How to Hire Remote Employees In 

Ecuador

The Basics

Currency
United States Dollar (USD)
Employer Taxes
Up to 19.48%
Payroll Frequency
Monthly
Official Language
Spanish

Employment in 

Ecuador

Hire Independent Contractors

Independent contractors or freelancers are self-employed individuals who provide services to companies as a non-employee. This is one of the most common ways companies tend to hire non-local designers, engineers, support reps, etc.

For legal and tax purposes, independent contractors are not classified as employees. They may work for multiple clients, set their own work hours, negotiate their pay rate, and decide how a job gets done.

For example, the IRS says that if an independent contractor or freelancer does work that can be controlled (what will be done and how it will be done) by an employer then they are, in fact, classified as an employee.

As you can imagine, hiring someone as an independent contractor versus an employee is a fine line to tread.

While there are benefits when you choose the contractor route, there are quite a few drawbacks to consider and you’ll need to weigh them carefully to determine the best fit for your company.

Benefits of Hiring Independent Contractors
Reduced overhead: Lower cost in expenses, payroll, benefits, and more.
Greater flexibility: Contractors can be brought on as-needed. If not a good fit, you simply don’t have to move forward with the contract.
Reduced legal risk: Contractors aren’t usually protected by employment anti-discrimination and workplace safety laws.
Disadvantages of Hiring Independent Contractors
Risk of Misclassification: Not only does this deny workers their proper protections, it can also result in steep penalties and damage to your company. If the IRS determines that employee misclassification has occurred, you will be liable for a percentage of the employees wages, FICA contributions, penalty fines, unpaid taxes, up to a year in prison, and more.
Lack of Control: Contractors are drawn to being independent because it gives them greater control over the work they perform and who they work with. Because they’re not employees, you can’t tell them what to work on and how it should be done.
Lack of Loyalty: Contractors come and go as-needed. Many companies hire contractors for short-term work, which makes it difficult to cultivate loyalty.
Increased Scrutiny: Using Independent Contractors typically leads to an increased risk of being audited.

Set up a subsidiary in 

Ecuador

A foreign subsidiary is a company that operates overseas as part of a larger company who’s HQ is in another country.

Establishing a foreign entity is great for having an international presence and accessing new markets. Though, setting up a subsidiary in Ecuador can be expensive, stressful, and time-consuming. It's not for the faint of heart.

To set up a subsidiary in Ecuador, you have to:

  1. Register your business name and file articles of incorporation
  2. File for local bank accounts
  3. Learn and keep track of the local employment laws
  4. Set up local payroll
  5. Hire local accounting, legal, and HR people

If you're lucky, this process can take months. If you're not so lucky, it can take up to a year. And on average, it costs about $50k-$80k, all-in-all, to get setup. And that's just for Ecuador.

Use an Employer-of-Record (EOR)

An employer-of-record (EOR) is a company that hires and pays an employee on behalf of another company.

An EOR is typically used to overcome the financial and regulatory hurdles that often come with employing remote workers.

Each country has its own payroll, employment, and work permit requirements for non-resident companies doing business in their jurisdiction. Meeting those demands can be a huge obstacle when it comes to hiring remotely.

At Panther, we help companies employ and pay people in over 160 countries, without having to set up a foreign subsidiary. Payroll, benefits, taxes, compliance, and more are all handled by us, at a fraction of the cost.

Outside of saving you months and tens of thousands of dollars, other advantages of using Panther are:

  • Ability to attract talented and motivated employees from all over the world.
  • Full legal compliance: There is no risk of violating local employment laws.
  • Transparency: Employees are still your employees. All the work, processes, operations and day-to-day business belong to you, the company, just like with any other employee. Panther just takes on all of the responsibilities, obligations and admin work related to your team's employment.
  • No risk of misclassification

Because you no longer have to set up your own subsidiary, you’ll save a ton of time and tens of thousands of dollars using Panther.

Paying Remote Employees

Paying employees in Ecuador is not the same as paying workers in your own country. Employees have to be paid using Ecuador’s employment and payroll standards.

This means that you have to know, understand, and keep up with 1) fluctuating currency changes, and 2) local payroll and tax laws in the countries you’re looking to hire in.

Outside of the laws and regulations around payroll, there may be different conditions surrounding leave, overtime, termination, and more. As you can imagine, maintaining this kind of regulatory knowledge can be challenging. But it is crucial and necessary to follow local legislation.

After, you’ll have to determine the best way to pay your international employees. This can be done in a number of ways, including but not limited to:

Pay through a local entity

One of the most challenging (and expensive) parts of paying international employees is setting up the infrastructure to do so.

Before you start to run payroll, you have to register your company as the local employer in the country the worker resides in. As you can see in the “Set up a subsidiary” section, this is a multi-step process that can take up to a year and put you on your way to bankruptcy.

Work with an EOR

Outside of EORs acting as the full admin employer, many also provide remote payroll.

For example, at Panther, in just 1-click, you’re able to pay your entire global team, anywhere in the world. We send you an invoice each month, charge you in US Dollars, and pay your employees the same amount in their local currency.

We factor in currency fluctuations and use the mid-market rate plus any applicable fee passed on by our provider at cost at the time of billing.

Ecuador

 Specific Information

Working Hours

Employees work 5 days per week. Normal working hours are 8 hours per day and 40 hours per week.

Overtime

Regular overtime hours are paid at the rate of 150% of the regular pay. Work performed on Saturday, Sunday, or holidays are paid at a rate of 200% of the regular pay.

Payroll Tax

Employer

  • Up to 19.48% - Employer Contributions

Minimum Wage

No official minimum wage.

Payroll

Pay Cycle

The minimum monthly wage is 400 USD.

13th Salary

The 13th salary is paid on December 22nd, and the 14th (which is equal to a monthly minimum wage) is paid between March and August.

Leave

Paid Time Off (PTO)

Employees receive 15 days of paid leave annually. After five years of continuous service, an additional day is given per year.

Public Holidays

There are 12 public holidays.

Sick Days

Employees who have 180 days of continuous contribution to the Ecuadorean Social Security Institute (IESS) within 6 months prior to the onset of illness, or 189 days of continuous contribution within 8 months prior to the onset of illness.

Employees who are covered are paid by the employer for the first three days and covered by IESS for the remainder.  

Maternity Leave

New mothers are entitled to maternity leave of 12 weeks; 2 weeks before birth and 10 weeks after birth. Payment is shared by the social security and the employer. Social security pays 75%, the employer pays 25%. 10 days are added for additional births.

Paternity Leave

New fathers are entitled to 10 days of paternity leave, 15 days for cesarean or multiple births, or 18 days for babies who are premature or require special care. 25 additional days are added for severe disability or illness.

Parental Leave

No statutory regulations.

Other Leave

Hospitalization Leave: each parent is entitled to 25 days’ leave if their child is hospitalized. 

Marriage Leave

None.

Bereavement Leave

1 day of paid leave for the death of a 1st or 2nd-degree relative.

Termination

Termination Process

Contracts can be terminated with just cause without severance (with approval from labor authority) for Lack of discipline, dishonesty, serious offense against the employer, serious incompetence, or Non-compliance with regulations. Otherwise, 30 days notice is required.

Notice Period

There is no statutory notice period, it is usually something that is agreed upon in the employment contract.

Severance Pay

If employees are not given notice, they are entitled to receive one paycheck for every year employed by the company, with a maximum of 25 months of payments. Additionally, a sudden dismissal bonus is offered at 25% of monthly wages for each year employed. For over 20 years of employment, the employee is entitled to a retirement pension. 

Probation Period

3 months.