Puerto Rico Employment Laws: A Guide for US Mainland Companies

With its growing tech industry and proximity to the US mainland, Puerto Rico is a great place for mainland companies to grow their businesses. We examine the key employment laws to keep in mind when hiring there.

Colorful building at night in Juana Díaz

Caitlin MacDougall

PEO vs EOR office building against a purplish sky

Puerto Rico is a smart place to grow your business, especially because of its proximity to the US mainland. While services such as trade, finance, tourism, and government account for half of the country's GDP, recent investments in STEM education and startups have incentivized a shift to tech in the economic landscape. Especially after the economic depression that followed Hurricane Maria in 2017, some see tech as a boon for the commonwealth's economy.You might have questions about the how to go about hiring in Puerto Rico. For instance, are Puerto Rico's employment laws synonymous with US employment laws?With regard to employment rights and protections, most of the laws in the US Constitution extend to Puerto Rico employment law. In this article, we will provide an overview of Puerto Rican employment laws, as well as considerations to make when hiring in Puerto Rico.

Employment contracts 📑

First, let's talk about the employment relationship. With an employment relationship, a written contract is not always necessary. In fact, a verbal agreement is considered as valid and bona fide as a written contract. In many cases, however, it's recommended that employers provide written contracts, anyway. For instance, if an employer needs to adjust a non-exempt employee's paid vacation days, or implement a non-compete agreement, it would be wise for that employer to provide their employee with those details in writing.In Puerto Rico, an automatic nine-month probationary period applies for all non-exempt employees, and exempt employees are given a twelve-month probationary period. After that, an employment contract is considered indefinite unless stated otherwise.There may be other types of workers your company may consider outside of a full-time employee. Here are a few that may suit your company's needs.

Temporary employees

One option for hiring is to offer a worker temporary employment. This may be the case if the employer's business has multiple projects, and the employer is unsure how long these projects will take or how much work they can offer. Temporary employees are often hired:

to fill in for an employee during a leave of absence

for a single project

to work during a short period of time in which the employer has an extraordinary amount of work, such as annual inventory or equipment repairs.

Temporary employees are hired through a temporary service company. Per Puerto Rico law, the temporary service company and the client are jointly responsible for the employee, although certain responsibilities may fall under one party's purview versus the other's.Fixed-term employees hired for specific projects or a specific period may not work longer than three consecutive years, including any contract renewals.

Independent contractor relationship

Hiring an independent contractor is another option. Independent contractors are different from temporary employees: they operate as their own business entity and are not hired through a temporary service company. Many employers will choose to hire independent contractors, or individuals who perform work on a project-by-project basis. This is especially true if the employer cannot guarantee a worker an indefinite contract because they only need help with a single project.In an independent contractor relationship, the employer, or the person who pays the contractor, does not manage or direct how the contractor works, and only controls the results of their work. All independent contractor agreements must be in writing.An independent contractor is considered self-employed, and must register with the US government. To do this, they will need to request an employer identification number or an employer social security number. Independent contractors pay a self-employment tax, which covers social security contributions and Medicare.The employer is not responsible for covering the independent contractor's income tax and social security contributions. Many employers choose to hire independent contractors for this reason: an employer can save on a company's overall payroll costs if they are not responsible for withholding income tax from the individual's paycheck.

Foreign workers

There is no law requiring that employers in Puerto Rico register foreign workers, although all immigration matters are governed by federal law. The Federal Immigration Reform Control Act of 1986 (IRCA), however, requires employers fill out Form I-9 to verify an employee's identity and authorize their ability to work in the US.

Important employment laws in Puerto Rico ⚖️

The US Department of Labor and the Puerto Rico Department of Labor collaborate to provide employment standards and protections for Puerto Rican workers. Here are some of the employment and labor laws that govern workers' rights in Puerto Rico.

Fair Labor Standards Act

For instance, federal laws such as the Fair Labor Standards Act (FLSA) is a US labor law that establishes standards such as minimum wage, overtime pay, record-keeping, and youth employment standards for private sector employees, as well as for federal, state, and local governments.

PROMESA

The Puerto Rico Oversight, Management, and Economic Stability Act (PROMESA) is a Puerto Rico law enacted in 2016 to mitigate the Puerto Rican financial crisis. The law amends the Fair Labor Standards Act so that special considerations are made in regard to youth minimum wage and overtime for Puerto Rican workers.

Collective bargaining agreements 🤝

While employment law focuses on the individual rights of employees, labor law is a set of laws focused on the rights of workers collectively. The National Labor Relations Act, for example, entitles employees to the constitutional right to organize trade unions and engage in collective bargaining. Collective bargaining is a mutual agreement between employers and trade unions to establish certain rights and protections, such as salary, meal periods, and pensions. Workers are protected from employer retaliation if they choose to designate a trade union representative.

Minimum wage 💵

The federal minimum wage in the US is currently $7.25, and has been since 2009. Many states and territories such as Puerto Rico, however, have their own minimum wage laws. In Puerto Rico, minimum wage is $8.50 per hour. Some workers are exempt from the minimum wage, such as tipped workers and some student workers.Employers who aren't covered by FLSA must pay at least 70% of the applicable federal minimum wage to their employees.

Work schedules 🗓

The standard work week in Puerto Rico is 40 hours, and a regular working day is eight hours. Non-exempt employees are entitled to a 24-hour day of rest for every six consecutive days of work.An employee is entitled to a one-hour unpaid meal period in a six-hour work period, and the break may be taken after the second consecutive hour of work. If an employee works fewer than six hours, this meal period is waived.

