Hiring Talent And Managing Payroll In Puerto Rico

Hiring in Puerto Rico ? Read on to find out the employment norms (like taxes, payroll and benefits) and EOR (Employer on Record) norms in Puerto Rico.

Employment Norms in Puerto Rico

Puerto Rico, an island located in the Caribbean, is a U.S. territory with diverse geographical features such as mountains, waterfalls, and the El Yunque rainforest. Employing staff through an employer of record (EOR) is a common choice for investors in Puerto Rico who require a limited number of local executives or want to recruit a team for a temporary period.

General Information:

The Currency of Puerto Rico is United States Dollar (USD)
San Juan is the capital of Puerto Rico
English and Spanish are the official languages of Puerto Rico. Documentation is done in Spanish. But, English is used in U.S. Federal agencies.
As of 2021, the GDP of Puerto Rico was reported to be 106.53 billion USD.

The Labor Transformation and Flexibility Transformation Act of 2017 guides the country's labor laws in Puerto Rico.

Table of Contents

Select Section

Agreements
Onboarding Process
Visa
Minimum Wage
Payroll Cycle
Annual Bonus
Health Benefits
Working Hours and Overtime
Leaves
Social Security
Taxes for Employers
Taxes for Employees
Probation
Termination
Severance Pay
Employees or Contractors
Final Words

Agreements Onboarding Process Visa Minimum Wage Payroll Cycle Annual Bonus Health Benefits Working Hours and Overtime Leaves Social Security Taxes for Employers Taxes for Employees Probation Termination Severance Pay Employees or Contractors Final Words

Agreements

In Puerto Rico, both written and verbal contracts are valid. But, a written agreement is preferred for permanent employees.
Contracts are generally done in English and can be bilingual.
State and federal labor status governs the contract laws. Also, the Puerto Rico Civil Code provisions employment contracts.
The contract must incorporate the name of the employer and employee, commencement date, employment duration, job description and terms and conditions of employment.

Onboarding Process

Onboarding may require ID verifications, tax, and other contractual paperwork.
EOR services in Puerto Rico enable onboarding in just 2 business days, starting from the client's SOW signing.

Visa

Russia has 3 primary types of work visas.

B-1 Visa is a temporary permit for employer representatives visiting Puerto Rico for business purposes.
H1-B Visa for foreigners involved in specialty occupations.
H-3 Visa for Trainees.
L-1 Visa for foreign nationals involved in executive or managerial positions.
O-1 Visa for persons extraordinary in science, arts, athletes, education, and business.

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Minimum Wage

Employers under USA Federal Fair Labor Standards Act (FLSA) + Workers on Tip - USD 8.5 per hour
Employers not under FLSA - USD 5.8 per hour

Payroll Cycle

The payroll cycle in Puerto Rico can be weekly, bi-monthly, and monthly.

Annual Bonus

The 13th-month pay is customary in Puerto Rico.
Additionally, 3% of the employee's salary is paid as a Christmas bonus.

Health Benefits

There are both public and private healthcare policies.
Private insurance companies are contracted by the government to provide public healthcare services.
The Work-Related Accident Act mandates compensation and job reinstatement for work-related injuries.
Employers may provide private healthcare or life insurance, but it's not mandatory.

Working Hours and Overtime

Work hours:The standard workweek in Puerto Rico is Monday to Friday, with 8 hours per day and 40 hours per week.
Break: For employers working more than 6 hours, 1 hour of unpaid meal break is given.
Overtime: For non-exempt employees, the overtime payment of 150% of the regular hourly rate is paid in Puerto Rico.

Leaves

Sick Leave

Employers grant 12 sick leaves to non-exempt employees in a year.

Parental leaves

Employees can get 12 days of unpaid paternal leaves.
The Puerto Rico Working Mothers Protection Act provisions 8 weeks of paid maternal leaves (4 weeks each before and after childbirth) which the employer should pay.
The same also applies to females adopting children over 6.

Annual leaves

The annual leave varies according to served period.
0-1 year = 6 days per year
2-5 years = 9 days per year
6-15 year = 12 days per year
Above 15 years = 15 days per year

Public Holidays (for the Calendar year 2024)

Some dates may vary based on official notifications and traditional calendars.

