Guatemala’s economy stands as the largest in Central America, with a GDP of approximately USD 104 billion in 2023 and an estimated growth rate of 3.4% projected for 2024. However, this growth, while stable, has not exactly alleviated the high levels of poverty affecting about 55% of the population. This presents both challenges and opportunities for investors.

The country also has a diverse economic base, heavily reliant on agriculture, particularly traditional crops such as coffee and sugar. However, Guatemala’s informal economy makes up nearly half of its GDP, with about 71% of the workforce engaged in informal employment. 

This makes it tricky for businesses looking to navigate the regulatory environment while tapping into the local labor market.

Despite these hurdles, Guatemala’s strategic location and participation in trade agreements like CAFTA make it a great spot for foreign investment. The government is actively working to improve the investment climate through regulatory simplifications and fiscal reforms.

The best part about the country is the competitive operating costs. The average electricity cost for firms is around USD 0.16 per kWh. Plus, the minimum wage in Guatemala is approximately USD 550 per month, compared to USD 1,218 per month in the US. 

Companies also have access to a much younger population as the median age is only around 23 years, almost half of that of countries like Japan and Germany.

The economy of the country is mostly driven by service and manufacturing sectors. Here is a quick list:

SectorContribution to GDP
Service sector60%
Manufacturing sector20%
Agriculture, fishing, and forestry10%

Rest of the sectors include construction, mining and energy. 

For businesses considering expansion into Central America, Guatemala is the ideal gateway. Key sectors ripe for investment include agriculture, manufacturing, and services, especially as the country seeks to modernize its infrastructure and capitalize on its rich natural resources.

Most importantly, Guatemala benefits from the Central America-Dominican Republic Free Trade Agreement (CAFTA-DR), which boosts textile and agricultural exports.

However, making mistakes in a foreign legal and regulatory landscape isn’t the kind of risk you want to take. The country ranks 96th on Ease of Doing Business Index, which reflects comparatively complex laws (even though the rank is better than other neighboring countries like El Salvador and Honduras).

This is where a Professional Employer Organization (PEO) can provide invaluable assistance. Today, we’ll guide you through the process of finding the right PEO for your business in Guatemala.

What is a PEO in Guatemala?

A PEO in Guatemala is a strategic partner that can help your business navigate the complexities of the local labor market. You’ll be able to outsource certain HR functions to your PEO, such as payroll processing, tax compliance, employee benefits management, and risk mitigation. 

For international employers, entering Guatemala’s labor market can be tricky due to its complicated regulations. A PEO simplifies this process by ensuring compliance with Guatemalan labor laws.

The good news is that there are tons of highly skilled employees (68.2% of the population) available for hire in Guatemala. At the same time, the average gross salary in Guatemala has risen by 4% recently, which is where your PEO’s effective cost management strategies will come in handy.

You can also mitigate employment risks by sharing responsibilities with the PEO while retaining control over employee performance. This co-employment model means that while the PEO handles administrative tasks like payroll and compliance, you can focus on your core business activities. Plus, the PEO will design competitive benefits packages to attract and retain top talent in Guatemala’s competitive job market.

Thanks to the full implementation of the Central America-Dominican Republic Free Trade Agreement (CAFTA-DR) by 2025, you can expect much easier market access in this country.

Is a PEO the Same as an EOR?

A PEO and an Employer of Record (EOR) are two different entities, but they often get confused. In Guatemala, both help businesses hire employees without establishing a local entity, but they operate differently. 

A PEO in Guatemala mainly focuses on sharing employer responsibilities. This includes handling payroll, benefits, and compliance with local labor laws while allowing the client company to control employee management and daily operations. Essentially, the PEO becomes a co-employer, managing HR tasks but not taking full legal responsibility for the employees.

On the other hand, an EOR takes on full legal responsibility for employees. When a company partners with an EOR in Guatemala, the EOR becomes the official employer of the workers. This means the EOR handles all legal obligations, including payroll, taxes, and benefits, while the client company directs the employees’ work. 

Guatemala’s labor market is on the radar for foreign companies thanks to its skilled workforce and competitive labor costs. In fact, the average annual salary in Guatemala is around Q163,839 – much lower than most Western European countries. To enjoy these benefits without the risks, businesses must consider both PEO and EOR solutions as they expand into this market.

