Chile

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KEY DEVELOPMENTS FOR 2024

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Reduction of working time to 40 hours a week

The Chilean Congress passed Law no. 21,561 in 2023, which reduces the working time limit from the current 45 hours a week to 40 hours a week, with no accompanying reduction in compensation.

The reduction in working time will be implemented gradually as follows:

• April 26, 2024: 44 hours
• April 26, 2026: 42 hours
• April 26, 2028: 40 hours

The 40 hours may be counted as: (i) calendar week or (ii) weekly averages in periods of up to four weeks with a working week of a maximum of 45 hours for up to two continuous weeks or 52 hours with the union’s agreement. The alternatives should be determined by mutual agreement. The working hours may not be distributed across more than six nor less than four days.

Other changes implemented in the Law included the elimination of certain groups of employees that qualified as exempted employees. However, the Law maintains the two main exempted groups: (i) managers, administrators, agents with administrative powers, and (ii) all those who work without immediate superior supervision due to the nature of their work.

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Pension System Reform Bill

Although still under discussion, the Pension System Reform Bill (the “Bill”) introduces major reforms to the pension system, aiming to increase pension contributions and integrity of the system. These goals would be achieved by: (i) increasing by 6% the monthly contribution (to be added to the current 10%, i.e., 16% in total), which would be borne by the employer but would not be deposited in the employee’s individual savings account (as the main 10%) but to a collective fund intended for solidarity of the system, and (ii) terminating the Pension Fund Administrators (“AFP”), private administrators which are the main actors of the pension fund system, to be substituted by a public entity administrator.

These changes have generated controversy. The opposition claims that the 6% additional contribution is destined to reach the individual’s account; and that the AFP are authorized to co-exist with the new public entity. If the increase in the monthly contribution is approved, employers are likely to see a rise in employment costs. In early 2024, the lower house of Congress provisionally approved the Bill but rejected several proposals contained therein, in particular the suggestion that the extra 6% contribution be split equally between individual accounts and the collective solidarity fund. The Bill is scheduled to be considered by the Senate in March 2024. President Gabriel Boric, who presented the Bill, has a minority coalition in both chambers of Congress.

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The economy and political situation

Chile is currently facing political and economic instability, due to the Constitutional discussion process (which entered a second phase after a first project proposal was rejected on the plebiscite), high rates of illegal migration, inflation and a contracting economy. The second referendum on the Constitution concluded in a ‘no’ vote in late 2023, adding to fiscal pressures.

These factors that were present during 2022 continued in 2023 and into 2024, and have led to a contracting economy and low growth rates. Also, the Government’s 2024 budget has allocated greater resources towards social spending in health and education, at the expense of structural reform to improve investment and growth prospects. Employers should be aware of possible requirements to enact redundancies to take account of the changing economic conditions.

 

KEY DEVELOPMENTS FOR 2023

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Reduction of working time to 40 hours a week bill

The Chilean Congress is currently discussing a relevant change in the working time limit reducing it from the current 45 hours a week to 40 hours a week. The reduction will force companies to reduce the working time limit to 40 hours a week with no compensation reduction. The new law would become effective after 12 months of its publication in the Official Gazette, but smaller companies would have the possibility to reduce gradually the working time, one hour per year, reaching the 40 hours at the beginning of the fifth year.

Approval of this bill is foreseeable because the current Government has expressed its high interest in this change in law. If approved, it will impact the organization of the companies, so it is advisable to plan with anticipation arrangements to reduce the negative impact.

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Pension system reform bill

The Government has announced a bill with a major reform to the pension system, with the intention to increase the pensions and the solidarity of the system. These goals would be achieved by: (a) increasing by 6% the monthly contribution (to be added to the current 10%, i.e. 16% in total), which would be borne by the employer but would not be deposited in the employee’s individual saving account (as the main 10%) but to a collective fund with an “entitlement” in favor of the employee to be acknowledged upon retirement; and (b) terminating the Pension Fund Administrators (“AFP”), private administrators which are the main actors of the pension fund system, to be substituted by a public entity administrator. It is foreseeable that this major reform will have a long discussion in Congress as it involves deep impacts in the economy, raising several questions.

If the increase in the monthly contribution is approved, employers would see a raise of the costs of employment.

