Employer of Record Services for Puerto Rico

Employing in Puerto Rico

Puerto Rico offers a fascinating blend of cultures and traditions that make it an enjoyable place to do business. This small yet well-developed Caribbean island still has much to offer those interested in global expansion.

Thanks to its status as a US Commonwealth, the island has modern infrastructure and an institutional framework guided by the US, including laws governing intellectual property. Because of the island’s proximity to the US mainland, it also enjoys well-established transportation networks — serving as an access point to the vast US consumer market.

Yet, despite sharing a regulatory framework with the US, Puerto Rico retains its own favourable foreign tax structure — a major competitive advantage for businesses looking to expand overseas. Combined with its well-educated, largely bilingual workforce and lost cost of doing business, this competitive tax system and Puerto Rico’s robust infrastructure make it one of the more attractive markets for investment in the Caribbean region.

Our Expertise

Managing a global workforce in Puerto Rico

It's crucial to navigate the specifics of Puerto Rican employment regulations, which, while similar to US laws, have distinct differences. Companies can benefit from local expertise in navigating these nuances, ensuring they remain compliant with regulations like the Puerto Rico Internal Revenue Code. Outsourcing EOR, payroll and HR services to a knowledgeable partner like TopSource Worldwide can provide invaluable support, ensuring efficient and compliant operations while allowing businesses to focus on their core activities.

Extensive expertise

Our team of experienced, knowledgeable staff collectively provide up-to-date employment information across 180 countries, so you can always get accurate advice.

Entity-free employment

Feel free to hire employees from all over the world without being weighed down by setting up entities, running complex payroll or recruiting a hiring team.

Payroll without hassle

Have the confidence that your staff will always be paid accurately and on time, so that you can focus on your core business activities and work towards your success.

Always-on support

Access helpful, relevant, personalised advice whenever you need it, along with expert-led recruitment policies and tried-and-tested HR best practices.

"With TopSource we were able to have employees hired or maintained in Nutreco without having to establish an entity in these countries for only 1-2 employees. I think most countries are covered by TopSource, so they can help us with almost all cases. Good advice on conditions and direct contact with employees. Invoicing done directly to the company. An easy process compared to hiring employees by ourselves."

Annette van Duijnhoven

Nutreco

See our customer stories

”We searched the market for a local payroll vendor in 2014 and we chose TopSource as our partner. We were looking for error-free and timely payroll processing and TopSource Worldwide delivers this, saving us time and money. We have worked together for 8 years now and would recommend them to anyone."

Praveen Lihinar

Sungard

See our customer stories

”TopSource Worldwide has a detailed and methodical onboarding process that made it easy for us to get set up and running with our UK employees. They were able to take the worry out of trying to comply with all local laws and regulations. Because they have this knowledge we do not have to research on our own and hope we are in compliance. This has saved us hours of time and gives both the company and employees a sense of security."

Supervisor

Client based in Ft Worth, Texas, USA

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GLOBAL EXPANSION STRATEGY

Personalised Employer of Record services in Puerto Rico

TopSource Worldwide offers personalised Employer of Record (EOR) services tailored to meet the specific needs of your business in Puerto Rico. This includes handling employee onboarding, payroll processing, tax compliance, employee benefits management, and HR support. Our EOR services ensure that your business meets all legal and regulatory requirements, providing a hassle-free solution to manage your Puerto Rico-based employees.

End-to-end Puerto Rico payroll services

Looking to expand into Puerto Rico? Our unparalleled expertise in global payroll services ensures that your business can seamlessly navigate the complexities of payroll on a global scale, supporting your Puerto Rico expansion initiatives.

Global entity management

Venturing into the Puerto Rican market can be both exciting and challenging. With distinct business regulations, cultural nuances, and economic landscapes, it's essential to have a clear roadmap for your business establishment journey.

Accounting

Whether your goal is to process your purchase-to-pay transactions with minimum errors or manage your expense claim procedure, our team of experts can handle your accounting responsibilities, allowing you to focus on your core business and save time and money.

Global EOR services

Managing a diverse global workforce can be complex. This is where TopSource steps in as an invaluable employer of record services partner for companies seeking to expand their global reach while ensuring compliance with local employment laws and regulations.

Global Expansion Simplified

How to do business in Puerto Rico

Entering the Puerto Rican market presents a mix of excitement and challenges. Given unique business regulations, cultural intricacies, and economic dynamics, a well-defined roadmap is crucial for a successful business establishment.

