Peru offers a vast landscape of opportunities for international businesses—from its thriving mining industry to the technological hubs in cities like Lima and Cusco. Engaging with contractors in Peru requires an understanding of local practices, labor laws, and financial regulations.
So, before you hire your first contractor, read on for a step-by-step guide to help you classify, onboard, and pay them according to Peruvian labor laws.
Step #1: Classify your workers in Peru
In the evolving business environment of Peru, ensuring that workers are correctly classified is paramount. Misclassification of workers can lead to legal consequences, fines, and other penalties—potentially affecting an organization's reputation and finances. Especially in sectors like mining or construction, ensuring accurate worker categorization is imperative.
High level of worker control. Contractors enjoy freedom in scheduling and methodology, often setting their own work hours and location.
More direction from the employer. Employees adhere to company guidelines, working under direct supervision.
Contractors typically use their own tools.
Companies provide employees with the necessary equipment.
Less integrated. Contractors may operate independently and aren’t expected to participate in daily company operations.
Highly integrated. Employees in Peru are integrated into a company’s hierarchy, often working in person.
No entitlement to benefits. Contractors handle their own benefits and tax responsibilities.
Entitled to benefits. Employees in Peru are entitled to benefits, which include annual vacations, year-end and national day bonuses, and profit-sharing.
Time-bound engagement. Contractors may have limited or project-based engagements.
Indefinite engagement. Employees often enjoy stability through indefinite contracts.
Risk of loss. Contractors bear professional risk in Peru.
No risk of loss. Employees find protection within company structures.
Subcontracting. Contractors can delegate work to be performed by another person or business.
No subcontracting. Employees are typically expected to do their work themselves unless they have permission to delegate.
Step #2: Determine the best way to pay your contractors in Peru
Paying contractors in Peru requires navigating a financial landscape rich in options yet fraught with regulations. In Peru, understanding the interplay of local currency, USD, and the banking system can offer advantages.
- Local bank transfers: Paying in local currency ensures that contractors receive their full due without being affected by currency fluctuations. You can open a Peruvian bank account to facilitate this, but be sure to consult with local experts when using this method.
- International wire transfers: While wire transfers can be efficient, they usually entail additional fees. Knowing the pricing structures of various banks and services can aid in making informed decisions.
- Payment platforms: When making international payments to contractors in Peru, platforms like TransferWise (now known as Wise), PayPal, and Payoneer are commonly used and accepted. However, local platforms like Yape and PLIN are often used for domestic transactions. You can check with your contractor regarding their preferred method of payment.
- Global payroll services: Global payroll services like Rippling simplify the process by streamlining employee and contractor payments. With Rippling, you can pay employees and contractors in a single pay run—anywhere in the world.
Step #3: Use global payroll software to process payments for Peruvian contractors
Global payroll software is the fastest way to pay contractors while maintaining compliance with Peruvian law.
With Rippling, you can pay employees and contractors, around the world, in a single pay run. Here’s a preview of Rippling’s global payroll system:
Step #4: Ensure your Peruvian contractor has the right tax information
For contractors in Peru, understanding what they need to file taxes is key:
- RUC (Registro Único de Contribuyente) Registration: Before starting their activities, contractors should register with SUNAT (Peru's tax agency) and obtain an RUC or taxpayer's registration number.
- Invoice issuance: Contractors are required to issue invoices (boletas or facturas) for the services they provide. These invoices must meet specific SUNAT requirements, like submitting the electronic invoice to SUNAT’s online platform within 24 hours of issuance and sending the invoice to the customer after the invoice is validated.
- Income tax filings: Depending on their income level, contractors might be subject to monthly or annual income tax filings.
- Self-contributions to pension and healthcare: Contractors are usually responsible for making their own contributions to the pension system (either the SNP or the AFP) and to Essalud, the public health system. It's essential to check current rates and deadlines to remain compliant.
Frequently asked questions about running payroll for contractors in Peru
Do you need to withhold taxes when paying contractors in Peru?
No, companies are not responsible for withholding taxes. Contractors are responsible for their tax obligations.
Does the Peruvian minimum wage apply to independent contractors in Peru?
No, the minimum wage primarily applies to full-time employees. Contractors negotiate their rates based on individual agreements.
Do Peruvian contractors get benefits?
Typically, independent contractors do not receive benefits like health insurance or severance pay. However, some may negotiate certain entitlements in their contracts.
Can you pay contractors in Peru in your home currency?
While possible, it's advisable to pay contractors in PEN (Peruvian Nuevo Sol) to avoid complications due to fluctuating exchange rates.
Can you manually pay contractors in Peru?
Yes, but this comes with several risks, including security and compliance issues.
Make payroll automatic with Rippling. Rippling syncs all your HR data with payroll, eliminating manual data entry completely. Employees and contractors worldwide get paid quickly (and compliantly) in a single pay run.
How do you turn a contractor into an employee in Peru?
Transitioning a contractor to an employee requires adhering to local labor laws, offering an employment contract, and enrolling the individual in social security and other employment-related schemes like Essalud.
Do Peruvian contractors get Christmas bonuses?
Yes, Peruvian law mandates a Christmas bonus for all workers, including contractors. This bonus equals half of their monthly salary.
What is Essalud in the context of Peru?
Essalud is Peru's Social Health Insurance. While regular employees are automatically covered, contractors might have to arrange for their coverage.
Are contractors entitled to paid time off (PTO)?
No. Independent contractors don’t typically receive PTO. However, if a contractor is misclassified and deemed an employee, they might be eligible for PTO based on employment law.
Is there a pension system for contractors in Peru?
While regular employees contribute to a pension system, contractors are usually responsible for their own pension arrangements.
Can you offer health insurance as a perk to contractors?
Yes. While not mandated, health insurance can be a value-added benefit, making your offer more attractive to top-tier talent in Peru.
How is the "additional hour" regulated in Peru?
In Peru, the "additional hour" refers to overtime. According to Peruvian law, the first two hours of overtime are compensated at 125% of the hourly rate. Beyond that, it's compensated at 135%.
Can you conduct business in Spanish in Peru?
Absolutely! In fact, Spanish is the official language of Peru, and most business transactions are conducted in Spanish. It's beneficial to have Spanish-speaking team members or translators when conducting business in the country.
What is the typical notice period for contractors in Peru?
The notice period for contractors isn't standardized like it is for employees. Typically, it depends on the terms negotiated in the contractual agreement.
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.