PEO El Salvador

World Bank Ease of Doing Business Ranking

• DB Rank – 91
• DB Score – 65.3

Rankings on Doing Business topics – El Salvador

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Global PEO in El Salvador

El Salvador has emerged as a prominent destination for Professional Employer Organization (PEO) services, offering businesses a strategic gateway to navigate the complexities of the Salvadoran labor landscape. With its rapidly growing economy and a burgeoning workforce, El Salvador presents unique opportunities for companies seeking to expand their operations while minimizing administrative burdens. Partnering with a PEO in El Salvador allows businesses to tap into a pool of skilled talent, navigate local labor regulations, and ensure compliant employment practices. Whether entering the market or scaling up existing ventures, El Salvador’s PEO services offer a streamlined approach to workforce management, empowering companies to focus on their core objectives while leaving HR and legal complexities to the experts.

What Is a PEO?

A PEO, or Professional Employer Organization, is a company that provides a range of HR and payroll services to small and medium-sized businesses. These services can include employee benefits, payroll, compliance with labor laws, and recruiting and training.

PEOs work by entering into a co-employment agreement with the businesses they serve. In this arrangement, the PEO becomes the employer of record for the business’s employees, taking on responsibilities such as payroll, tax withholding, and employee benefits. The business, however, retains control over its day-to-day operations and the supervision of its employees.

PEOs can help businesses streamline their HR and payroll processes, reduce costs, and free up time and resources to focus on their core business activities. They can also provide access to a range of benefits and resources that small businesses may not be able to afford or manage on their own.

PEOs are also understood as employer of record / EOR at times.

El Salvador – Country Overview

El Salvador is a country in Central America that has been primarily dependent on coffee exports for running its economy. With that being said, the country is now diversifying its trading activities by identifying new trade sectors. The combined value of the country’s imports and exports is equal to 72% of its GDP, displaying the significance of foreign trade. There is no screening of foreign investments, and the domestic and foreign investors are treated equally. El Salvador has signed many agreements assuring open-market policies regarding funds from overseas. The country’s economy is expected to grow from 25.37 USD Billion in 2019 to 27.00 USD Billion in 2020.

Currency

United States Dollar ($)

Principal Language

Spanish

Government

Representative Presidential Democracy

Capital City

San Salvador

Major Cities

Santa Ana, San Miguel

Employment Contracts in El Salvador

Employment contracts in El Salvador can be written or verbal, though using written contracts is a common practice. A comprehensive employment contract in writing specifies employees’ compensation, termination, and other terms.

Fixed term contracts are allowed on account of material and objective reasons for unlimited times, and there is no restriction on the total duration of these contracts. The Labor Law maintains that an employee can be terminated with or without cause. A probation period is allowed for a maximum of 1 month. During this period, both employer and employee can terminate the employment contract without cause.

An employee, if terminated without cause, is entitled to a severance payment equivalent to 1 month’s salary for every completed year of service in addition to proportional year-end bonus and vacation.

Working Hours in El Salvador

Employee work schedule comprises 6 days a week, 8 hours per day. Payment is made to employees for 56 hours of weekly work (8 hours for 7 days). Minors in the age bracket between 14 and 18 are not required to work more than 6 hours in a workday. Employers need to give 1 month’s wage as an annual bonus to workers.

A new law for economic reactivation (acronym LERE) is being considered by the legislature. If it is approved, LERE would change salaries and working shifts, and raise the approved length of a probation period for new workers as well as the implementation of fixed-term contracts.

Employee Leave in El Salvador

Holidays

El Salvador mandates the following national holidays:

• Jan. 1: New Year’s Day
• Maundy Thursday on the Thursday before Easter Sunday
• Good Friday
• Holy Saturday
• Easter Day
• May 1: Labor Day
• Mother’s Day
• June 17: Father’s Day
• Sept. 15: Independence Day
• All Saints’ Day
• Dec. 24: Christmas Eve
• Dec. 25: Christmas Day
• Dec. 31: New Year’s Eve

Regional holidays for celebrations of San Salvador fall on August 4th and 5th.

Annual Leave

Workers are entitled to 2 weeks of paid leave for every year of service.

Maternity Leave

Maternity leave in El Salvador is of 12 weeks, 6 weeks before and after childbirth. 100% of a pregnant employee’s average income is payable for up to 12 weeks. Other benefits that the new mother is entitled to include prescribed milk, clothing and other items needed for the newborn. The payment of benefit is daily.

If confinement is necessary after the expected date, the maternity leave gets extended to the exact date of confinement, and this does not change the benefits for postnatal leave.

Illness caused by pregnancy entitles a female employee to supplementary prenatal leave, the length of which is determined by certain regulations. The employer needs to retain the position of a pregnant employee who does not return due to illness after the usual recovery period post pregnancy is over.

Other Paid Leave

El Salvador celebrates 8 public holidays. Employees are entitled to 15 vacation days paid at 150% of normal wages. 

Medical leave is paid for up to 26 weeks. Employers pay for the first three days of medical leave and the rest is covered by social security. 

Maternity leave is for 12 weeks before birth and 6 weeks after. Pregnant employees cannot be assigned physical work after their fourth month of pregnancy. The leave time is extended in case of pregnancy-related illnesses. Employees are paid 75% of normal wages by the social security agency during maternity leave. 

Paternity leave can be taken for three days within the first 15 days after birth. 

Taxation

El Salvador income tax rates: 

• Income between $0 and $4064.00 is exempt
• Income between $4,064.00 and $9,142.86 pays $212.12 plus 10% on anything over $4,064.00
• Income between $9,142.86 and $22,857.14 pays $720.00 plus 20% 
• Income over $22,857.14 pays $3,462.86 plus 30% 

The El Salvador corporate tax rate is 30%. Employers pay $2,000 in shared capital during the first year. To accurately structure your business, you would need to hire a lawyer in El Salvador to help understand the nuances of the employment laws. 

Employee Benefits in El Salvador

Pension and Social Security

El Salvador mandates a total social security contribution of 15%, of which 7.25% is paid by the employee and 7.75% by the employer. Also, 3.85% of the 15% contribution goes to individual pension savings account, 1.9% towards the contract of disability and survival insurance as well as the Administrator’s commission; the balance 2% goes to the Solidarity Guarantee Account.

Among the changes introduced in the Pension Law reforms approved by the Congress is a reduced administration fee by the individual pension fund management companies (called AFPs), from the current 2.2% that the employer needs to contribute to 1.9% of the Base Income Quotation.

Old-age Pension

Men of age 60 and women aged 55 with a minimum 25 years of contributions, or any person who has made a minimum 30 years of contributions is eligible for an old-age pension.

Health/Maternity Benefits

An employer is required to pay the entire salary for the first 3 days of sick leave, after which social security pays 75% of the employee’s salary. As for maternity benefits, social security compensates 100% of the monthly salary, and the employer is required to grant a 12-week maternity care leave.

Disability Pension

Male employees younger than 60 years of age or female employees of age 55 who have made contributions for 36 months, including a minimum 18 months of contributions in the 36 months before the start of disability, are eligible for disability pension.

Disability benefit is paid if the insured has suffered a minimum 66% loss of earning capacity and needs an attendant constantly for normal daily functions.

Survivor Pension

Persons eligible for survivor pension are the deceased’s widow or partner, children younger than 18 years or 24 years if they are students, and in case there are no survivors, the deceased’s dependent mother if she is of age 55 years or older, or a dependent father of age 60 years or older. A mandatory condition for eligibility of survivor pension is a minimum 5 years of contributions in the previous 10 years before death, and at least one contribution in the previous 12 months.