Professional Employer Organization (PEO) in El Salvador

The Republic of El Salvador is the smallest but most densely populated country in Central America. The mountainous country is bordered by the Pacific Ocean to the south. It's known as the Land of Volcanoes due to frequent volcanic activity. The currency of El Salvador is the U.S. dollar. El Salvador has a pool of untapped tech talent because of initiatives targeting the country's youth that make it attractive to companies looking to hire globally.

As a Latin American county, El Salvador adheres to U.S. business norms, making Salvadoran workers easy to incorporate into your business. Additionally, the lower cost of living means you can hire talent from El Salvador at a lower cost than their equivalent U.S. counterparts.

What Is an International Professional Employer Organization (PEO)?

An international professional employer organization (PEO) is an outsourcing agency that provides HR services to businesses that are expanding internationally. They can handle payroll, onboarding, benefits, and compliance with foreign tax and labor laws. An international PEO can greatly simplify the process of global expansion by reducing the compliance risks associated with foreign labor markets.

When you work with an international PEO, they act as your on-site HR department in the home countries of your employees. A PEO can legally hire employees on your behalf and take on all of the administrative tasks associated with local compliance while you continue to manage the daily business operations of your employees and business.

The digital transformation and the rapid adoption of new technology have changed how businesses hire. You can find and hire the best talent for your organization without regard for location or boundaries. You're no longer limited to your local labor market and employees who can commute or are willing to move near your offices.

However, along with all of the advantages of access to a global labor market, there are also some disadvantages. Every country has its own employment and labor laws, often significantly different from domestic ones. In addition, hiring in foreign countries can be complicated and expensive. An international PEO facilitates hiring and managing employees in foreign countries and helps you avoid the expensive fines and penalties associated with noncompliance.

What Are the Benefits of Using a PEO Provider?

An international PEO offers many benefits to your company, including:

Faster Market Entry

With a PEO, you can quickly expand your workforce globally. You won't have to establish an entity in every country you want to hire from. You can choose your team members based on the needs of your business instead of geographical boundaries. The hiring process is much faster since you won't have to deal with international red tape, tax regulations, and labor laws.

Decreased Costs

Setting up a business entity in a foreign country can be expensive. Some countries require a significant amount of up-front capital and an on-site HR department. You will also have to pay legal and tax experts to ensure you comply with local laws. When you use a PEO, you don't have to worry about establishing an entity or maintaining a physical office in a foreign country.

Decreased Risks

One of the main risks associated with hiring employees internationally is compliance with labor and tax laws. You can incur significant fines and penalties if you don't follow all regulations associated with employing foreign talent. A PEO assumes all of the risks of hiring and managing global employees.

Another risk of hiring international employees is the risk of " permanent establishment." A permanent establishment occurs when the local tax authority decides you're operating on a permanent basis and are therefore subject to all corporate taxes.

Increased Efficiency

A PEO allows you to delegate non-revenue-generating activities while you and your employees focus on core business operations and growth initiatives. Using a PEO frees up your employees to do the work that matters while you protect your company.

Using a PEO in El Salvador

You'll have to set up a business entity if you want to hire in El Salvador without using a PEO. You'll also need to understand the labor laws regarding your obligations, including:

Worker Entitlements

In El Salvador, workers are entitled to the following benefits:

Minimum wage

The National Minimum Wage Council establishes the minimum wage for each industry and updates it yearly. Here's a quick breakdown of the current minimum wages across certain industries, from highest to lowest:

  • Industry, commerce, and services: $365 per month, $12 per day
  • Textiles and clothing: $359.16 per month, $11.81 per day
  • Processing of coffee, sugar, and cotton: $272.66 per month, $8.96 per day
  • Agriculture and harvesting of coffee, sugar, and cotton: $243.46 per month, $8 per day

Overtime pay

The maximum hours in a normal work week are capped at 44. Any time worked over this must be paid at twice the employee's regular wage.

Annual leave

Employees are entitled to 15 days of vacation each year, paid at 30% of their regular wages.

Sick leave

Employees are entitled to 75% of their pay during sick leave, which is limited to 60 days per year.

Maternity leave

Maternity leave is 16 weeks, 10 of which must be taken after birth.

Paternity leave

Paternity leave is three days, starting the day of birth.

Annual bonus

Each year, between December 12th and December 20th, employees receive a bonus based on how long they've been employed:

  • Between one to three years: 15 days of the standard salary
  • Between three and 10 years: 19 days of the standard salary
  • Over 10 years: 21 days of the standard salary

How does a professional employer organization in El Salvador work?

When you use a PEO in El Salvador, you outsource tasks related to hiring and administrative management of your employees. Some PEO companies also help you with recruiting the most qualified talent in El Salvador. Your PEO will ensure you're employees are paid on time and in their local currency, either through direct deposit, a paper check, or a prepaid debit card. They will keep track of your employees' hours as well as the leave hours they've used and have remaining.

