The dos and donts of hiring employees in Ecuador

Today is the 6th and final installment in the series “Starting a business in Ecuador”.  

“I’d hire an employee in Ecuador but I don’t want them to sue me.”  I hear a lot.

“Are you dumb or just plain ignant.” I always want to respond.

It’s true, the employment laws are quite different in Ecuador then maybe what you’re used to, and at first glance seem to favor the employee.

But if you hire and fire right like we’ll talk about today you got nothing to worry about.

After you’ve defined your business idea, legally formed your business, found funding, gotten the RUC and permits, now you’re ready to hire employees.

The true beauty of starting a business is that if you can let go a little, you can quite easily form a living entity that will exist and flourish without you.

In Ecuador, like in most third world countries, you can find qualified labor very cheap.

For instance, last year I was managing my business, Hostal Murali, in Guayaquil, until I hired a young bi-lingual local guy to manage the business for me.  All it cost me was a bit over the minimum  wage ($318/month) and I completely extracted myself from the business.  The last few months as an owner I was barely even in the place as I dedicated myself to other things.

And you know what, Murali got even better.

You see, managing nor administration are not my strong-set, in fact, a lot of things aren’t.

It’s important to recognize that and understand there are many folks who can do it better than you.

The beginner entrepreneur always makes the mistake of thinking no one can do their job better than them.

So, what’s the best way to find qualified employees in Ecuador, quick?

– For me, the best way is to publish a ‘wanted employment’ ad in the Sundaypaper where you’re located.  In Quito, try El Comercio, on the southern coast try El Universo, in Cuenca, try El Mercurio. After placing an ad for my newest business, a hotel near the airport in Quito, my phone literally rang off the hook for two full days.

– Publish an ad online at computrabajo.com.ec or multitrabajos.com , those are two local favorites.  But be WEARY, dont put your personal cell number or email on these sites cause they will stay up there forever!  Get an email and a cell number only for the employee search, then ditch it.

How to hire employees legally in Ecuador?

To hire an employee in Ecuador, first you need to obtain your RUC, or tax ID number form the SRI, like we covered recently in a previous letter.  Than the easiest way is to get an accountant who will draw up the employment contract and register it in the Ministry of Labor (Ministerio de Trabajo) and help you affliate your employee to the Ecuador social security system IESS under your name or company.  I found an account that did both for me for one employee for a total of $50.  From that point on you will need to withhold about 9% of their salary and pay it to the IESS and you as the business owner will have to pay 12% on top of that in their name.  For an employee you have making the minimum wage in Ecuador ($318/month) that comes to around $50 a month you will have to pay for each employee you have.

What are your legal responsibilities to the employee?

In Ecuador, as mentioned above, you will need to pay 12% of the employees salary to the IESS each month, you will also need to pay the employee two bonus payments, the DECIMO TERCERO and DECIMO CUARTO, each are aqual to a full month of salary.  One is paid in December and the other is paid in the “back to school ” month (In the highlands this is August, on the coast it is March).  Also, once a year you will need to pay your employees a fraction of the on-the-books earnings of the business called UTILIDADES.  That’s about it.

How to fire employees without getting sued?  

Many employees in Ecuador after being let go fire their past employers.  It’s kind of an epidemic but they can’t get anything out of you if you follow the above rules and have proof you are current in their regular and bonus payments.  Upon firing an employee, or them deciding to quit, in Ecuador you have to pay them a final LIQUIDATION (liquidación).  The amount of this payment varies on how long they have worked for you and how high their salary was.  To give you an idea a friend of mine making $800 a month got fired from his job where he had worked for 6 years and they paid him around $7,000 dollars in liquidation. There is a formula that an accountant can help you with.

I recommend to do all the above with an accountant in Ecuador and even if a prior employee does sue you, if you affiliated them, paid them and their affiliation on time, paid the necessary bonuses and paid what you needed to pay in liquidation, they can sue all they want but they aren’t going to get anything from you.

That’s it, right from the mouth of an experienced business owner with employees in Ecuador… hire someone in Ecuador, you’ll be glad you did, I’ve had nothing but positive experiences.

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