Guatemala is becoming a popular destination for companies hiring abroad, with a large, young workforce and cost-effective labor in comparison to Central America.

This guide will provide an in-depth view of Guatemalan labor laws, along with a 9-step hiring process and details on mandatory employee benefits when doing business in Guatemala.

Why Expand Your Business to Guatemala

Strategic Advantages of the Guatemala Market

There are many advantages to the Guatemalan market that make it a strategic country for foreign investment. With a young, scalable workforce, many of Guatemala’s workers are bilingual and have a strong work ethic. 

Labor tends to be more cost-efficient than in nearby countries, plus the economy is stable after the COVID-19 pandemic. Another benefit of the Guatemalan market is that the government provides investment incentives in free trade zones, with tax exemptions and simplified customs for foreign investment.

Importance of Being Aware of Guatemala Labor Laws

Guatemalan labor laws are primarily governed by the Labour Code of Guatemala, which was first enacted in 1947 with various amendments over recent years. This covers a range of employment regulations regarding contracts, working hours, employee benefits, and minimum wage.

Other legal acts relevant to Guatemalan labor laws include:

  • Social Security Law
  • Regulations on Occupational Health and Safety
  • Regulations on Employment of Minors and Women
  • Decree 1441 – Civil Code

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Step 1: Define Your Hiring Needs

The first step employers must take when hiring in Guatemala is to define their hiring needs. This includes determining the roles your company requires in order to achieve long-term business goals and the number of employees you want to hire. Think carefully about this step to ensure you don’t end up backtracking along the way.

Step 2: Familiarize Yourself with Compliance Requirements

Guatemala will have set compliance requirements in terms of employment, including mandatory benefits, tax obligations, and minimum wage regulations. Make sure you fully understand these requirements, as well as familiarize yourself with obligations in terms of taxes and social security.

Step 3: Choose Your Hiring Method

There are various hiring methods in Guatemala that companies can choose from based on their hiring needs.

Establishing a Legal Entity

Setting up a legal entity in Guatemala is the way of retaining the most control when hiring in this country. This involves setting up a Guatemalan company and registering with the Ministry of Labor and the Social Security system.

While this provides full control over hiring and is good for long-term expansion into Guatemala, it does come with heavy administrative and financial implications, as well as the need for legal representation.

Using an Employer of Record (EOR)

Appointing an Employer of Record is a good choice for companies looking to employ a third-party service to legally employ workers in Guatemala. An EOR provider allows fast market entry, without the need to legally register your company, and they’ll ensure your working practices are fully compliant with local labor laws.

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Hiring Independent Contractors

Hiring independent contractors can be useful for employers seeking flexible, project-based workers.

It’s important to note that with this method, workers must manage their own taxes and social security contributions, and employers should put together an Independent Contractor Agreement (ideally written in Spanish) to set out key working practices for contractors.

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Step 4: Develop a Recruitment Strategy

Your recruitment strategy is the method for finding new applicants for job roles.

This involves putting together strong job adverts to attract the best talent for your business. Make sure that your job adverts include a clear job title, job description, and details that adhere to anti-discrimination laws.

You’ll then want to post your adverts on popular job boards to gain traction. Some popular Guatemalan online job sites include:

Step 5: Conduct Interviews and Assessments

Once you’ve received some applications, it’s time to conduct your interviews and assessments. When carrying out interviews, make sure you bear in mind Guatemalan cultural norms to ensure you set a good first impression with your applicants. Some top tips here include emphasizing respect, formality, and being mindful of religious customs to set a good basis for your working relationship.

Step 6: Know the Legal Limitations of Background Checks

While background checks are normal practice in Guatemala, it’s important to ensure that all checks adhere to the latest privacy laws. This ensures obtaining explicit consent from applicants and only carrying out checks that are strictly relevant to the role. For example, criminal record checks are generally not permitted unless the applicant is applying for a role in government or childcare.

Step 7: Draft Employment Contracts

Next up is the important task of drafting your employment contracts.

It’s super important to get employment contracts right the first time to avoid issues with contracts moving forward, so we’d advise having contracts reviewed by a legal professional experienced in Guatemalan labor law.

Make sure your employment contracts include the job title, job description, probationary/notice periods, and employee benefits relevant to each role, and consider writing your contracts in both English and Spanish.

Step 8: Register with Authorities and Set Up Payroll

Before you can onboard your new employees, you need to make sure you’ve registered your employees with the relevant authorities. This includes establishing tax numbers and social security IDs for your new workers, and making sure they’re registered with the tax office and contribution system. This is also the time to set up payroll processes and any health insurance/pension schemes you’re running for employees.

Step 9: Onboard Your New Employees

The final step in the recruitment process is to onboard your new employees. Give them the necessary training and resources they need to do their job to the best of their ability, and introduce them to all relevant team members they’ll be working with. This is also a good time to explain all company policies and procedures thoroughly.