New Year's Day - 1st January
Three King's Day - 6th January
Martin Luther King Jr. Day - 15th January
President's Day - 19th February
National Hero's Day - 19th February
American Citizenship Day - 2nd March
Holy Friday - 29th March
Easter Sunday - 31st March
Mother's Day - 12th May
Memorial Day - 27th May
Father's Day - 16th June
U.S. Independence Day - 4th July
Labor Day - 2nd September
Columbus Day - 14th October
Veterans Day - 11th November
Thanksgiving - 28th November
Christmas Eve - 24th December
Christmas Day - 25th December

Public Holidays (for the Calendar year 2025)

Some dates may vary based on official notifications and traditional calendars.

New Year's Day - 1st January
Three King's Day - 6th January
Martin Luther King Jr. Day - 20th January
President's Day - 17th February
National Hero's Day - 17th February
American Citizenship Day - 2nd March
Holy Friday - 19th April
Easter Sunday - 20th April
Mother's Day - 12th May
Memorial Day - 27th May
Father's Day - 15th June
U.S. Independence Day - 4th July
Labor Day - 1st September
Columbus Day - 13th October
Veterans Day - 11th November
Thanksgiving - 27th November
Christmas Eve - 24th December
Christmas Day - 25th December

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Taxes for Employers

The Employer tax ranges from 17.95% - 22.85%.
Foreign companies are taxed on income earned from Puerto Rican businesses.
Non-resident foreign companies are charged a 29% withholding tax on Puerto Rico's source gross revenue, regardless of its association with Puerto Rican business.

Besides, employers are required to pay the following taxes in Puerto Rica.

Old Age, Survivors, and Disability Insurance Tax (FICA) - 6.2%
Medicare (FICA) = 1.45%
Disability Insurance = 6%
Federal Unemployment Tax Rate (FUTA) = 6.3%
State Unemployment Tax Rate (SUTA)1% = 5.4%
Chauffeurs Insurance = USD 0.30 per week

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Taxes for Employees

The residents of Puerto Rico are taxed on worldwide income.
However, non-residents are taxed on only the income earned from the Puerto Rican source.

The progressive income tax rate is as follows:

USD 0 - 9000 = 0%
USD 9000 - 25000 = 7%
USD 25000 - 41500 = 1,120 USD + 14% on the excess over 25000 USD
USD 41500 - 61500 USD = 3,430 USD + 25% on the excess over 41500 USD
USD Above 61500 = USD 8,430 USD + 33% on the excess over 61500 USD

Besides, employees are required to pay the following taxes in Puerto Rico.

Old Age, Survivors, and Disability Insurance Tax (FICA) = 6.2%
Medicare (FICA) = 1.45% (without limitation)
Medicare (FICA) = 0.9%
Chauffeurs Insurance = USD 0.50 per week

Probation

The probation period duration depends on the type of employee.
- Exempt employees = 360 days
- Non exempt employees = 270 days
However, this provision is not entertained for contractors hired for a temporary period.
There is no provision for a specified statutory period for termination of probation.

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Termination

An employee can voluntarily terminate the contract.
Similarly, the employer can terminate it unilaterally or upon mutual consent.
But, in the absence of a termination date in the contract, it is considered for indefinite terms. Unless removed for just cause, the employment is protected by number 4 of the Labor Transformation and Flexibility Act.

Severance Pay

The employees, if terminated unjustly, are entitled to severance pay. However, the rate depends on the duration of the year served.

0-5 years = 2 months of salary + 1 week of of pay
6-15 years = 3 months of salary + 2 weeks of pay
Above 25 years = 6 months of salary + 3 weeks of pay

Employees or Contractors

Misclassifying employees and contracts, even unintentionally, can trouble employers with penalties, under Puerto Rico Labor Transformation and Flexibility Act.
It can cause the employer to pay back payroll taxes and employee benefits.
Further, the employee may file a civil lawsuit in case of such misclassification.

Final Words

The statutory laws of Puerto Rico grant more rights to its employees than any of the U.S. states. However, due to its complex labor laws and employment norms, hiring here can take a lot of work. Thus, always consult EOR services to be safe from legal implications.