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Benefits You Can Reap With a PEO in Guatemala

If you decide to partner with a PEO in Guatemala, these are some of the benefits you can reap.

Compliance With Guatemalan Labor Laws

Foreign companies operating in Guatemala must comply with the Foreign Investment Act, which outlines equal treatment for foreign and local investors and allows participation in nearly all economic activities without restrictions.

You also need to comply with local labor laws regarding wages, working hours, and employee rights. This can be overwhelming if you’re unfamiliar with the legal landscape. A PEO can help you navigate these details while staying compliant with all relevant regulations.

They have years, sometimes decades, of expertise in local laws and can manage the necessary paperwork, reducing the risk of legal issues. The good news is that the number of foreign workers in Guatemala has reached 11,286. If you want to tap into this growing talent pool, hiring a PEO is a crucial step.

Payroll and Tax Management

Payroll and tax management in Guatemala can be tricky for foreign businesses. Employers are responsible for withholding income tax and social security contributions from employee salaries.

Companies must also follow specific payroll regulations, such as timely tax submissions and accurate reporting of employee hours worked. Failure to comply can lead to hefty fines and legal complications. 

Luckily, a PEO can handle all aspects of payroll processing and ensure compliance with tax regulations. They keep up with changes in tax laws and will guide you on best practices in payroll management.

Ideal Recruitment Processes

Guatemala has a diverse talent pool, especially in sectors like agriculture and manufacturing. In fact, the country’s available workforce currently stands at 7,442,437.

However, finding the right talent can still be hard since there is so much competition due to local market nuances. A PEO can simplify the recruitment process by using its local expertise and networks.

They’ll create attractive job offers that comply with Guatemalan labor laws while also ensuring a smooth hiring process on your behalf.

Access to Local Legal Support

As a foreign company operating in Guatemala, you definitely need access to local legal support. The last thing you want is to get caught up in contract disputes, compliance issues, or labor law changes.

For instance, Guatemala recently implemented its first-ever Competition Law to prevent anti-competitive practices and monopolistic behaviors that could restrict market access for smaller or new economic agents. 

That’s exactly why staying informed is crucial. The best PEOs provide access to local legal experts who understand the ups and downs of Guatemalan labor laws. They can offer timely advice and representation when needed so you can avoid costly legal missteps.

Foolproof Risk Mitigation

Guatemala is no stranger to business-related risks. Corruption, high informality rate, economic fluctuations…the list goes on. The Guatemalan market is especially vulnerable to missteps in employment practices that could lead to fines or reputational damage. 

A PEO helps mitigate these risks by ensuring compliance with all legal requirements and providing ongoing support in managing employee relations. They also offer insurance options that protect against potential liabilities associated with employment practices.

How Does a PEO Work?

Here are some of the roles your PEO will perform on your behalf.

Recruitment and Onboarding of Employees

A PEO can streamline your hiring process in Guatemala. They’ll help with:

  • Job Posting and Recruitment: PEOs can help you post job openings and actively recruit qualified candidates within the Guatemalian market.
  • Candidate Screening: PEOs can conduct initial screening and even conduct interviews on your behalf, saving you time and resources.
  • Onboarding and Training: Once hired, PEOs can onboard new employees, making sure they understand your company’s culture and policies. They can also help you deliver the necessary training programs.

Management of Employment Contract

PEOs are well-versed in Guatemalan employment laws and will draft contracts on your behalf. They’ll make sure all employment contracts are written correctly in Spanish and properly signed by both parties.

In Guatemala, employment contracts are categorized into three main types. PEOs will recommend the most suitable contract type for each employee based on their role and your business needs.

Payroll Tax Compliance

Businesses operating in Guatemala are subject to corporate income tax. The standard corporate tax rate in Guatemala is currently 25%. In addition to corporate taxes, Guatemalan employees are subject to a flat income tax rate of 5%.

A PEO can help you keep track of and maintain compliance with these tax obligations. When managing employee payroll, the PEO will:

  • Calculate and withhold the correct amount of income tax from employee salaries in accordance with the flat tax rate.
  • File all necessary tax returns and make timely tax payments to the Guatemalan tax authorities on behalf of your company.
  • Stay updated on any changes to tax laws and regulations in Guatemala and adjust payroll processes as needed.

