How to pay international contractors in Guatemala
If you operate (or want to operate) a global company, consider hiring Guatemalan contractors. Situated below Mexico, the country has a particularly high rate of self-employed workers compared to the rest of Latin America, hovering at around 40% of the workforce. However, before hiring contractors in the country, it's crucial to familiarize yourself with Guatemalan employment laws and tax regulations to ensure proper onboarding and payment.
Before receiving your first invoice or processing any contractor payments, take the time to understand how to correctly classify and onboard freelancers while complying with local labor laws. This guide will provide a step-by-step process for effectively managing payroll for Guatemalan contractors, whether they’re based in the capital of Guatemala City or elsewhere.
Step #1: Classify your workers in Guatemala
Hiring contractors comes with a lot of benefits. The process is quick, and the arrangement is flexible. But, it's crucial to classify workers accurately to adhere to Guatemala's local laws. A misclassified worker in Guatemala can sue to seek back payment for any employee benefit or wages they should have received.
Here are some considerations to determine the correct worker classification:
Contractors
Employees
High level of worker control. Contractors decide how, when, and where to complete their tasks.
More direction from the employer. Employees get more direction from their employer, including guidance on performing the work and appropriate working hours.
The worker owns equipment and tools.
The company typically provides equipment and tools.
Less integrated. Contractors work independently and often remotely with their own tools.
Highly integrated. Employees are more integrated into the employer's organization. For example, they may work on the employer's premises.
No entitlement to benefits. Contractors are not entitled to employee benefits or the same labor protections as employees. Contractors also pay their own taxes.
Entitled to benefits. Employees enjoy labor protections and various statutory employment benefits, including minimum wage, paid time off, overtime pay, sick days, bereavement leave, and maternity leave.
Time-bound engagement. Contractors are usually engaged for specific projects or a set amount of time.
Indefinite engagement. Employees are typically hired for an unlimited time period.
Risk of loss. Contractors assume more risk and liability for the work they perform. This includes tax liability and financial liability.
No risk of loss. Employees are protected from liability for work-related issues.
Subcontracting and outsourcing are allowed. Contractors have the option to subcontract work to other contractors or businesses.
No subcontracting is allowed. Employees are expected to perform their tasks personally and can only delegate responsibilities with approval.
Step #2: Determine the best way to pay your contractors in Guatemala
When drafting your contract agreement, consider the most suitable payment method for both you and your Guatemalan freelancer. With the rise of global and remote work, there are various options available for paying Guatemalan contractors:
- Bank wires. Open a Guatemalan bank account to directly deposit funds into contractors' accounts or use your bank for global wire transfers.
- Digital wallets or payment platforms. Not all payment platforms are accessible in Guatemala. While Venmo is limited to the US, you can utilize alternatives like PayPal or IPSIPay. Keep in mind that exchange rates or fees may vary.
- International money orders. This method can be slow and inconvenient, as the employer must physically purchase the money order, and the contractor needs to deposit it in person. What’s more, it often involves fees and fluctuating exchange rates.
- Global payroll services. Because contractors aren’t subject to withholdings, they typically aren’t included in regular payroll. Contractors will, instead, send invoices to be processed by accounts payable. However, Rippling lets you conveniently pay Guatemalan employees, contractors, and other global workers—all in a single pay run.
Step #3: Use global payroll software to process payments for Guatemalan contractors
From the last step, it’s clear: global payroll software like Rippling is the easiest way to pay contractors in Guatemala and around the globe.
Find out how Rippling’s global payroll system can enable seamless payroll for employees and contractors alike:
Step #4: Ensure your Guatemalan contractors have the right tax information
Employers don’t need to withhold taxes on behalf of contractors, as Guatemalan contractors are responsible for their own taxes.
But, if you are a US-based employer, you’ll need to comply with the Internal Revenue Service (IRS). First, you’ll need to gather information from your contractor, including their legal name, date of birth, contact details, bank account information (or other payment details), and tax identification number (TIN). Foreign independent contractors based in Guatemala or elsewhere are required to complete a Form W-8BEN. Employers also fill out a 1096 Form, providing details about their foreign contractors.
Tax compliance can be messy. Failing to follow these regulations can result in major consequences from both your country's tax revenue services and that of Guatemala. Rippling’s global payment system makes compliance easy by handling paperwork, submitting the correct documents, conducting calculations, and filing taxes on your behalf.
Frequently asked questions about running payroll for contractors in Guatemala
Do you need to withhold taxes when paying contractors in Guatemala?
No, you do not need to withhold taxes from contractor pay. Guatemalan contractors are responsible for their taxes.
Does the Guatemalan minimum wage apply to independent contractors in Guatemala?
No, contractors negotiate their own rates and are not subject to minimum wage laws.
For employees, the minimum wage depends on the industry. As of 2023, the minimum wage is 101.05 GTQ per day for agricultural activities, 104.20 GTQ per day for non-agricultural activities, and 95.13 GTQ per day for export activities and maquiladora (manufacturing plants).
Do Guatemalan contractors get benefits?
Unlike full-time employees, self-employed Guatemalan contractors are not entitled to employment benefits.
Can you pay contractors in Guatemala in your home currency?
Always pay international contractors in their local currency unless they agree to accept a different one in writing. The local currency in Guatemala is the quetzal (GTQ).
Can you manually pay contractors in Guatemala?
Employers have the option to manually pay Guatemalan contractors. In fact, this is a common practice among small business owners aiming to reduce costs. However, it doesn’t always pay off. This process can become time-consuming, especially as your business expands or involves multiple foreign contractors. Manual payment processing also poses risks:
- Compliance. Manually processing payroll increases the risk of human errors and omissions. In contrast, Rippling ensures automatic compliance.
- Security. Relying on spreadsheets or paper records exposes you to security risks. Sensitive worker information could be lost, stolen, or misused.
Rippling provides an automated solution to streamline and optimize payroll management. By synchronizing your business's HR data with payroll, Rippling eliminates the need for manual data entry, facilitating swift and compliant payments to your global contractors and employees—all in a single pay run.
How do you turn a contractor into an employee in Guatemala?
You might convert your contractor into an employee to integrate them into your full-time global team, protect your intellectual property, or avoid misclassification. Converting contractors requires many of the same onboarding steps as a regular hire in Guatemala, though there are some intricacies to consider for global employment.
Do you already have Guatemalan employees? If not, decide between establishing a legal entity or utilizing an Employer of Record service (EOR) to hire employees in the country legally.
After selecting a local entity or choosing an EOR, write up an employment contract in Spanish, the official language of Guatemala. The employment agreement should include their job title, duties, remuneration, workplace, work hours, contract duration, notice periods for termination, and payment intervals/payroll frequency.
Check that it’s compliant with all Guatemalan labor laws, including minimum wage, termination, and more. For example, in Guatemala, the probation period for a new job can last up to two months, and employees are entitled to 15 days of paid annual leave after a tenure of 150 days. Once you and your new employee have signed the employment contract, send a copy to the Labour Ministry.
Enroll your new employee in benefits. In Guatemala, mandatory benefits include annual leave, public holidays, maternity leave, paternity leave, sick leave, overtime pay, and the 13th-month bonus paid out at Christmas. Employees are not owed severance pay unless they are dismissed without just cause.
When you run payroll for your new employee, you’ll need to withhold income tax and social security contributions. If you use a global payroll system like Rippling, withholdings and employer contributions are made on your behalf.
Rippling and its affiliates do not provide tax, legal, or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal, or accounting advice. You should consult your own tax, legal, and accounting advisors before engaging in any related activities or transactions.
