or deadly animals to be worried about.

So with all that, why is my move there still keeping me awake at night? It is likely because I will have to deal with new taxes and social security in a country that is not even mine. So what should I know about it?

There are three basic social security deductions that will hurt my new Chilean paycheck:

7% of it will go towards my health insurance;
10% will go towards my Chilean pension; and
0.6% will towards my Chilean unemployment insurance.

While the above sounds scary, the deductions are based on income capped at roughly USD 3,000 for health insurance and pension contribution, whereas for unemployment insurance it will based on income capped around USD 4,500. In other words, if make USD 10,000 a month my mandatory contributions will still be USD 210 for health insurance, USD 300 for my pension and USD 27 for unemployment.

Having said this and despite the charms of this southern nation, it is likely I would rather keep my own health and pension system in my home country. How do I get out of making these contributions in Chile then?

I must be a foreigner doing professional or technical work in Chile. Easy.
I must be affiliated to a mandatory foreign social security system that includes coverage for health, disability, pension and life insurance.
I need to make sure to establish in my work contract that I want to maintain my non-Chilean health and social security system abroad.
My wonderful employer needs to communicate this to the corresponding pension fund manager in Chile. At this point in time that manager is AFP Uno but it may change in the future.

Can I also opt out of unemployment insurance? Unfortunately, no.

So the good news is that there is a way to opt out. But, what happens if I didn’t know about this during my time in Chile? Can I recover my pension contribution paid to the pension fund manager? Yes!

I need to submit a refund request to the manager I was paying into;
I need to demonstrate that I am foreign professional or technical worker by certifying my professional or technical degree. Time to dust off the diploma!
I need to demonstrate that I am part of a foreign social security system covering health, disability, old age and death; and
My former Chilean work contract must be explicit about my intention to keep my foreign social security and health insurance system.

Easy. Right? If not, then we would be happy to have a chat with you and go through the process based on your specific situation.

#Chile #Socialsecurity #18.156 #Expats #Expat

Hiring staff in Chile can be tricky if you don’t know your way around some practices.

First and foremost, the Chilean employment tax system relies on the employer taking care of everything. For that purpose, your candidates will unlikely be familiar with income taxes, thus making their liability your problem.

The outcome is that they will negotiate salaries in net terms (after taxes), thus putting on you the responsibility to calculate employment tax, social security contributions, unemployment insurance and health insurance.

Let’s say that your shiny candidate wants to make about CLP 1,000,000 a month net. To get to that number you will have to consider:

A mandatory 7% contribution to private or public health insurance.
A mandatory 10% contribution to social security plus the commission of the pension fund manager (e.g. an additional 0.77%).
A mandatory 0.6% contribution to unemployment insurance.
Employment tax ranging from 0% to 40%. Following this example, taxable income of less than CLP 1,500,000 should put your candidate in the 4% marginal tax bracket.
A mandatory taxable bonus (“legal gratification”) paid based on the company’s profits, but that is typically capped.

While the above sounds scary, the deductions are based on income capped at roughly CLP 2,250,000 for health insurance and pension contribution, whereas for unemployment insurance, the calculation base is capped at around CLP 3,375,000.

Bottom line? To get to that CLP 1,000,000 your candidate wants you will at least have to consider a cost of CLP 1,450,000. Don’t break a sweat about this; we will help.

In addition, if you are recruiting a high maintenance executive he or she may want a car and/or housing. All of this is possible provided they are deemed as part of the taxable compensation of the employee.

Regularly speaking though, most employees would expect a small amount for commuting and lunch, which is tax free, provided it is reasonable (i.e. eating at the Ritz every day does not count).

Further and as you may be aware, in Chile we are big fans of holidays and long weekends. For that reason, your hardworking employees will expect to receive a taxable bonus (“aguinaldo”) twice a year, at least: one for the National Holidays on September 18^th and one for Christmas and New Years. It does not have to be a big chunk of money, but enough to fire up the grill and welcome friends and family over.

Finally, it is worth noting that the work week in Chile is being reduced from 45 to 40 hours, unless the employee agrees to waive this limitation which is typical for professionals.

Now let’s talk about the sour aspect of employment… parting from your employee.

Letting someone go is not only a difficult emotional process, but one that has a number of legal consequences to be considered:

As a general rule, you can fire an employee at any time based on the needs of the company (e.g. due to poor performance). This cause will require you to duly compensate your former employee for the time spent working for you.
Alternatively, Chilean labor law allows other causes for firing which may free you from the obligation of paying severance. Then again, we are talking about strict reasons such as theft, which always carry with them a burden of proof.
If your employee is entitled to severance, he or she will be due one month of gross salary (capped at around CLP 2,556,000) per year (up to 11) or fraction exceeding 6 months that he or she has spent working for you.
Further, your employee is entitled to be given a 1 month notice. If such notice is waived, he or she will be entitled to another month of capped gross compensation.
Finally, accrued vacation time is to be paid in full and with no cap.

Should your employee quit, then a good handshake and compensation for accrued vacation will do.

Category: Labour – Social Security