The PEO will also handle withholding all payroll contributions from you and your employees and paying them to the appropriate governmental agencies. They can also facilitate your employees' requests for leave. When you hire new employees, your PEO can take care of all of the onboarding paperwork and report to the necessary agencies, such as the Salvadoran Social Security Institute.

How to Choose the Best PEO Service Company

Your employees are your company's most valuable asset, so you want to ensure their paychecks and benefits are in good hands. Here are some considerations for choosing the best PEO provider for your company:

Features

Ask about what services a PEO offers and consider which ones you need. You want to make sure a PEO offers all of the services you need, but you don't want to pay for a lot of features you don't need. Some of the most valuable features PEOs offer include:

Payroll

A PEO will automatically calculate your employees' pay, including hours worked, shift differentials, overtime, holiday and leave pay, and taxes and other deductions.

Taxes

As part of their services, a PEO will withhold and pay employee taxes, file your quarterly tax reports, and issue 1099s and W-2s at the need of the year.

Onboarding

Most PEOs will handle the onboarding of new employees. They will fill out the required documentation and report new hires to the government for you.

Benefits

A PEO can handle the administration of your employee benefits. They'll ensure you're complying with local laws and offering the required entitlements to your employees. Many also offer services that help you recruit and retain employees, such as a platform for hiring vetted talent.

Employee self-service

Your employees will want to be able to access their pay stubs, benefits, and other financial information when they need it. A PEO should offer an employee self-service portal, so they don't have to wait for HR to get back to them with basic information.

Integration

Consider your current tech stack when you're evaluating PEOs. You don't want to have to change applications that are working well for you. Look for a PEO that integrates with the systems you currently use.

Expertise

Your PEO should not only have experience and expertise in domestic tax and labor laws, but they should also be experts in international tax and labor laws. Compliance is one of the most significant concerns for business leaders who are expanding into global markets. New mandates are issued frequently from various local, state, federal, and international agencies. Your PEO should have standards in place for complying with current regulations and staying updated on new regulations. Noncompliance can have a devastating effect on your business.

Risk management is one of the primary benefits of using a PEO, so be sure you vet them closely. Many PEOs offer a guarantee and pay any fines resulting from their mistakes.

References

You should ask for references when you're seriously considering a PEO. They should be happy to share them. Ideally, you'll want to talk to three to five existing customers of varying sizes. Ask for long-term and new clients to get a more comprehensive picture. Here are some questions you may want to ask their existing clients:

  • Why did you choose this company?
  • What do you like most about this PEO?
  • What has been the biggest hassle in working with this PEO?
  • Are you glad you chose them?
  • How long do you plan to stay with this PEO?
  • How have they helped you expand?
  • Is it easy to get help when you need it?

Ease of Use

You're using a PEO to simplify your workload, so their platform should be intuitive and easy to use. Ask for a demonstration before you commit. Include the people who will most often be interfacing with the PEO platform in the demonstration to get their opinion.

Customer Support

Ask about a PEO's support policy. It's also a good idea to ask their existing customers about how supportive they are. You'll want a company that has a robust customer support department. The last thing you want is to have to wait around for payroll issues to be resolved.

Cybersecurity

The same factors that make remote work so effortless also expose you to cybersecurity threats. Remote work, cloud-based platforms, and ease of access all increase the likelihood of falling victim to a cybersecurity attack. You have an ethical and legal obligation to protect your employees' personal information and your company's confidential data.

You should assess the security of all of your vendors, but prioritize vendors who perform critical services such as your payroll and HR services. You'll want to look into a PEO's historical performance over the past three to five years. If your third-party vendor has a data breach, you could be held responsible if you failed to do your due diligence in assessing them.

Employee Benefits

Your benefits packages are one of your strongest recruiting tools, and the right PEO can help you maximize them. In this highly competitive labor market, providing good benefits can give you an edge over other companies looking to hire coveted tech talent. Think about the type of benefits you want to provide and ask PEO candidates if they help you offer them.

Working with a global PEO may allow you to purchase health insurance through collective policies, which could mean lower rates for you and your employees. You should also consider what dental and vision insurance, 401(k) plans, wellness programs, leave programs, and other benefits you want to offer. Make sure the PEO you're considering can administer the benefits you want to and are required to offer. This is particularly important when you have employees from multiple countries, and the employee benefits may be different in each one.

Next Steps in Using a PEO in El Salvador

Working with a partner such as Revelo can make all phases of your expansion into El Salvador easier. You can find, hire, and pay top-notch, pre-vetted remote talent in El Salvador and other Latin American countries. You simply pick the most qualified developers for your needs, and Revelo handles all of the administrative tasks and absorbs all of the risks.

Revelo sources and screens talented developers and matches them with your open positions, does the hiring and onboarding, handles contacts, payroll, taxes, benefits, and legal fees, and manages the employee experience. Reach out today to find out how Revelo can help you expand into El Salvador and beyond.

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