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Chilean economy and political situation

Currently Chile is facing political and economic instability, due to the Constitutional discussion process, high rates of illegal migration, inflation and a contracting economy which announces an imminent recession. These factors could imply higher unemployment and lower benefit and salary increases to active employees.

Although at first sight this could lead to an improvement of the employer’s hiring position, due to the recent changes in the work market (people demanding more freedom and flexibility), it is possible that people would prefer to work in informal jobs rather than formal - but more rigid - employment.

 

KEY DEVELOPMENTS FOR 2022

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New requirements to register employment documents/details

The new Labor Board Modernization Act 21,327 aims to modernize the Labor Board’s control of employment matters, by: (i) establishing an obligation for employers to register relevant employment documents; (ii) providing that relevant communications with the employer and the employee shall be via email; and (iii) introducing a requirement to register any dismissals and to keep other relevant information up-to-date.

The Law entered into effect on 1 October 2021, although employers had until 30 April 2022 to register any employment documents executed before 1 October 2021. Companies are generally concerned about the suitability of the systems available in respect of these new obligations and the confidentiality of any information uploaded.

In light of this, employers should consider starting the process to register its employment documents as this may take some time, particularly for companies with a large number of employees. Employers should also check that its legal representative and email address details are correctly registered to help avoid missing important notices from the Labor Board.

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New pension system

With the election of a new Government at the end of 2021, depending on whether the right or left wing will be successful in sitting at the Presidency level, we are likely to see a change in existing pension system arrangements. It is anticipated that this change will result in the introduction of employer pension contributions (currently, the pension system is only financed by employees). We understand that the left wing also intends to: (i) replace the existing Pension Funds Administrators (AFP) with a Public Entity; and (ii) to provide that new pension contributions will be paid into a common fund, not to individuals’ accounts as is the current system.

Companies should consider a possible increase in payroll costs as a result of these anticipated changes.

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Proposed reduction to working day limit

A bill that was left standing by in Congress a couple of years ago aiming to reduce the working day limit from 45 to 40 hours a week with no salary reduction may see the light if the left wing wins the Presidency and Congress. If this bill is approved, Companies currently working on a 45 hours system will have to adapt their working hours to the new limit.

 

KEY DEVELOPMENTS FOR 2021

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Effects of the application of the new Teleworking Act

The teleworking law which came into effect on 1 April 2020, together with its Health and Safety regulations as of October, 2020, showed its full effects during 2021. It is likely that the Labour Authority will increase its surveillance over the compliance of employers. In fully implementing the obligations set by these new regulations, the main challenges that companies are facingrelate to the employees teleworking due to Covid-19 but who are not expected to continue teleworking afterwards, or those who will telework only a few days a week as a flexibility benefit. For these cases, obligations such as bearing the costs of teleworking or implementing H&S inspections are regarded as burdensome by the companies.

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Proposed reduction of the working time from 45 hours a week to 40 hours a week

A Bill was in discussion when the Covid-19 emergency started and it has been left standing-by during the crisis, but it can be resumed at any time when things improve. The Bill proposes to reduce the working week to 40 hours a week without a salary reduction.

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Government presents Bill to improve pensions

This project was in discussion during 2020, and although it is expected to be finalized at any time as everyone agrees that pensions need to urgently be improved, the political sectors have not yet reached an agreement. The main point of discussion is whether the six percent increase will be financed exclusively by the employer and how this new increase will be used: either in a collective fund or total or part to the individual savings.

 

KEY DEVELOPMENTS FOR 2020

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New Teleworking Act

A new law came into effect on 1 April 2020 providing legal protection to employees who work from home or from places other than the employer's premises. It includes the following provisions:

• a definition of telework;
• telework should be agreed in writing (either as part of an employment contract or in an addendum to the employment contract) and any relevant addendum may be terminated by the employer or the employee on at least 30 days' notice;
• employees should have the flexibility to arrange their working day;
• the right to disconnect for at least 12 continuous hours per day;
• employers cannot force an employee to provide their own teleworking devices; and
• employers are under an obligation to bear the operation, functioning, maintenance and repair of any teleworking equipment.

Employers were given a three-month period to adjust to these conditions in respect of any employees who are already teleworking.

