Labor Relations and Social Security

Peruvian labor legislation is characterized for being atomized into many laws and regulations. However it is foresee the creation of a single General Labor Law, which will comprise the entirely labor legislation.

Labor agreements
In regard with the labor relationship, it is to note that once is initiated, employees must comply with a trial period of three months, during which they can be dismissed without indemnity for unjustified dismissal.

The trial period can be extended to six months or one year for skilled employees, or those appointed to management and positions of trust. There are special additional rights for women and minors.

Currently, the union movement in Peru is not very strong. Employees in construction, transportation and industrial companies commonly form the strongest unions.

Unions or workers’ representatives usually negotiate salary increases, fringe benefits and other special conditions through collective bargaining with employers. Agreements reached with unions that comprise more than one-half of a company’s employees are applicable for all employees, even if they are not members of the union.

Compensation is commonly paid in the form of wages and salaries or by way of commissions, and may be paid in either Peruvian or foreign currency. Compensations are levied with statutory social contributions and employee’s taxes.

The employer may also agree with employees whose monthly compensation is not less than two tax units (UIT) that their compensation be paid as an annual package computed on an annual basis, including all legal and conventional benefits, with the exception of profit sharing.

Family allowance
Employees with children studying at schools and universities, whose labor contracts are not ruled by collective bargaining, have the right to receive the equivalent of 10% of the minimum salary as family allowance. The employee must file the birth certificate(s) of his/her child(ren) with the employer to receive the family allowance.

Profit sharing
There is a general system of participation in company profits. Employees of companies which perform activities generating third category income are entitled to participate in the profits of the company, provided the company has more than 20 employees, and they are subject to the labor regime for private employees.

Employees share the profits of the company through the distribution by the company of a percentage of its net income before taxes. This percentage varies according to the employer's business (as of 5% to 10%).

Legal bonuses
A mid-year bonus for National Holiday (July 28) and a year-end bonus before Christmas are mandatory by law. Each bonus is equivalent to one month's salary.

Life ensurance
The employee with four years of compañy service is able to get an ensurance policy.

Working schedule and overtime
Normal working hours should not exceed 8 hours per day or 48 hours per week. This 48 workweek hours applies to any employee with exception of those appointed to management and trust positions.

Overtime, including work on statutory holidays, is payable at a premium agreed on between the parties, which may not be lower than 25 percent of the ordinary hourly rate for the first two hours, and 35 percent for the following hours.

Vacations and Holidays
The national holidays no workable are celebrate in the set date, during the calendary year.

Employees are entitled to paid annual vacations of one month upon completion of each year of service, with a minimum attendance of 260 days if the workweek is six days long and 210 days if five days long.

The employer and the employee may agree to allow up to two year’s vacation to accumulate. However, at the end of the first year the employee must take a seven-day vacation minimum period. If the employer does not grant vacations to the employee, a payment equivalent to two compensations must be made (one corresponding to the work performed and the other as indemnity for not having taken vacations).

Extinction of the employment relationship
According to the labor legislation the principles causes of extinction of the employment relationship are settle in law. The employer may not dismiss an employee for reasons of behavior or qualification without granting the employee a reasonable term of not less than six calendar days to defend him/herself in writing against such charges.

Should the employee be terminated and no fair cause exists (dismissal without grounds), the employee will have the right to receive a severance payment equal to 1.5 monthly salaries for each year of service, up to a maximum of 12 salaries.

Severance Indemnity (CTS)
Employees are entitled to a tax-free severance indemnity to be received upon death, retirement, resignation, or dismissal. This indemnity is equivalent to one month’s salary plus one-sixth of a salary for each year of service.

Employers are obliged to deposit the CTS on a semiannually basis in banking or financing institution and in the currency (national or foreign) chosen by the employee. These deposits must be carried out within the first fifteen (15) days of May and November each year.

Social Security Administration for Health Services (EsSalud)
There is a general state system of social security for health services, which is administered by EsSalud, providing health coverage as established by law.

In general, all dependant employees registered on the payroll are covered by EsSalud, being the labor relationship the only requirement for obtaining coverage, regardless of the term of employment or the number of hours worked.

The rate of this contribution is 9 percent of compensation.

National Pension Fund
The National Pension Fund amounts to 13 percent of the compensation and is managed by the Oficina de Normalizacion Previcional—ONP, which provides pensions to retired employees.

Private Pension System
Private pension fund administrators, locally known as AFPs, manage an alternative pension system. AFPs guarantee pensions for retirement, handicap and survivorship pensions, and burial expenses.

Contributions form an individual private fund. The employee’s contributions and their corresponding interests exclusively finance pensions. For these purposes employees must contribute aproximately with 12.8 percent of their monthly compensation.

Labor Fiscalization Authority (Superintencia Nacional de Fiscalizacion Laboral - SUNAFIL)
The labor authority is in charge of watch and demand that employers fulfill the labor and provisional provisions. Also, this entity is in charge to provide technical assistance to the employers, as well as the employees, protecting their corresponding rights.

The labor authority is entitled to impose fines to employers which infringe Labor Law.
T.: (511) 717 6901

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