What are the employment laws in Puerto Rico?
Table of Contents
Navigating the complexities of the Latin American market requires more than just a business plan – it demands a comprehensive grasp of local nuances, including employment laws in Puerto Rico.
Being aware of the employment laws in Puerto Rico is paramount to entering the market successfully. From the minimum wage to working hours and benefits, foreign companies need to have a comprehensive knowledge of the labor regulations in the territory.
In this article, we delve into the significance of understanding employment laws in Puerto Rico to establish a successful and compliant business presence in the region.
See also: Company formation in Puerto Rico
Does Puerto Rico Follow US Labor Laws?
Employment laws in Puerto Rico are governed by both U.S. labor regulations and Puerto Rico’s Constitution. This legal framework upholds employees’ entitlement to select their profession, secure a fair minimum wage, maintain a standard workday within eight hours, and obtain additional remuneration for tasks surpassing this limit.
What is the PTO Law in Puerto Rico?
In Puerto Rico, employees receive 15 days of annual leave. Upon completing a minimum of one hundred and thirty (130) hours of work each month, every employee becomes eligible for vacation leave accrual.
The rate of vacation leave accrual varies: starting with one-half (1/2) day in the initial year of service, increasing to three-fourths (3/4) of a day from the second to fifth (5) years of service, reaching one (1) day after the fifth year up to the fifteenth (15) year of service, and culminating at one and one-fourth (1 1/4) days after the fifteenth (15) year of service.
What is the Law 80 in Puerto Rico?
In Puerto Rico, employees do not have at-will status, which means they can not be fired any time, for any reason.
For employers in Puerto Rico, unique challenges arise compared to other U.S. regions, as local laws prioritize employee rights. Dismissing an employee demands substantial evidence of just cause to avoid the risk of providing substantial compensation, known as “una mesada,” which can resemble an enhanced severance package. This encompasses a minimum of two months’ salary along with additional compensation based on their service duration.
Potential grounds for termination in Puerto Rico include:
- Documented history of inappropriate or disorderly behavior.
- Tangible instances of subpar work performance (efficiency, quality, etc.).
- Breach of reasonable written regulations.
- Business closure.
Understanding these intricacies of employment laws in Puerto Rico is crucial for businesses operating there.
Employment Laws in Puerto Rico: Key Guidelines
- Employment Probation Period
- Working Hours
- Overtime in Puerto Rico
- Sick Leave
- Maternity Leave
Employee Probation Period: The probationary period occurs automatically without requiring a written agreement. It lasts for a duration of up to nine (9) months for non-exempt employees and can be extended to twelve (12) months for exempt employees, including executives, administrators, and professionals as defined by relevant regulations.
Working Hours: In Puerto Rico, a standard workday consists of eight hours, while a regular workweek comprises forty hours.
Overtime in Puerto Rico: If your earnings surpass the minimum wage in Puerto Rico, you have the right to receive a minimum of 1.5 times your standard hourly wage for any overtime hours worked. In Puerto Rico, a unique overtime rate is set at twice the regular hourly wage for any hours worked exceeding 8 in a day or 40 in a week.
Sick Leave: For eligibility to accrue sick leave, employees are obliged to complete a minimum of 115 working hours per month. This translates to an approximate daily average of just under 5.5 hours or around 28 hours per week. Workers who meet this hourly threshold are entitled to earn one day of paid sick leave for each month of employment. Importantly, sick leave utilization contributes to the fulfillment of the 115-hour minimum requirement for subsequent months’ sick leave accrual.
Maternity Leave: According to Act No. 3, a pregnant employee typically has the right to take a maternity leave lasting eight (8) weeks. To initiate this leave, the employee needs to provide a medical certificate confirming her pregnancy and the anticipated childbirth date. The maternity leave is divided into two parts: a four (4) week prenatal leave and a four (4) week postnatal leave.
Social Security in Puerto Rico
Puerto Rico operates within the ambit of the US social security system, resulting in Puerto Rican employers and employees being bound by the mandates of US Social Security and Medicare taxes.
The Federal Insurance Contributions Act (FICA) governs the imposition of social security tax on individual employees’ wages or salaries, aimed at supporting the retirement benefits offered by the federal government. FICA enforces two distinct taxes:
- Old-age, survivors, and disability insurance (OASDI)
- Hospital insurance (Medicare)
As of 2019, the OASDI tax is levied at a rate of 6.2% each for the employee and the employer on the first USD 132,900 of income. The Medicare tax, on the other hand, is applied at a rate of 1.45% each for the employee and the employer without any income ceiling. Notably, high-income employees, not their employers, are required to pay an additional 0.9% Medicare tax.
The specific income thresholds for this additional Medicare tax differ based on filing status. Married couples filing jointly are subject to the extra tax on combined earnings exceeding USD 250,000. Single taxpayers and heads of households are affected when earnings exceed USD 200,000, while married individuals filing separately are impacted by earnings surpassing USD 125,000. The calculation includes self-employment income in determining the threshold.
FICA tax is applicable to remuneration for services rendered within the United States, irrespective of the nationality or residence of the employee or employer. Consequently, unless exempted, nonresident alien employees working in the United States are liable for FICA tax, even if they are exempt from US income tax based on statutory regulations or income tax treaties.
Certain groups are exempt from FICA tax, encompassing foreign government employees, exchange visitors holding J visas in the United States, foreign students with F, M, or Q visas, and individuals covered by social security totalization agreements between the United States and other nations. These agreements enable eligible individuals to continue contributing to their home countries’ social security systems, usually for up to five years.
Biz Latin Hub Can Help with Employment Laws in Puerto Rico
At Biz Latin Hub, we have a dedicated team of specialists ready to deliver customized solutions that address your unique business requirements in Puerto Rico.
With our extensive legal, accounting, and back-office services, we serve as your primary point of contact, streamlining and accelerating your entry into the Puertorican market.
Talk to our team of local experts today about business opportunities in Puerto Rico, company formation, and how to best enter this LATAM market.
If you found this article about Employment Laws in Puerto Rico helpful, explore the rest of our coverage of the region. Additionally, you can learn more about our team and expert authors here.
The information provided here within should not be construed as formal guidance or advice. Please consult a professional for your specific situation. Information provided is for informative purposes only and may not capture all pertinent laws, standards, and best practices. The regulatory landscape is continually evolving; information mentioned may be outdated and/or could undergo changes. The interpretations presented are not official. Some sections are based on the interpretations or views of relevant authorities, but we cannot ensure that these perspectives will be supported in all professional settings.
