Five types of labor contracts in El Salvador

There is a legal framework that regulates the types of existing labor contracts in El Salvador that are currently in use.  Each of the five types of agreements that are available address the rights and responsibilities of both employers and employees.  These contractual standards have been established within the Salvadoran labor code and are regulated by the country’s Ministry of Labor.

When it is determined which of the types of labor contracts in El Salvador that a company will use, other details can be determined.  These include things such as information on legally mandated benefits, social security law application, percentage of income to be collected in taxes, maximum hours that can be required per week, etc.  There are five contract types that are most often used to govern employer-employee relationships:

Indefinite term labor contract

This type of labor contract in El Salvador is utilized when an employee is integrated into a fixed work team to perform activities within the company on a permanent basis.  The agreement does not specify an expiration date.  When, and if, an employee leaves his or her place of employment is determined by the company and worker.

As long as legal conditions are adhered to, both the contractor and employee can terminate the agreement at any time.  Indefinite term labor contracts in El Salvador are typically used for:

• Management and high-level positions.
• Representatives of international companies.
• Coordinator positions.
• Positions dedicated to the provision of specific services.

Fixed-term labor contract

This class of agreement between employer and employee in El Salvador is used for the development of short- and medium-term projects.  Such labor contracts in El Salvador can be signed for a period of days to several months or even years.  However, the agreement has a set expiration date.  This is usually because the employee is only required to provide a temporary service that is needed. 

Temporary labor contracts in El Salvador are typically used for construction jobs, consultant positions, and to take the place of a permanent employee that is on non-permanent leave (such as with the case with the birth of a child).  This type of contract is also utilized for staffing projects that are executed over a specified period of time.

Professional services contract

Professional services contracts are implemented when a company requests the performance of specific tasks from a professional that is usually working as a consultant.  In most cases, the professional services contract is a written agreement that is based upon specific products and/or that the consultant must deliver to the company with whom he or she has an agreement.  This type of contract does not have to comply with the statutory requirements of the considerations given to an individual that is permanently employed.

Specifically, this type of labor contract in El Salvador includes elements that both parties have agreed upon.  These may include delivery times, schedules of payment, withholding income, or payment of value-added tax (VAT), as well as information related to the specific products or services that the consultant has agreed to deliver.  Companies use these contracts to engage with:

• Consultants on specific topics and areas of expertise.
• Providers of external services for a short period of time.
• Freelancers that are experts in the provision of certain products.

Regarding this type of labor contract in El Salvador, it is worth noting that both the contracted professional and the company must respect what was agreed upon at the time of the signing, as this will prevent any future legal disputes from arising. 

On the other hand, the professional who enters into this type of agreement must make his or her best effort to provide a quality service so as to develop good personal and professional relationships within the company. 

Probationary period labor contract

It is common for companies that are hiring for a permanent position to begin an individual’s employment with them by issuing a probationary period labor contract.  This gives both parties the opportunity to test whether the employer-employee relationship will become to be governed by an indefinite term labor contract.

These agreements are usually for a three-month period during which the employer and the employee get to know one another.  An assessment will be made at the end of the probationary period to determine if the two parties will enter into a permanent relationship.

The Salvadoran Labor Act states that when such contracts are concluded, and the defined period of the contract elapses and neither party decides to terminate, the contract will automatically become indefinite.  This is what transpires unless a new contract is created within a certain time.  Regardless of the case, the probationary labor contract cannot be concluded more than once between the two parties.

Interim term labor contracts in El Salvador

This type of agreement usually is employed when a position has been vacated that a company has to fill temporarily, while they find a new and permanent worker to fill it.  One of the characteristics of interim labor contracts is that employees that have them are accorded the same rights as permanent employees.

Unless the interim employee is given an indefinite term labor contract, the company may terminate the interim contract at any time.

Tips to follow before signing labor contracts in El Salvador

Before entering one of the five contracts that are offered to workers in El Salvador, companies should take the following actions:

• Read the contract in detail before signing to be completely sure of all the conditions contained therein.
• Check to make sure that you agree with all sections of the labor contract. If you find something objectionable make sure to evaluate alternatives in a timely manner.
• Know your rights and responsibilities as an employee. Investigate the legal parameters of the agreement that a company has offered to you.  Be sure to know what obligations under the contract that you are expected to comply with.
• Comply with the terms of the labor agreement to avoid penalties or the termination of the contract by the company.
• Request the contract before starting. This is especially important for consultants.  It is advisable to know details such as delivery dates, products ordered, and payment dates, etc. prior to entering into the work relationship.