Episode 21: Payroll in Chile

Luisa Rollenhagen [00:08]: Hello, and welcome to another episode of Payroll Around the World! I’m your host, Luisa Rollenhagen.  

Payroll Around the World is your all-inclusive guide to understanding how payroll operates across different countries. Each episode spotlights a specific country and features interviews with ADP experts on the ground, as well as locals who share their perspectives on work and pay in their homeland.  

After all, payroll can’t truly be global if it isn’t local as well.  

Today, we’re heading to Chile. The South American country is not only the longest country in the world, it’s also the narrowest, with an average width of only 177 km. For reference, that’s roughly the distance between Amsterdam and Brussels. Chile is popular among visitors thanks to its varied and striking landscapes, from the majestic glaciers of Patagonia in the south to the Atacama Desert in the north. 

For businesses looking to gain a foothold in Latin America, Chile presents an appealing option. It has one of the most stable, high-income economies in Latin America, with a mining industry that dominates the world market for copper and iodine, while being the second-largest producer of lithium. But multinational companies coming to Chile must contend with a complex web of labor rules, unions, and payroll regulations. 

Andrea Mollenhauer [01:42]: 

Payroll here in Chile is very complex because normally in Latin America there are many changes during the year. 

Luisa Rollenhagen [01:49]: One of those changes is the reduction in working hours, which other Latin American countries like Mexico have been introducing gradually.  

Felipe Rodriguez [01:58]: We started with this gradual reduction from 45 hours to 40 hours. 

Luisa Rollenhagen [02:04]: And remember that booming mining sector I just mentioned? Because these companies usually operate in extremely remote regions, it’s common for employers to offer their employees bonuses and tax benefits as an incentive for moving there. 

Catalina [02:19]:  Any mining company, just for the fact that you are risking your life in the mine, they all have this type of bonus. I worked at two other mining companies, and indeed they all have this different bonus, higher or lower percentage, but they all have these bonuses.

Luisa Rollenhagen [02:34]: That was Catalina, a manager at a mining company in the Atacama Desert. She’ll be telling us more about these financial incentives from an employee’s perspective. 

But first, I’d like to introduce our experts for this episode. You just heard a preview from them, and I look forward to their insights on payroll in Chile. Hello, Andrea and Felipe! Would you like to introduce yourselves? 

Andrea Mollenhauer [02:58]: I’m Andrea Mollenhauer. I’m senior sales manager responsible for our planning relationships and bringing new businesses to ADP and I’m based in Santiago, in Chile and I’ve been with ADP for 11 years now. 

Felipe Rodriguez [03:14]: Thanks for having us here. It’s a great opportunity for us to share what is the payroll reality here in Chile. I am country head of Chile and Peru and oversee our operations here in Santiago. I’ve been here at ADP for almost 11 years and ADP has been here for 15 years now, attending clients from different sizes and realities, from local clients to international companies and we help them to comply with local compliance and give them a strong solution in this HR reality and world of Chile. 

Luisa Rollenhagen [03:57]: Thank you for joining us today. I’d like to kick things off with an overview of Chile’s economy and labour market. 

Felipe Rodriguez [04:04]: Chile is a high income economy, so heavily dependent on natural resources, and we have different realities throughout the country. Our country is a really long country. In the north we have mining, which is the pillar of the whole economy of Chile, with copper and lithium, with huge development there. More in the south of the country, we have the agricultural sector, and in the south we have exports of salmon and other species. And in Santiago we have services, and it’s developing as a tech hub for the country too. 

Andrea Mollenhauer [04:44]: We have around 18 million people, so it’s pretty small compared to big economies in North America or in Europe, and we have 8.5% unemployment. But a very interesting fact is that our formal occupation of these 18 million people is almost 60%. So we do have a 40% which is not a formal occupation. So bottom line we have around 10 million of market share where we can go and offer our market. 

Luisa Rollenhagen: [05:18] And what would you say is one of the biggest mistakes that multinationals make when they first come to Chile? 

Felipe Rodriguez [05:24]: The thing that is maybe not known is our tax regulation and some procedures that are not part of other payroll ways of paying employees. In my experience, the most complex part is that part of tax regulation. We have a special process here, that is named reliquidación, which is the splitting of a bonus throughout the payment period that should be registered that is pretty specific to Chile, and I think it is a part of complications for foreign clients, who have to understand that process and comply with it in the annual tax process. 

Andrea Mollenhauer [06:07]: Normally international companies come here to Latin America and they think, okay, I’m going to open operations in Argentina, so it’s going to be the same in each country. I’m going to open operations in Argentina and then Chile and then Peru and they’re all going to be the same. And it’s not.  