Key Employment Laws and Regulations

The Guatemala Labor Code

Guatemalan labor laws are mainly governed by the Labour Code of Guatemala of 1947, which explains rules around working hours, leave entitlement, and overtime compensation. Companies should consult with legal professionals if they’re at all unsure of labor law compliance to avoid any legal issues in the future.

Social Security Regulations

The Social Security System in Guatemala is managed by the Guatemalan Institute of Social Security and provides a range of financial benefits to workers, including medical care, old-age pension, and social programs.

The Social Security rates in Guatemala are 1.83% for employees and 3.67% for employers. Self-employed workers are exempt from paying social security contributions, and the government pays 25% of the total contributions as an employer.

Employment Standards and Employee Rights

Unions and Works Council

There are three types of trade unions in Guatemala: company-level unions, industry/sector unions, and general/national unions. All employees have the right to join or form a union, and all unions must be registered with the Ministry of Labor and Social Welfare. Guatemala does not have formalized work councils, with workplace representation being handled solely by trade unions.

Types of Employment Contracts

There are two types of employment contracts in Guatemala:

Indefinite-term Contracts

Default employment type with no set end date – includes full legal protections and benefits.

Fixed-term Contracts

These contracts have a set start and end date, and have a maximum duration of 1 year.

Working Hours and Overtime

Standard Working Hours

Standard working hours in Guatemala are 48 hours a week, with a maximum of 12 hours per day, including overtime hours.

Overtime Regulations

Overtime is not encouraged in Guatemala, but if it is unavoidable, employees must be paid at 125% of their normal wage.

Leave Entitlements

Annual Leave

Employees are entitled to 15 consecutive days of paid annual leave in Guatemala, once they have worked a minimum of 12 months for their employer. Workers must also have completed 150 days of work in the last year to be eligible for paid leave.

Sick Leave

If employees are unwell, they are entitled to a maximum of 6 months of sick leave, provided that they have made a minimum of 3 months of social security contributions in the 6 months before sickness. Employees will receive two-thirds of their average earnings up to a maximum of 180 days.

Maternity and Paternity Leave

Female employees are entitled to 12 weeks of maternity leave, which is usually separated as 30 days before birth and 54 days after birth. This is paid in full, provided that the worker has paid social security contributions for 3 months in the 6 months leading up to maternity leave.

Two-thirds of the maternity leave is paid by the social security system, while the remaining one-third is paid by the employer. Female workers may also take 9 months of unpaid leave to care for their child, after maternity leave has ended.

Male employees are entitled to paternity leave, which consists of 2 days of paid paternity leave upon the birth of their child.

Termination and Severance

Notice Periods

The labor code of Guatemala doesn’t stipulate how long employers must provide notice before terminating a contract. However, employees must give notice depending on the duration of their service, as per the following:

Length of ServiceNotice Period
Less than 6 months1 week
6 – 12 months10 days
1 – 5 years1 week
Over 5 years1 month

Severance Pay

Employees are eligible for severance pay if they have completed 1 year of service, with one month of salary being paid for each year of completed service. If a worker has worked less than 1 year of service, severance is paid proportionally to the length of service. Severance is not payable if the employee has been dismissed due to gross misconduct.

Mandatory Contributions

Social Security Contributions

The Social Security rates in Guatemala are as follows:

ContributorContribution Rate
Employees

1.83% of gross monthly earnings

or 5.5% of last month’s earnings (voluntary coverage)

Self-Employed WorkersNone
Employers3.67% of gross monthly payroll
Government25% of total contributions paid (as an employer)

Health Insurance and Pension

Guatemala’s primary health coverage is provided by public health insurance and funded by the social security system. There are also private health insurance plans that are provided by some employers to offer workers faster access to healthcare and access to services not covered by the public health service.

The pension system in Guatemala is made up of two pillars:

  • Public Pension: Contributory old age pension, that is redeemable at the age of 60 and after 240 monthly contributions (20 years of service)
  • Private Pensions: Private pensions are optional in Guatemala and are provided as an additional benefit for employees as a savings fund for retirement.

Optional Benefits

Employers are encouraged to offer employees supplementary benefits in addition to mandatory benefits that are statutory. Some examples of additional perks employers could offer include:

  • Performance bonuses
  • Private pension schemes
  • Flexible working hours
  • Additional leave entitlement
  • Advanced training schemes
  • Company car

How to Hire Employees in Guatemala — Our Take

Hiring employees in Guatemala can be simplified by working with Remote People.

We offer a range of services to support hiring in Guatemala, with our Employer of Record (EOR) solution being a key way to optimize the process. The EOR acts as the legal employer for your workers in Guatemala—managing compliance and administrative responsibilities so you can focus on other areas of your business.

Our recruitment team is highly experienced in hiring in Guatemala, allowing them to help you find the best talent for your business, whether this be employees or through hiring independent contractors.

Contact Remote People to discuss how we can help your business hire in Guatemala in a stress-free, efficient way.