Below you will find information about Uruguayan L&E Law, the main framework and an overview of how our employee compensation is composed.
- Types of contracts: In Uruguay, there are several different types of contracts when it comes to hiring an employee. For instance, it could have a fixed term (temporary contract) or not (permanent contract). If a temporary contract is renewed several time, the employee will become a permanent worker with a right to severance pay if the contract is terminated. Contracts may also include a trial period of up to 90 days, and/or provisions related to home-office regimes, confidentiality, among other clauses. Additionally, there are also independent contractors that are not subject to L&E Law. However, if the independent worker files a complaint and our courts determine that the independent contract was in fact hiding an authentic labor relation, they will apply the L&E Law, including the benefits mentioned below. For this reason, it is important to have professional legal advice to assist you finding out which contract types would best suit you.
- Minimum Wage (“Salario Mínimo”): Uruguay has a national minimum salary that usually is adjusted every year. The current minimum amount is $22.268 (values as of publication date). Notwithstanding, employers also have to observe the minimum wages established by our Councils on Minimum Wages (“Consejos de Salarios”): these are established within a tripartite negotiation, entailed by (1) the Ministry of Labor and Social Security, (2) a labor union and (3) a business association, which are deemed the most representative organizations within the corresponding sector of activity. The resolutions of such Councils shall be mandatory for every company under the same sector of activity, and may include a wide range of provisions, including the basic minimum wages applicable to different categories of workers, and other mandatory benefits. Companies may always grant higher benefits, but they could never be below the thresholds established therein. They must also pay certain social security contributions.
- Annual Vacations (“Licencia Anual”): under our Law N° 12590, every year of services each employee develops a right to have at least 20 (paid) days off, which shall be exercised on the following year, on a single period unless otherwise approved by the company, and on any dates agreed by the employees and the company. Employees with more than 5 years of services for the same company shall be granted an additional day off per every 4 years of services.
[Although it is outside of the scope of this brief, please take into account that, besides the annual vacations, employees are entitled to take other days off for special reasons (inter alia: sickness, study, pregnancy, or work-related accidents), which are established in several different laws, and are usually covered within our social security system].
- Annual Vacations Salary (“Salario Vacacional”): under Law N° 16101, in addition to the payment of every days off, the company shall make a payment in the same amount for a better use of the employee´s vacations. In a nutshell, considering both benefits, this means that every time an employee exercises their right to annual vacations, they shall receive twice the salary of every day off.
- Supplementary Annual Salary (“Sueldo Anual Complementario” a.k.a. “Aguinaldo”): Pursuant to Law N° 12.840, this benefit amounts to 1/12 of the total salary collected in a calendar year. Although the amount is seemingly similar to a basic monthly salary, it tends to be slightly higher due to the fact that other benefits, such as the annual vacation, are taken into account for its calculation. Additionally, every year our executive branch passes a decree authorizing the total amount to be divided in two halves to be paid in different opportunities: the first one before June 30; the second one before December 15.
- Severance Pay (“Indemnización por Despido” / “IPD”): when an employee is laid off, they must receive all the benefits that they may have acquired, such as those mentioned above, and they also may be entitled to severance pay. Only if the contract has expired; if it was subject to a trial period; or if the employee incurs in serious misconduct ( “notoria mala conducta”), may they be excluded from severance pay.
- Under Law N° 10.570, the standard severance pay (“IPD” a.k.a. “IPD común”) is calculated as follows: every year of work equals to one monthly salary, up to a maximum of 6 months. Other benefits are taken into account for calculating purposes, and the formula may vary depending on the contract; for instance, whether the employee is paid on a daily-basis, instead of a monthly salary.
- Notwithstanding, our laws penalize certain causes of lay-offs that are deemed unfair, by adding more burdensome amounts. Below you can find a list of the most important causes of special severance pay (“despidos especiales”):
- Anti-union (Law N° 17.940): if the layoff is proven to be related to an anti-union purpose, the termination shall be voided. Thus, the employee must be reinstated and will be entitled to collect the salary plus benefits acquired after the alleged termination.
- Pregnancy (Law N° 11.577): A pregnant employee who has been laid off during her pregnancy shall be entitled to the standard severance pay plus 6 monthly salaries. Our courts tend to apply the same sanction to terminations carried out within a period of 180 days after the pregnant employee´s reinstatement.
- Sickness (Law N° 14.407): if an employee is terminated while they are sick or within 30 days of their reinstatement, they shall be paid twice the amount of the standard severance pay (“doble IPD”).
- Occupational accident or sickness (Law N° 16.074): our regulation prohibits terminations during the absence of an employee due to work-related accidents or sicknesses, or within 180 days of its reinstatement. In such cases, layoffs are penalized by tripling the amount of the standard severance pay (“triple IPD”).
- Sexual harassment (Law N° 18.561): if an employee falls victim to sexual harassment, they may consider they have been laid off and collect the standard severance pay plus 6 monthly salaries.
- Excessive Severance: if certain layoff is considered a form of discrimination, because of its gender (Law N° 16.045) or other reasons; or if it is notoriously abusive, harassing or disrespectful, the employee may be awarded an additional compensation, which shall be determined by a judicial court.
If you would like to review the quoted regulations, you may look them up at IMPO (https://www.impo.com.uy/cgi-bin/bases/consultaBasesBS.cgi?tipoServicio=3), which keeps an updated record of each law. Kindly avoid other websites that may have outdated versions that have not included amendments.
Please take into account that the above-outline of our labor regulation is not a comprehensive analysis, but rather a brief of the most important laws and their application. Should you be interested in knowing more about our legal framework, or how it would apply to you, please do not hesitate to contact us and we will be more than happy to assist you.