Here it is very, very different. So multinational companies have to be aware that we do have different, more specific tax compliance, for example, very different from other countries. So they need to be prepared in advance. 

Luisa Rollenhagen [06:38]: That makes sense.  

One thing that distinguishes Chile from some of its neighbors is the relative stability of its legislative environment. 

Felipe Rodriguez [06:47]: Here in Chile I think we don’t have that many changes. If we take the last 15 years, we actually have, I think, three different big projects impacting payroll processes. 

Andrea Mollenhauer [07:03]: In Chile we’re a bit more planned. Everything is a bit more organized. We do have changes, of course, but it’s a bit more manageable for us. Our development team, our product team, they make all these plans and they plan our headcounts, our resources in order to make those changes with a bit more planned resources. So we know, for example, the law is going to change next year in May. So we start working in advance, all our team, not just internally but also with our clients, making webinars, giving them all the information, how the law’s going to change, for them to make clear that we are going to be with them for this change. 

Luisa Rollenhagen [07:47]: A big area of complexity in Chile comes from the prevalence of unions. Can you tell me a bit more about how unions work in the country? 

Felipe Rodriguez [07:55]: Here in Chile there is no industry union agreements. So every union in each client can have a particular agreement with their employees. So that means that when we start implementation with clients, we should consider during the implementation their agreements, their formulation, how to apply, when to apply, how to pay different concepts, bonuses et cetera. That gives us high complexity basically on these big clients. So over a thousand employees, usually we have more than one union per client, and that affects the complexity of their payroll process. 

Luisa Rollenhagen [08:41]: I see, unlike some countries where a single national or industry-wide agreement sets the rules for everyone, in Chile each union within each company negotiates its own separate deal. This means a large employer could be managing several completely different sets of pay rules at the same time. That does sound like it can get complicated quite quickly. 

Andrea Mollenhauer [09:05]: It’s actually very complex. Payroll here in Chile is very complex because normally in Latin America there are many changes during the year. In Chile, a company like ADP — we are around 200 to 250 people — and we do have one union. Then you can have many different unions, and all of them have different agreements with the company. So that makes it very complex. 

Luisa Rollenhagen [09:28]: So how do all of these different unions within one company affect payroll runs? 

Felipe Rodriguez [09:33]: Here in Chile, the union has a legal right to review their agreement every certain period of time. If I remember correctly, it is a four-year period. So then you come to an end negotiation, and usually this renewal date means you must comply with that renewal date and start paying the benefits like the month after you renew the contract. And usually that part of the negotiation is the most stressful one for both the client and for us, because we need to review the system, update the formulations, the payment rules for each group of employees, and review that, test that, implement that, and pay that, usually in a very short period of time. 

Luisa Rollenhagen [10:21]: And what does a standard payroll run look like? 

Felipe Rodriguez [10:24]: A standard payroll process in Chile is a monthly basis, but usually paid at the end of the month. But it is also very common to have an advanced payment in the middle of the month. Almost 40% of employees have this type of advanced payment. So during the month you usually have this advance payment and an end-of-month run. But for big companies, if they have different union agreements, the date of the advanced payment can be different for each union. So maybe one union on the 10th, another on the 15th. So your payroll run, instead of one, we are now running three different payroll runs. 

And maybe you have an additional bonus. So then you extend your payroll run to four payroll runs in the month. And if you have something that is left behind, you can run up to five payroll runs in a month. We have those types of processes with some clients where the calendar of the monetary process considers two different runs for the salary advance, two different runs for monthly payroll, and one final adjustment if something is left behind during the month. 

Luisa Rollenhagen [11:35]: Oh wow, payroll teams are really kept busy in Chile. And is this salary advance common? 

Andrea Mollenhauer [11:41]: Yes, very common. Quite common. And Felipe is talking about four or five cycles, and that’s even, well, it’s very common. Normally executive roles don’t have payments in advance, and that’s just a small number of people in each company. So all the rest normally do have payments in advance, and corrections as well. All companies have corrections every month. 

Luisa Rollenhagen [12:06]: Let’s talk a little bit more about bonuses. One of the areas that catches foreign companies most off guard in Chile is how bonuses are taxed. In many countries, if you pay a bonus in a given month, you simply tax it in that month. In Chile, it’s considerably more complex. 

