An extract from The Employment Law Review, 11th Edition

Basics of entering into an employment relationship

i Employment relationship

Employment agreements are required by law for all dependent workers (employees) and must be executed in writing no later than 15 calendar days after the starting date, or five calendar days for employment contracts for less than 30 days. If a company fails to put the employment contract in writing, the terms and conditions of the employment shall be presumed to be those claimed by the employee and a fine may be imposed on the company by the Labour Directorate. So, putting an employment agreement in writing actually protects the employer from this assumption.

The minimum terms and conditions that must be included in an employment contract are the following:

  1. date and place of execution;
  2. nationality and date of birth of the employee;
  3. starting date;
  4. description of the services to be performed by the employee and location or city where the services are to be performed;
  5. remuneration and time of payment;
  6. number of working hours and work schedule (unless the company has a shift system in place, in which case the company's internal regulations apply);
  7. duration (i.e., fixed term, subject to completion of a task, project-based or indefinite); and
  8. any other terms and conditions agreed by the company and employee (e.g., non-compete or confidentiality obligation, or other similar covenants).

Fixed-term contracts are permissible. The duration of a fixed-term contract must not exceed one year, and may be renewed once, but the total duration, including the renewal, must not exceed one year. In the case of managers and employees with a professional or technical qualification from a higher education institution, a fixed-term contract may have a duration of up to two years.

Certain specific conditions may be modified unilaterally by the company under certain circumstances. The company may change the nature of the work to be performed, or the workplace, as long as the new tasks are similar to the old ones, the new workplace is in the same area or city, and the change is not to the detriment of the employee.

If extraordinary circumstances arise that affect a company's operations, the company may unilaterally amend the employees' work schedule, changing the starting or ending time of the working day by up to 60 minutes. In these cases, the company must give notice to the employees concerned at least 30 days in advance. Any employee affected by this type of modification may file a complaint with the Labour Directorate, but must do so within 30 days of the modification or receipt of notice from the company.

ii Probationary periods

Probationary periods are generally not allowed under Chilean law (except for workers providing domestic help). In general, probation is conducted by means of short, fixed-term contracts. It is customary to agree on an initial duration of two to three months after hiring, after which the company may terminate the employment relationship or convert it to an indefinite term.

Termination of employment before the agreed date may expose the company to full payment of the salaries that would have been accrued by the employee until the agreed end date.

iii Establishing a presence

A foreign company may hire employees and engage independent contractors who are not officially registered to carry out business activities in Chile. In this type of case, the employees will be liable for withholding and paying their own taxes and social security contributions.

An independent contractor may create a permanent establishment (PE) of the company in Chile, for which the requirements will depend on the country in which the domicile of the company is located and whether that country has a double tax treaty in force with Chile. In general, contractors who act in Chile with the power to negotiate commercial terms and conditions and close contracts may trigger the risk of a taxable PE.

The consequences of setting up PE are that all income generated and allocated to the PE will be subject to taxation and penalties in Chile.