Employer of Record in Puerto Rico

How an Employer of Record works in Puerto Rico

Taking advantage of Puerto Rico’s fast-growing hiring market requires foreign companies to establish a legal entity but this can be time-consuming and costly. An alternative is partnering with an Employer of Record (EOR). An EOR acts as the legal employer in Puerto Rico, handling payroll, taxes, benefits administration and compliance while you retain control of your employee's day-to-day activities. Other benefits include:

• Support from Puerto Rican HR experts who understand the local labor laws.
• Compliant employment contracts.
• Ongoing management of HR administration and compliance.
• Peace of mind knowing your employees are cared for locally.

Puerto Rican labor market: At a glance

The hiring market
Greatest hiring activity:	San Juan
Hiring timelines:	Local: Up to 9 days
Foreign nationals: Workers already in Puerto Rico/U.S with work authorization - Up to 2 weeks
Workers requiring a work permit - Between 3 and 6 months.
In-demand sectors:	Energy, healthcare, life sciences, manufacturing and IT
Sectors with skills shortages:	Manufacturing, professional, scientific and technical services, information and trade and logistics

The salary market
Employer statutory contributions:	Social Security (FICA): 6.2% Medicare: 1.45%
FUTA: 6% but can be reduced to 0.6% if the full 5.4% employer credit is available. SUTA (Unemployment insurance - experienced employers): 1.20% - 5.40% SUTA (Unemployment insurance - new employers): 2.8% Workmen’s compensation: Varies according to risk classification (paid bi-annually) Special employer contribution: 1% Temporary disability insurance: 0.6%
Hourly minimum wage:	$10.50
Average weekly wage:	$724 (national)
$902 (San Juan - highest) $411 (Las Marías - lowest)
Personal income tax rates:	Progressive tax rates ranging from 0% - 33%

What will it cost to hire in Puerto Rico

An accurate financial simulation of the employment costs in Puerto Rico should include more than the basic salary. Variable compensation, mandatory contributions, additional benefits and even certain mandatory rights (such as leave accruals) affect the total cost of employment.

Base salary and variable compensation

The base salary is the fixed rate salary that an employee receives every month. Variable compensation will depend on the industry, occupation and even the seniority of the employee. Examples of variable compensation are:

• Overtime
• Performance-related bonuses
• Commissions
• Profit-sharing bonuses
• Project bonuses

Statutory ‘Christmas bonus’

Act No. 148 of 1969 mandates an annual bonus for eligible workers in the private sector which must be paid between November 15 and December 15 of each year. Different rules and payments apply to workers falling into two categories:

Category	Eligibility	Bonus Amount
Hired before January 26, 2017	700 hours worked between October 1 of one year and September 30 of the next year.	3% of the first $10,000 in wages for employers with up to 15 employees. 6% for employers with over 15 employees.
Hired on or after January 26, 2017	1,350 hours worked between October 1 of one year and September 30 of the next year. During an employee’s first year of service, the maximum bonus is 50% of the amount provided by law.	2% of salaries earned.
Capped at $300 for employers with 20 or fewer employees. Capped at $600 for employers with more than 20 employees.

Mandatory contributions

Several federal and state mandatory contributions are required from employers in Puerto Rico. Certain contributions are reduced by employer credits and others are only applicable to certain risk classifications. For example, the FUTA contribution can be reduced to 0.6% where employers qualify for the full 5.4% credit.

Calculate total employment costs for your Puerto Rican hire using our cost calculator.

Employment cost calculator

Mandatory benefits

Mandatory benefits	Description
Working hours	8 hours a day
40 hours a week
Public holidays	17 official public holidays. In the private sector paid days off are determined by employer policy, employment contract or a collective agreement. Employers are currently not legally required to close and premium pay for public holidays only applies if it meets the requirements for regular overtime (as seen below).
Overtime	For employees hired on or after the January 26, 2017 reform: 1.5 times the regular rate for hours beyond 8 in one day, or 1.5 times the regular rate for hours beyond 40-hours in one week, and 1.5 x the regular rate for employees who work on a seventh consecutive day in one week. Employees hired before the January 26, 2017 reform, maintain the overtime benefits they were entitled to. Certain industries and jobs have modified overtime requirements.
Paid annual leave	For employers with more than 12 employees:
In the first year - Accrual of ½ day per month (6 days)
From year 1 up to year 5 - Accrual of ¾ day per month (9 days)
From year 5 to year 15 - Accrual of 1 day per month (12 days)
After 15th year - Accrual of 1 ¼ days per month (15 days)
For employers with 12 or fewer employees:
½ day per month Employers must pay out accrued annual leave to the employee upon termination.
Sick leave	After working at least 130 hours per month, workers accrue 1 day of sick leave per month.
Paid maternity leave	Eight weeks' leave, generally four before the expected delivery date and four weeks after.
Paternity and paternal leave	Eligible employees may request up to 12 weeks of unpaid, job-protected paternity leave under the FMLA federal law.

