Companies looking to do business and hire workers in Peru must be aware of the particularities of the local payroll rules. Our local expert explains one of the payroll cycles that companies need to manage to remain compliant.
Peru's Working Compensation or Compensation for Length of Service (CTS by its acronym in Spanish) is a legal benefit given to workers for their time spent working for a company. In other jurisdictions this benefit is known as the "settlement payment" which is made at the time of retirement. The difference is that, after finding irregularities in the time of payment, the Peruvian government decided to create the CTS fund. It means that instead of doing one payment at retirement, companies pay on a semi-annual basis. This social benefit allows the worker to mitigate the risk of losing an income in cases of termination of employment.
The CTS is deposited biannually in the worker's bank of choice. Employers deposit 50% in May for the period worked from November to April and 50% in November for the period worked from May to October.
Who can benefit from CTS?
This benefit applies to all workers who are subject to the Peruvian General Labour Law. As a requirement, the employee must work a minimum daily average of four hours and there are some differences depending on company size. For example, in the case of small companies there are two scenarios:
1. If the company is registered in the National Registry of Micro and Small Enterprises (REMYPE) then existing workers are entitled to CTS according to general rules, but if the worker is new is entitled only to 50% of CTS.
2. If the company is not registered in the REMYPE, all workers (existing or new) will be entitled to CTS under the general rules.
How is payment calculated?
To calculate the payment, the following aspects need to be taken into account:
- the worker net salary
- the total amount of overtime in the last six months
- one sixth (1/6) of the last received gratification
The following are not taken into account:
- the worker food and transportation costs
- utility costs
- any non-recurring allocation
What are the penalties for non-compliance?
If a company does not submit CTS payment in a timely manner it will be required to pay interest, accrued from the due date until the date the payment is made.
Additionally, if the company is not compliant and is audited by the National Superintendence of Labour Inspection (Sunafil) it can receive a maximum fine of PEN1,348 if it's a microenterprise, PEN13,3475 for small businesses, and PEN63.375 for midsize and large companies.
A few factors are taken into consideration when determining the amount of the fine, including the company's sector, the number of workers affected and the basis of the UIT (Tax Unit) which is PEN3,850 for 2015.
Want to learn more? TMF Group Peru has a strong international management team of specialists in payroll and HR serving clients locally and internationally. We provide a full range of corporate services to help you to reduce risks, be compliant, better control your costs and simplify your operations.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.