Labor Laws Compliance

Guatemala’s labor laws establish a standard working week of 44 hours, typically divided into eight-hour days across five and a half days. Overtime is permitted, allowing for an additional 10 hours per week, with compensation set at 150% of the employee’s regular hourly wage. For night workers, the maximum working hours are reduced to 36 hours per week, with shifts capped at six hours per night.

Employee benefits under Guatemalan labor law include 15 working days of paid annual leave for employees who work a standard five-day week. Maternity leave is also substantial, offering up to 12 weeks of paid leave for new mothers. Mothers of more than two children can extend their leave until the youngest child reaches three years of age.

The labor code outlines clear procedures for employee termination, requiring valid justification for dismissals. The probation period for new hires is limited to two months, during which either party can terminate the contract without cause. However, after this period, employers must provide a statutory notice period that varies depending on the length of service.

Guatemala mandates a minimum wage of at least Q4,002.28 per month. Non-compliance with these wage requirements can lead to significant penalties for employers.

Yes, it’s a long list of regulations that may seem impossible to follow as a newcomer. But with a PEO, you can navigate the complexities of Guatemalan labor laws with ease. A PEO makes it easy to comply with all wage and hour laws, leave entitlements, and termination procedures.

Factors to Consider When Choosing a PEO in Guatemala

Before you hire a PEO in Guatemala, do your homework properly. Here are all the considerations to take into account.

Experience and Knowledge

Your first priority should be choosing a PEO with experience in your exact industry and, most importantly, in Guatemala. Some PEOs are new and may lack the knowledge to handle complex HR issues your business could face. A PEO with a deep understanding of Guatemalan labor laws and tax regulations will make your market entry much smoother and quicker.

Services on Offer

Not all PEOs are created equal. Some may only handle payroll and onboarding, while others are willing to take on your entire HR department. 

If you need extra services like employee training, you won’t have any trouble finding a PEO that provides them. There’s no shortage of reputable PEOs that operate in Guatemala. Last but not least, always get a clear list of services included in the PEO’s package – the last thing you need is unexpected costs getting in the way of your market entry.

Costing Methods Used

Most PEOs in Guatemala use two main pricing models:

  • Flat Fee per Employee: You pay a fixed amount for each employee.
  • Percentage of Payroll: You pay a percentage of your total employee payroll costs.

Both models are globally accepted, but the right option ultimately depends on the number of employees in your company. Calculate the budget you have available to spend on a PEO before you agree on a pricing model.

Global Reputation and Customer Support

Most importantly, you must check the PEO’s reputation. Reading online reviews and testimonials from other businesses will tell you a lot about their range of services and customer support, which is another crucial factor. You need to choose a PEO with a responsive and helpful team, as you should always be able to easily contact them with any questions or concerns.

Choose a PEO to Elevate your Global Growth in Guatemala

Expanding your business to Guatemala is a great choice, but navigating all the different Guatemalan labor laws can feel overwhelming. That’s where a PEO can be a lifesaver. PEOs handle all the HR headaches, from hiring and onboarding to payroll and compliance. You focus on your business, and they take care of the rest.

Ready to find the perfect PEO for your Guatemalan expansion? Let us help! We can connect you with top-rated PEOs that are the perfect fit for your company’s needs – contact Remote People today.

Frequently Asked Questions

Partnering with a PEO in Guatemala is legal and allows companies to employ local staff without establishing a legal entity. This arrangement is very beneficial for businesses looking to enter the Guatemalan market quickly and efficiently, as PEOs handle administrative tasks related to hiring and payroll.

PEOs in Guatemala typically charge fees based on either a fixed yearly rate per employee or a percentage of the company's total payroll. The specific earnings offer competitive pricing structures to attract businesses seeking HR support.

That depends on your business needs. If you want full control over employee management while outsourcing HR functions, a PEO is best. It allows you to co-employ workers while managing day-to-day operations. However, if you prefer to offload all employer responsibilities and avoid establishing a local entity, an EOR is the better option.