Overtime pay ⏰

Employees covered by FLSA are entitled to an overtime pay rate of one-and-a-half times their regular rate. Overtime work is any amount of time that exceeds eight hours during any calendar day, or more than 40 hours a week. Work required during a meal break, day of rest, holiday, or collective bargaining agreement is also considered overtime and subject to overtime rates of pay.

Alternate week schedule agreements

There are three alternate schedules that employees can work instead of the standard work week.In one alternative schedule, an employee may fulfill a 40-hour week with 10 consecutive working hours per day without having to pay overtime, so long as that schedule does not exceed 10 days. If the schedule does exceed 10 days, those days are considered overtime.In another alternative schedule, an employee may request to make up work hours that they missed due to personal reasons. If the employer grants permission for this employee to work compensatory hours, the employer will not have to pay overtime. The employee's compensatory hours must be worked within the same week of their absence and must not exceed 12 hours in a day (i.e., 40 hours in a week).Another common working arrangement is work-from-home, which is increasingly common since the pandemic started. In this arrangement, employees may request permission to work outside of the employer's offices. In this case, the employer must respond to the employee, or provide alternatives to the request within 20 days.

Vacation and sick leave policies 🏝🤒

Vacation and sick leave are two employee benefits afforded to employees who have worked for the same employer for at least 130 hours. For sick leave, every employee is entitled to one day of leave for every month they have worked.Puerto Rico employees are also allowed up to five days of medical leave to care for a child, parent, spouse, or elderly person with a serious illness or disability.For vacation leave, employees accrue half a day's vacation per month during the first year of employment. If an employee has been employed by the same employer for two to five years, they accrue three-quarters of a day's vacation per month. For six to 12 years of employment, an employee accrues one day per month, and after the 15th year, they may earn one and a quarter days of vacation leave.

Parental leave 🤰

Pregnant employees, and mothers who adopt children five-years-old or younger, are entitled to eight weeks of paid maternity leave. The leave includes four weeks before the child is born or adopted, and four weeks after. A woman who adopts a child who is six years or older is entitled to five weeks of leave. The employer pays for maternity leave.Employees entitled to maternity leave may be unable to work after their leave period is complete, due to postpartum complications. In this case, the employee is entitled to an additional 12 weeks of unpaid leave. In order to qualify, she must provide the employer with a doctor's certificate confirming her postpartum condition and the need for additional rest.Although Puerto Rico does not have a paternity leave law, the US Federal Family and Medical Leave Act allows workers to take 12 weeks of unpaid, job-protected leave for family and medical reasons. This can include the birth, fostering, or adoption of a child; it can also include the care of a child with a serious illness.

Employment discrimination

An employer may not discriminate against an employee based on the employee's:

age

race

color

sexual orientation

gender identity

class

disability

nationality

social condition

genetic information

marital status

political beliefs

religious beliefs

union affiliation

veteran status

being a victim or a perceived victim of domestic violence, sexual harassment, assault, or stalking

use of cannabis for medical purposes

An employee may file a discrimination claim with the Equal Employment Opportunity Commission (EEOC), which has a field office in San Juan.

Employment termination

An employer may terminate an indefinite contract with an employee if the employee:

exhibits improper or disorderly conduct

is negligent in their work, or their work is late

is unable to perform necessary tasks

is the subject of complaints from other colleagues

violates written rules

It may be necessary for an employer to reduce staff at their company because:

one of the business's operations is closing, and so they require fewer employees. This may be the case if the employer has more than one office, plant, or branch

there are changes in the company's technology that render the employee's position superfluous

the company has experienced a decrease in production, sales, or profits, and must lay off employees to save costs

An employer is not required to give an employee written notice of their dismissal, but an employer should give their employee written statements on disciplinary or corrective action, should the employee file a complaint.

Data protection 🔐

Puerto Rico does not have a general privacy law that protects employee data, but there have been data disposal and data breach laws that have passed recently, most notably 10 LRPA §§ 4051 et seq., which requires that citizens be notified when their private information has been compromised. For instance, if an employee's social security number or tax information has been breached, the employer must notify the employee.

The importance of international compliance ⚠️

Puerto Rico law can seem complex, especially because local laws in Puerto Rico can sometimes supersede federal law (minimum wage rates, for instance). The consequences of inadvertently violating employment law can range from fines to legal trouble. That's why many businesses turn to Employers of Record (EOR). With an EOR, a business can ensure that they are in compliance with not just federal law, but the local law that governs the specific region where they plan to hire employees. That way, you can avoid costly legal fees and a trip to Puerto Rico courts.

Legal Disclaimer:

The information contained in this site is provided for informational purposes only, and should not be construed as legal advice on any subject matter.

Pilot can help 👩‍✈️

Pilot can help your business stay compliant with national and international employment law. Our team specializes in human resources needs abroad, including global payroll, benefits, and compliance for remote teams. When you partner with Pilot, we pair you with a success manager to help you navigate local markets and create the best experience possible for your hired talent.We enable companies to hire and pay employees in over 160 countries, without having to set up a local entity. Pilot also supports contractor payments in over 240 countries around the world, with no markup fees and no need for an e-wallet. It's no wonder why employers and their workers love us.

Going global isn't daunting when you partner with Pilot. 🤝

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