Felipe Rodriguez [12:24]: Here in Chile you must tax the income in the month that was generated. So if you are paying a performance bonus for last year, you should go back, reopen the tax calculation for every month that you are recognizing that bonus, prorate that portion of the bonus across each month, and recalculate the taxes of every past payment that you already made. 

You sum up all those different taxes and you pay the difference in the month that you are paying the bonus. That calculation is really complex. It is really audited by the tax authority, because it’s an employee benefit. And if you just tax a bonus that is for the performance of a past period in the month of payment, you are not complying with the law. I think that is a big consideration that foreign companies should have in mind when they’re paying bonuses. 

In this case, we have this complex process automated in the platform, so you just really have to inform us the amount, the initial period, and the final period of this bonus. And all the calculations are made automatically in the system and in compliance with the tax authority. 

Luisa Rollenhagen [13:42]: Okay, so ADP can help clients navigate this complexity quite easily so they don’t have to go back and make all the retroactive calculations themselves. 

I want to shift the focus to how Chile’s geography impacts working conditions. As Andrea mentioned, Chile is extremely long. This also means that the country has some extremely remote regions that are vital for mining and agriculture. From what I researched, the government has created specific tax regimes to incentivise people to live and work in these areas. 

Andrea Mollenhauer [14:16]: For you to have an idea of how long Chile is, we go from Lisbon in Portugal to Moscow, that’s like the length of our country. The capital is kind of in the middle. So few people live at the extremes. The government wants to encourage people to live in these remote areas, way in the south, which is Patagonia, which is very cold and in winter there’s no sun and it’s very difficult to live there. 

The government wants to encourage people to live in these remote areas and to work of course in these very high risk or physically demanding jobs. So how does the government do this? It’s by offering some benefits for people to go and want to live there. Some of them are, for example, more days of vacation. They have regional allowances which are only specific for people that work there, and which allow to increase your taxable income. And then in the private sector, for example, there are hiring bonuses for employees that want to go there, and tax benefits — which are the ones that Felipe was explaining — and different investment benefits for these people who leave and work there. 

Felipe Rodriguez [15:37]: We basically have different tax exceptions and special regimes. We name it Zona Extrema. Chile is a very long country, so here in Patagonia, as an example, you have a special tax rate or discount to the actual rates for the rest of the country. This applies to Easter Island too, just to name two really well known places. And so you need to consider that for employees who do their work in those regions. 

The employer needs to declare where the employee is doing their work, and based on that, the retention that the employer makes to his or her employee changes. So if you don’t have that really organized, it can be a higher tax retention to the employee, and he can go to the authority and make them know that, and you have to make retroactive payments of taxes with interest and fines etc. So it can be really complicated. 

Luisa Rollenhagen [16:51]: Felipe mentioned that, in addition to government incentives, many employers have their own system of benefits and incentives to attract workers to remote regions. This is particularly common in the mining sector, which tends to operate in geographically isolated areas. 

One of those employees is Catalina, who works for a mining company in Antofagasta, in the Atacama Desert. She originally came from Santiago, and like many workers in the north, the move was driven by financial incentives. 

We spoke with her about her decision to move to northern Chile and what benefits her employer provides. 

Catalina [17:32]: I am originally from Santiago, the capital of Chile, and I came here for work reasons. I was hired by this mining company, and due to the three-shift rotation, I had to come and live here. 

Luisa Rollenhagen [17:46]: So just for clarification, a three-shift rotation means that the mining operations run 24 hours a day, seven days a week, and are divided into three shifts: Typically morning, afternoon, and night. Workers rotate through all three on a fixed schedule. 

At first, the move wasn’t easy for Catalina. But the financial incentives offered by her employer were too good to pass up. 

Catalina [18:12]: To be completely honest, at the beginning my move was 100% motivated by the financial and professional benefits and the potential career growth. Why? Because all my friends, who are all in the mining industry — my university classmates — they all told me nothing but, unfortunately, negative things about Antofagasta. What comes up in the news? You see this lack of green, this desert landscape. Now, when I came to live here, I fell in love with this city, I fell in love with the calm, the peacefulness. 

Currently, the bonus that this company gives us is 5% of your salary. So there was a monetary incentive to come and work here. There’s also the medical coverage, where they take care of you 100% in terms of medical matters, just for being at this company and living in Antofagasta — with an urgent care service that comes to your home to help you. This was also an important benefit, especially being here alone. 

Luisa Rollenhagen [19:11]: She was informed from the start about these benefits by her employer and her union. 

Catalina [19:16]: The employer informs you of these benefits. They are listed in the employment contract and additionally, through the union, you also have benefits, such as this medical coverage, plus other bonuses. So both the employer and the union inform you at the time of joining the company of all the bonuses you will be able to access with this type of shift work in Antofagasta. 

