Employment & HR in Peru

One of the economic leaders in South America, Peru, serves as a prime location for new businesses. Peru is known for its constantly improving in terms of economic growth and the various modernization techniques that have taken place over the past two decades. With a very strong Metal and Mining Industry, Peru is characterized by the World Bank as an emerging economy, making it one of the best countries to start a business in. This is the result of a high level of foreign trade, which is encouraged and promoted in the region. This is visible from the fact that Peru has a lot of free-trade agreements with other countries. In fact, China is one of the top trade partners with Peru. 

However, while Peru has quite a developed infrastructure to promote emerging trades, this country can also be quite a risky place to do business. The reason for this is that Peru’s economy is largely based on exporting goods and commodities. Since exports are a major part of it, price fluctuations in the international market make this a risky investment. To learn how to start up a business in Peru, you need to learn about the common regional practices and top business options.

Quick Overview

The Peruvian economy is mainly dependent on three trade categories: Services (59%), Industry (32%), and Agriculture (7%). Macroeconomic stability is a unique feature of the Peruvian economy. Since the beginning of the century, Peru has constantly been introducing reforms to help diversify its trade portfolio and expand it beyond metal trades. Currently, the major exports of the region include Copper, Gold, Zinc, Pharmaceuticals, Machinery services, Textiles, and a few more commodities. This means that there is a huge market for new products and services in this region. Learning the best way to start a business in Peru depends upon understanding the business regulations and laws of the region.

Process of setting up a business in Peru

If you are looking for how to start a business in Peru, you must learn about the region as the first step. Peru, a South American Country, currently has quite a different economic and industrial landscape than most other countries. Peru has a lot of natural resources, and while the region has an abundance of these resources, it still has a lot of work to be done to come up to speed in terms of technological development. 

To encourage the growth of new industries, former President of Peru, Pedro Pablo Kuczynski (2016-2018), introduced various reforms to laws and regulations affecting business and trade in the region. These new strategies are aimed at promoting foreign investment in the region and making the process of setting up business here more streamlined. Through these reforms, the government also made it simpler and cheaper to get work permits, visas, and open bank accounts. Here is the best way to start a business in Peru:

• Business Idea: Since exports in specific commodities and services have been the main area of focus, there are abundant trade and business markets which remain untapped in the Peruvian market. Coming up with a business idea specially catering to the Peruvian market should be comparatively easier than in most other countries. There are a lot of services and products which remain uncommon and unique. However, you must conduct market research or even test out your business like a prototype to truly understand whether you will have enough market and audience or not. This would be extremely helpful in the next step.

• Business Plan: After coming up with a marketable business idea, you need to make a business plan. This plan needs to be made after thorough research of the market. It must contain the idea for the business, present competition, how you intend to perform better than them and how much of a profit you can turn up. You also need to assess your expansion and growth plans as well. The business plan would be greatly helpful in the next steps like greeting credit and permits for the business. It will also help you stay focused and run your business smoothly. 

• Legal Structure: Determining the legal structure of the company is important when starting a business in Peru. This helps in placing responsibility and determining the liability of every partner or shareholder. Peru recognizes the following types of company structures:

1. Closely held Corporation: Most common type of business structure in Peru.
2. Publicly Held Corporation
3. Limited Liability Company
4. Foreign Branch Office

• Documents of Incorporation: Every business needs to prepare incorporation articles before they can be registered with the governmental authorities. This document must contain the list of members as well as their intention to form a company. 

• Company Registration: Registration of the company is absolutely necessary, and without it, no business can be recognized as legal. To register the company, you first need to find a name for the business. This can be done easily with the name-finding portal, also known as the Registry of Legal Entities (SUNARP). This portal also allows you to book the name so no other business can take it before your registration is completed. The company registration process must be completed in the presence of the partners and a notary. Upon completion of the registration, you will receive a Certificate of Registration. 

• Tax Registration: After the company registration process is completed, the business needs to get the Tax Identification Number. To get this, you need to register with the SUNAT (Superintendencia Nacional de Aduanas y de Administracion Tributaria)  or the national customs and tax administration office. 

• Bank Account: The next step in how to start a business in Peru is to open a business bank account. The framework to start a business in Peru is quite easy, especially in Lima. Every business needs a specific bank account with at least an S/.1000 capital deposit.  

Hiring Employees in Peru 

Employees can be called the backbone of a business. Thus, every country has its own set of rules and laws dictating how employees must be hired and what benefits must be ensured to them. Hiring employees consists of various considerations like suitability of the job role, qualifications of the employee, and willingness of the employee to join the organization. However, certain accommodations must be ensured by the employers to make their company suitable for employees. 

All employers need to create employment contracts customized for every employee. This must contain the requirements from the employee, the benefits and remuneration for the employee, as well as grounds for termination. The employment contracts can be written or oral. However, written contracts are preferred. The contracts also need to be registered with the Ministry of Labor. HR experts at Zimyo are fully equipped to comply with all the legal requirements in Peru while helping you hire the best talent.

