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 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.
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.
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.
Workers are entitled to 2 weeks of paid leave for every year of service.
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.
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.
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.
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.
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.
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.
How GPS can Help
With our Global PEO/Employer of Record services, companies can expand into El Salvador and hire their employees without having to establish a branch office or subsidiary in El Salvador.
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