What hiring in Puerto Rico really looks like

Distinct labor framework

Puerto Rico operates under a civil law tradition inherited from the Spanish framework, US federal labor statutes and locally enacted laws. This diverse framework makes the Puerto Rican labor market unique in its own right. Three laws that act as the foundation of the labor framework are:

• Law No. 80 of 1976 (Unjust Dismissal Act)
• Law No. 4 of 2017 (Puerto Rico Labor Transformation and Flexibility Act)
• Fair Labor Standards Act (FLSA)

Alongside the main employment laws are local statutes which mandate minimum wage, overtime, statutory benefits and bonuses and protect employees from discrimination.

Puerto Rico’s approach to remote work

The rise of remote work is presenting Puerto Rican employers with both opportunities and challenges. Increasingly, employers are faced with how to interpret employment laws and regulations written for traditional work models and apply them to remote work. In response to these challenges, Puerto Rico enacted two laws that make remote employment easier for companies outside of the country.

Act	Summary of the Act
Act No. 52 of June 30, 2022	Businesses with employees working remotely from Puerto Rico are not deemed “engaged in business in PR” if certain conditions are met and therefore do not need to withhold taxes on salaries paid to remote workers. Rather, the responsibility is on the worker to make estimated tax payments on a quarterly basis.
Act No. 27-2024	Established a ruling that employment relationships involving remote work would be governed exclusively by what is agreed in the employment contract, when the relationship complies with certain conditions as set by the Act.

Puerto Rico’s approach to independent contractors

Puerto Rico’s Labor Transformation and Flexibility Act [Act No. 4-2017, as amended, Section 2.3] sets very clear guidelines for the classification of independent contractors to prevent employers from accidentally misclassifying workers.

According to the act there are certain presumptions that apply to independent contractors. Where the presumptions do not apply, a common law test is still used to determine if a person is an employee or independent contractor. This Act highlights the need for certainty as to the kind of relationship being established between parties.

Why is classifying the nature of a work relationship important? Determining whether a person is an employee or independent contractor isn’t about job title. It is about the nature of the work and how much autonomy is retained by the person. Where someone is labelled as a contractor, but is actually operating as a full-time employee, under the control of a company, that person is entitled to statutory benefits and rights. If the classification is challenged, an employer will likely be asked to make back payments in salary, mandatory contributions and other benefits.

Fast-growing hiring market

Puerto Rico’s hiring market has gained strength in 2026 with a 48% Net Employment Outlook (NEO). Growing interest from US companies in using Puerto Rico as a base for technology and support services has helped its performance. One of its strongest appeals is that US citizens can work and live in the country without an immigration work permit and that business practices are familiar to US companies.

Global trade disruptions have also created a renewed interest in manufacturing reshoring, with Puerto Rico a top choice for this. This has created a demand for roles related to production, logistics, transportation and supply-chain management.

Compliance risks that employers must know about

Compliance obligation	What employers need to know
Employment contracts	The contract may be written in any language as long as that language is understood by the employee. Electronic acknowledgements of receipt, acceptances, or signatures in any employment contract shall have the same legal effect as those made in writing.
Probation periods	Automatic probationary period of 9 months for general workers and 12 months for certain senior positions. Under a written agreement, agreed by both parties, the probation period can be shortened.
Terminations	Employees may not be fired at any time or for just any reason. Terminations require either mutual agreement, expiration of a contract, employee resignation or retirement or a valid reason (just cause).
Notice Periods	No mandatory notice period mandated by local labor laws, however EOR providers may implement internal timelines for the processing of termination benefits and final salary settlements.
Severance pay	Severance pay is mandated for eligible employees by Act 80 only when a termination occurs ‘without just cause’. Employees hired on or after January 26, 2017:
Base: 3 month’s salary Plus: 2 week’s salary for each full year of service Capped at a maximum of nine months' salary. Employees hired prior to the January 26, 2017 reform maintain their severance benefits prior to that date.

Why use an EOR for hiring in Puerto Rico?

An undeniable advantage for employers hiring in Puerto Rico is its proximity to the US and the familiar business practices. It shares a number of federal employment laws with the US and this makes it easier for businesses to transition into the market but it also has its own unique laws and employment structures.

Foreign companies wanting to enter this market still need to establish a legal entity and the infrastructure needed to comply with local payroll, tax, benefit and compliance laws. An EOR, such as Rivermate, takes on the role of legal employer and uses its own infrastructure to comply with Puerto Rico’s employment regulations. This leaves you free to focus on business objectives and the day-to-day operational activities of your employee.

Rivermate handles the complexities of the Puerto Rican labor market so that you don’t have to.

Ready to hire in Puerto Rico?

Talk to a Puerto Rican Hiring Expert

Sources:
Puerto Rico Employment Law Requirements 101 - GovDocs
Resources for Puerto Rico | U.S. Department of Labor
https://www.trabajo.pr.gov/
“Labor Transformation and Flexibility Act”