Some of the most important factors to be ironed out before hiring employees in Peru include:

• Trial Period/Probation Period: Trial periods are extremely important for all employers as well as employees to see whether the job and the employee are compatible or not. In Peru, the Probationary period can last between 3 months and 1 year. It is upon an agreement between the employers and the employees to determine the duration of the trial period. After the completion of the probationary period, the employee can be entitled to better benefits if they have not already been made available to the employee.

• Leave and Holidays: Every employee is entitled to 30 days of paid annual leave. In addition to this, they are also entitled to 5 days of paid sick leave allowance. Apart from the annual leave and sick leaves, employees also get 13 days of paid public holidays. There are 12 officially recognized public holidays. However, the Independence Day celebration span over 2 days, equally 13 days in total. 

• Maternity Leave: Maternity and Paternity leaves are granted in Peru as well. All pregnant employees are entitled to 14 weeks of paid maternity leave. This starts 7 weeks before the due date and lasts for 7 weeks after childbirth. Male employees get 10 consecutive days of paid paternity leave, usually taken from the day of childbirth. 

• Termination of Services: In the event an employee is to be terminated, the employer needs to give a minimum notice period of 5 days and a maximum of 30 days. The minimum requirement of 5 notice period days is set to allow employees to draft a defense for themselves. Whether an employee is given a notice period or not, all employees are entitled to a severance package upon the termination of service for up to a year.

• Pension: Employers in Peru are required to deposit an amount equal to 11.5 percent of an employee’s gross salary every month to the AFP, also known as the pension fund Administration. 

• Work Hour Norms: Working hours in Peru are often set to 8 hours per day, 6 days a week. 48 hours per week is the maximum working limit set in Peru, and employers cannot ask employees to work any longer than that in a week even if they pay overtime compensation. In cases of overtime pay, the employer has to pay the employees with a 25 percent increment for the first two hours and thereafter with a 35 percent increment for every additional hour. 

How easy is it to conduct business in Peru?

For a country to be a good destination to establish a business, its policies, laws, and regulations must be such that make it one of the best countries to start a business in. The easiest way to find out which countries are easiest to start a business in is through the Ease of Doing Business Index. This index compares multiple countries across multiple criteria, which are key aspects determining how simple or difficult it can be to start and run a business smoothly. In this index, Peru secured the overall rank of 76 with a score of 68.7.

• Starting a Business: Starting a business requires a lot of procedures to be followed, like market research, company registration, company incorporation, tax registration, and so on. Considering all the major procedures, Peru ranked quite low at the 133rd position. There are about 8 procedures to undertake, and it can take about 26 days to complete the process. 

• Managing Permits: There are a lot of permits required when starting a new business. Some of these need to be renewed at regular intervals to keep business running smoothly. One of the primary permits required for establishing a business is a construction permit. Peru ranked 65 in the field of dealing with construction permits. It takes 19 procedures and about 137 days to complete this process. 

• Getting Electricity: Electricity is extremely important for running any business. Without an electricity connection, it would not be possible to conduct business. Considering how important electricity is to business, a country needs to have efficient processes to make this available readily. In this parameter, Peru ranked 88th with a score of 74.5 out of 100. It takes 6 procedures and a little over 2 months to get an electricity connection in Peru. 

• Getting Credit: Getting credit is key to starting and sustaining a business. Understanding the need for this, Peru streamlined a lot of its processes and even set a very low capital deposit requirement for investors. Getting credit is quite simple in Peru, and as such, it ranked 37 on this criteria. 

• Managing Payroll: Managing payroll in Peru is often controlled by special software. ADP Payroll Peru is one such method that makes it easier to keep a record of payroll and manage it efficiently and effectively. Zimyo offers expert payroll management services to address all essential aspects of your payroll requirements.

• Paying Taxes: Paying taxes is an important part of running a business and, in the process helping the country grow its economy. When an economy is booming, it ensures that the country develops even more. However, the process of paying taxes in Peru consists of 8 taxes to be paid annually. While the number of taxes may be low, it takes over 260 hours to complete filing these taxes. This, in turn, caused Peru to rank at the 121st position. 

• Enforcing Contracts: Contract enforcement is a crucial part of running a business smoothly. In this area, Peru ranked 83 as they need to make the system of enforcing contracts much better. On average, it can take over 485 days to complete the processes related to the same. 

• Resolving Insolvency: In case a business runs out of funds to continue working or is subdued by debt, there needs to be certain insolvency resolving methods in place in every country. In this parameter, Peru ranks 90th as it can take more than 3 years to resolve insolvency issues here. The recovery rate is quite low, currently set at 31.3. 

While setting up a business in Peru may seem difficult, the country and the government are continuously making efforts to make processes more streamlined and efficient. They are also aiming to promote more and more foreign investment. Peru is rich in resources, and it’s easy to find talented workers here for all types of jobs. This makes Peru one of the best countries to start a business. The abundance of opportunity in Peru remains unmatched by any other county. As an emerging economy and the fastest growing one in South America, Peru is making strides in business growth. 

Zimyo is a leading HR and Payroll management services provider in Peru with multiple years of experience. The company helps businesses hire the best talent and takes care of the financial requirements of employees, such as advances or credit for a hassle-free work experience.