Luisa Rollenhagen [19:39]: And those bonuses extend well beyond the basic salary. 

Catalina [19:44]: There are other bonuses too. Performance bonuses, vacation bonuses — they are quite substantial bonuses compared to the salary. This company, being the largest copper producer in the world, obviously incentivises its workers to stay with the company for many years, and in turn they also give you this financial benefit — with high professional demands, truthfully. But in exchange for that, you get this financial benefit. Any mining company, just for the fact that you are risking your life in the mine, they all have this type of bonus. I worked at two other mining companies, and indeed they all have these different bonuses. 

Luisa Rollenhagen [20:29]: I wanted to go back to Felipe and Andrea to talk about what employers need to manage on the payroll side when workers are in these sectors. 

Felipe Rodriguez [20:36]: Usually as an industry they need to declare that and they usually have audits on a specific type of labor in their sector. The labor directorate classifies some specific positions as heavy workload work, and you should follow that directive. And based on that there is an audit, so you should consider that in their payroll. You should consider that in the information that you give to authorities each month in the electronic labor registry that we have here in the country. So you should be really careful about those details. 

Luisa Rollenhagen [21:18]: Beyond payroll cycles and sector-specific bonuses, one of the most significant areas of compliance for employers in Chile is what happens when an employee leaves a company. 

Felipe Rodriguez [21:30]: The first thing that you have to bear in mind is this planning part. The law obliges you to give notice when you terminate an employee, and if you don’t do that, you have to give an additional month of payment. The law obliges you to give a 30-day notice to the employee, and if you don’t comply with that, you should give one month of salary in lieu. Another important part is the vacation balance. You must pay all accrued and unused vacation days to the employee in the termination.  

If you terminate an employee, you must pay one month of gross salary per year, capped at 11 years. And finally, we have in Chile unemployment insurance. So every month the employer retains 2% for the employee’s unemployment fund, and the law allows the employer to deduct that amount from the final severance payment. 

Luisa Rollenhagen [22:34]: I also want to talk about the way pensions work in Chile, since it’s recently undergone a significant change. The system has historically been almost entirely private. Employees contribute 10% of their gross salary each month to a private pension fund. But in August 2025, that changed, didn’t it? 

Felipe Rodriguez [22:53]: So this pension regime was changed in August 2025, and the employer now should contribute with a percentage on top of the employee’s contribution. This will be progressive. This year it started with a 1% contribution, and this will ramp up to 8.5%.  

Luisa Rollenhagen [23:15]: So what do employers need to do to prepare for this change? 

Felipe Rodriguez [23:19]: If you are a client of ADP, you should consider just the additional costs. Basically all the calculations and modifications are made on our platform already, so for us it is an automatic calculation. We make the scales, we make the incremental percentage et cetera. But as an employer you should consider that in your budget, in your medium- and long-term budget, this incremental cost of operation. 

Luisa Rollenhagen [23:48]: We’re nearing the end of the episode, but before we go, I’d like to ask you both my favourite question. What do you love most about working in payroll in Chile? 

Andrea Mollenhauer [23:59]: For me working at ADP here in Chile, but also with people abroad — I have a team in Peru, Mexico, Argentina, my boss is from Brazil — so I work for people all over LATAM and the world. It’s wonderful, because you work with and for people. ADP is what we are because of us, because of the people. We people make ADP great. 

Felipe Rodriguez [24:25]: For me, here at ADP, the culture that we have always has two big pillars. One is the internal culture that we have. We really focus on people, on the team, and on cross-function collaboration. That is really great, and that’s why I’ve been here for almost 11 years. And the other thing that I love is really serving the clients and providing them with solutions, and trying to be focused on what we are expert in. Our expertise is HR. We have great people with incredible knowledge, and to enable that knowledge and put that knowledge in the service of the client. That is what makes us really different as a company, and we provide that service with joy. 

Luisa Rollenhagen [25:18]: That’s a wonderful note to end on. 

Andrea and Felipe, thank you so much for joining us today. It’s been a real pleasure learning about Chilean payroll, from the complexity of union agreements to the geographic tax regimes, the intricacies of bonus taxation, and the changes now happening into the pension system. 

I hope this episode has given you a clearer picture of how payroll works in Chile. If this episode has piqued your interest or your company is considering expanding into Chile, please visit cl.adp.com to learn more.  

And don’t forget to subscribe to learn more about payroll around the world with each new episode.   

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