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Proposals to reduce weekly working time and increase pension contributions

New legislation to reduce weekly working time from 45 hours to 40 hours was in discussion when the COVID-19 pandemic started. It proposes to reduce the working week to 40 hours a week without a salary reduction. New legislation to increase pension contributions by 6% was also being discussed before the start of the COVID-19 pandemic. This 6% increase would be financed exclusively by the employer.

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Protection of Employment during the COVID-19 Crisis

In order to protect employees and employment during the COVID-19 crisis, new legislation is being considered for the following matters:

• suspension of the employment contract in the event of a mandatory lockdown without teleworking: this would permit the suspension of an employment contract by mutual agreement, in which case the employer will only be obliged to maintain the payment of social security contributions while the employee has access to benefits associated with unemployment insurance; and
• temporary reduction of the working day: this would permit a reduction in the working day (and a proportionate reduction to employees' salaries in light of any benefits received by employees from unemployment insurance) if the employer is in serious financial distress.

 

KEY DEVELOPMENTS FOR 2019

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Universal day care Bill to be introduced

Currently, mandatory day care is payable by the employer but is only available to dependent female workers with children of up to 2 years of age and in companies with 20 women or more. A Bill currently in Congress proposes to make this benefit available to both female workers (if they have a child under the age of two) and male workers that exclusively care for a child under the age of two, whether they are dependent or self-employed. The costs will be financed through an additional social security contribution from the employer of 0.1% of the monthly remuneration of every employee.

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Reform to pensions system Bill

The Bill proposes employers pay a contribution of 4.2% towards retirement savings, (currently employees pay 10%, plus commissions). This proposal will result in an increase of the Company’s cost of employment. The Bill is still in very early stages of discussion, however, there is a general perception that the monthly contribution for retirement should be increased to provide employees with higher retirement pay.

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Bill that sets a severance pay for project based contracts

Currently project based contracts do not grant severance pay upon termination. This Bill proposes a payment equal to 2.5 days salary for each month of service. This Bill has been debated for the past two years and there is still no certainty on whether it will be finally approved or not.

 

KEY DEVELOPMENTS FOR 2018

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Minimum Services in Case of Strike

A number of changes have been introduced as a result of Labor Reform, including restrictions on employers to substitute employees during a strike, and controversially the definition of minimum services. Minimum services are those functions or processes of a company that must be taken care of by the union during a strike. Minimum services must be agreed between the employer and the union before the collective bargaining process. If an agreement is not reached, the final decision lies with the Labor Board. The Labor Board has been very restrictive in its resolutions allowing only a small number of services in favor of the company.

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Quotas for Disabled

Employers with 100 or more workers must hire or retain at least 1% of persons with disabilities or who are entitled to a disability pension under the social security scheme.

Companies who cannot comply due to the nature of the work or lack of people interested in the job, must take alternative action, including:

• entry into contracts for the provision of services with companies that hire people with disabilities; and
• monetary donations to projects or programs which provide training, rehabilitation and promotion for job creation, hiring or job placement of persons with disabilities.

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Labour Reforms under New Government

A right/centre wing government under President Sebastián Piñera will assume power in March 2018 following on from the leftwing government of Michelle Bachelet. It is uncertain whether or not there will be material changes to legislation under the new government.

 

KEY DEVELOPMENTS FOR 2017

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New labour reforms in relation to bargaining

All bargaining processes initiated from April 2017 will be subject to the new regulations.

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Additional bills currently under discussion

In addition, there are a number of new bills currently under discussion which cover the following:

• A proposed 1% quota of disabled employees in companies with more than 200 employees.
• Special severance pay in case of termination of fixed term or project-based contracts: 2.5 times their daily salary per month worked if more than 15 days.
• Legal severance in case of termination due to death of the employee.
• Multiple functions: a company hired to perform any function must only perform functions of that kind and not any other.
• Outsourcing: prohibition on outsourcing the main function of the company.

 

KEY DEVELOPMENTS FOR 2016

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Enactment of labour reforms impacting the unions and the collective bargaining process

There was a new prohibition on employers replacing employees on strike (even with in-house employees) and the requirement of an agreement between the employer and the union to extend the CBA’s benefits to non-unionized employees.

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Increase in employment litigation claims for discrimination and infringement of fundamental rights

Following the introduction a few years ago of a special procedure claims in relation to the infringement of fundamental rights and discrimination have increased greatly.