By Liam Higgins
Almost every expat arriving in Ecuador has heard the pitch: You can hire a maid, gardener, or cook in Ecuador for a fraction of what you would pay in North America or Europe.
This is true, although the cost has gone up considerably in recent years. What you don’t hear, however, is that there are strings attached in the form of labor law requirements that many employers, both expats and Ecuadorians, are unaware of, or simply ignore.
Those who violate the law often pay dearly. In one recent case, an expat couple who fired a caretaker on their property in the Yunguilla Valley, was ordered by the court to pay him $28,000. In another, an Ecuadorian man who replaced his maid of 18 years, had to compensate her $17,000.
Ecuador’s labor law cover much more than just maids, gardeners and guards, of course, and expats who hire Ecuadorians for other purposes, including as construction laborers or as full- or part-time employees in businesses, need to understand the legal requirements.
Although President Guillermo Lasso has pledged to make major changes to the country’s labor laws, including allowing more flexibility for employers through the use of contracts, his proposals face an uphill battle in the National Assembly and are opposed by most labor unions.
Cuenca attorney Andrea Jaramillo, says the number of legal cases against employers is growing rapidly. “I have been to court a number of times recently to represent expats and Ecuadorians and, in most of those cases, the employer didn’t understand the law,” she says.
What employers need to know
“The first thing that employers should understand is that the labor law of Ecuador protects workers much more than it protects employers,” she says. “It has been that way for years. People say that the law changed with [President Rafael] Correa, but most of it has been the same for years. What has changed is that the government is much more aggressive in enforcing it and there are many more labor inspectors checking employment arrangements.”
Jaramillo says that, in the past, many labor agreements were made on a casual, personal basis, especially with household workers and laborers. “Today, doing it this way is dangerous and can cost you a lot of money,” she says. “People think that they don’t have to worry about the rules with maids who only work two or three hours a week but this is a mistake.”
What do employers need to know before hiring an Ecuadorian?
First they need to understand the difference between casual labor and work that entitles an employee to labor protections and benefits, including Social Security pensions, health care, and unemployment compensation.
Casual labor is that which is done for a specific short-term project with no preset working hours. A worker moving furniture, digging a garden, clearing a vacant lot or washing cars would be considered casual.
On the other hand, someone performing repetitive tasks on a regular schedule, even if it is only for a few hours a week, is protected by the law and is entitled to benefits. This would include the maid or gardener who performs the same work each week. Although the employer’s contribution to the worker’s benefits is small in cases where an employee works short hours –it is prorated based on a 40-hour work week– the paperwork and filing requirements are the same as for full-time employees.
“Traditionally, most households have not paid benefits for maids, but legally they should,” Jaramillo said. “Many times, the workers will tell the employer to pay them directly what they would pay IESS (Social Security). Under the law, however, the employee cannot waive the employer’s obligation and the employer is still liable for the deductions that should go to IESS.”
In addition to standard payroll obligation to the government, there are other work benefits the employer should be aware of. These include bonus payments, called decimos, or 13th and 14th month salaries; vacations; profit-sharing in the cases of businesses; and even special clothing that is required for work.
“One of the recent changes to the labor law is that the extra salaries, the decimos, can be included in the regular pay,” Jaramillo says. Before, she says, decimos had to be paid separately to the employee, in December and August.
In the case of businesses, Jaramillo says, the law requires that 15% of the profits be divided among the workers.
Before an employee begins work that entitles him or her to benefits, a contract must be signed by both the employee and employer stipulating conditions of employment and compensation, that is then registered with the Ministry of Labor.
Good record-keeping of payment to the employee is also critical, says Jaramillo. “You must keep a detailed payroll document that shows all payments, including salary, payments to IESS, vacation and decimos. Notes of payment, canceled checks or receipts are not valid to prove payment.”
Elimination of Fixed-term contracts
Besides the change in decimo payments, most fixed-term contract were elminated. Before, an employer could sign a contract with a worker for a specified period of time. Now, even if an employee and employer know that a job will finish at a particular time, say after one year, the employee is considered full-time and the employer is liable not only for IESS payments, but for full termination benefits when the job ends.
The termination of employment can be expensive for employers and, according to Jaramillo, is the subject of most employment cases that go to court.
There are a number of expenses an employer must pay when a worker’s employment is terminated, whether it is by resignation or firing. These can range from a few hundred dollars to thousands of dollars, depending on length of employment and circumstances of termination. Under Ecuador’s labor law, workers accumulate credit for time worked and are entitled to additional pay when they leave a job.
If an employer fires an employee, severance costs can be much higher, even in the case where an employee is suspected of theft. “In a case like this, since it is considered a crime, there must be a court record showing the conviction of the employee,” Jaramillo says. “Otherwise, it is just the employer’s word against the employee, and the court will usually rule in favor of the employee.”
As an example of the consequences of a firing, Jaramillo cites a recent case in which a Cuenca bank fired an employee of 15 years and could not prove cause. The bank was ordered to pay $70,000.
Employment disputes can be settled out of court too, although the final settlement has to be approved by the Ministry of Labor. “I had a case a few months ago where an expat couple decided to return to the U.S. and had to end their maid’s employment,” Jaramillo says. “The maid had worked for them for four years at a salary of $150 a month. My clients settled for $2,500.”
Bottom Line advice
Before entering into an employment agreement, Jaramillo says, a prospective employer should conduct a thorough review of the law to understand all obligations. “Talk to an accountant or labor lawyer first if you have any questions,” she says. “That can save you a lot of trouble and money down the road.”
She also suggests going to the Ministry of Labor’s website. “It has most of the information you need,” she says.
For the employment of part-time household workers, such as maids, Jaramillo says that contracting with a company that provides these services is often the best solution. “The company carries all the responsibilities for meeting the labor requirements,” she says.
Even when working with a contractor, Jaramillo adds, the employer has responsibility to make sure that company is up to date on contributions to the workers’ Social Security account, which includes health insurance. “If they aren’t, the employer can be liable for injuries that occur on their property. Ask for a copy of the paperwork that proves payments are current. If there is any uncertainty about this, talk to an accountant or labor lawyer,” she says.