TopSource Worldwide is with you at every stage. Whether it's navigating local regulations or facilitating seamless operational transitions, our expertise ensures a swift and efficient process for establishing your business in Puerto Rico.

Start your Puerto Rico expansion

Puerto Rico Insights

Key insights into Puerto Rico's landscape

VAT rates: Puerto Rico doesn't have a Value Added Tax (VAT); however, it imposes a Sales and Use Tax (IVU) of 11.5%.

Ease of Doing Business rank: Being a part of the United States, Puerto Rico is not ranked separately in the World Bank's Ease of Doing Business Index.

Consumer Confidence Index: Specific data for Puerto Rico's Consumer Confidence Index may not be readily available, as it is often integrated into broader US metrics.

Employee maternity/paternity leave: Maternity and paternity leave policies in Puerto Rico align with US federal regulations, offering eligible employees up to 12 weeks of unpaid leave.

Employee termination period: Termination notice periods in Puerto Rico may vary but typically align with US employment laws and individual employment contracts.

Employee salary pay date: Wages are usually paid bi-weekly or semi-monthly, following common US payroll practices.

Bank holidays: Puerto Rico observes US federal holidays, including New Year's Day, Independence Day, and Christmas, with a total of 11 public holidays in a year.

Country Guidelines

An overview of employing in Puerto Rico

As an unincorporated territory of the United States, Puerto Rico is subject to US federal laws, including federal labour and employment laws.

The information contained within these guidelines relates to employees hired after January 26, 2017. For employees hired prior to this date, different statutory requirements may apply. Please also be advised that the Puerto Rico Legislature is currently considering significant amendments to employment laws through a proposed Senate Bill 91 which may impact the information contained within this document.

The Federal Labor Standards Act (FLSA) recognises exempt and non-exempt employees.
Exempt employees are excluded from minimum wage, overtime regulations and must be paid on a salary basis.
Non-exempt employees qualify for minimum wage, overtime regulations and are often paid an hourly wage.

Please note, for the purpose of this document, we’re focusing on exempt employees as under the PEO/co-employment relationship regime, it’s predominantly salaried employees that we’re covering.

Employer Costs

Employer cost

Description

Percentage

SUTA

State unemployment tax

5.4%*

FUTA

Federal unemployment tax

0.6%

SINOT

Non-occupational disability insurance

0.3%

Workers’ compensation

1.0%

Vacation accrual

*Payable over salary

5.77%

Sick leave accrual

4.62%

*The SUTA tax is on the first $7,000 of wages paid to an employee each calendar year.

Employers are subject to taxes imposed by the Federal Insurance Contributions Act (FICA).

FICA taxes consist of:

Social security taxes
Medicare taxes

Employers must withhold the employee portion of FICA taxes from an employees’ wages and contribute the employer portion of FICA tax.

FICA Tax

Employer contributions

Employee contributions

Social security

6.2%

Medicare

1.45%

Additional Medicare tax

Employers whose wages exceed the maximum threshold of $200,000 are required to pay an additional Medicare tax. Employers are responsible for withholding the 0.9% additional Medicare tax from the employee’s wages; however, there’s no employer match.

Social security system

Puerto Rico has its own state social security administration (SSSA); however, it’s covered under the US social security system (SSA).

Salary currency

USD $

Salary pay date

For exempt employees, there’s no statutory requirement in terms of pay intervals but, customarily, it would not exceed one-month intervals. We currently observe a biweekly pay schedule with our employees in Puerto Rico.

Bonus

A mandatory Christmas bonus (Act No. 148 of June 30, 1969) is payable by employers who have more than 20 employees during more than 26 weeks within the 12-month period from 1 October to 30 September of the following calendar year.

In the case where a company does not meet these requirements, it’s customary to accrue for the Christmas bonus.

This bonus is payable to any employee who has worked a minimum of 1,350 hours during this period. The bonus should be equal to 2% of the total wages earned, up to USD 300.

Contractual Provisions

Contract of employment

The contract can be executed electronically and should be provided in a language that the employee understands and has sufficient knowledge of in order to understand the documentation.

Medical examinations and drug testing are not a statutory requirement in Puerto Rico; however, it’s customary practice for private companies to establish these procedures as part of their onboarding process.

For onboarding, Puerto Rico requires employers to establish certain mandatory policies:

Domestic violence protocol
Unpaid leave and reasonable accommodation for victims of abuse
Substance abuse policy (required if the employer will be conducting drug tests)
Video surveillance (required if the facilities will have video surveillance in the workplace)

Pursuant to Act No. 80 of 30 May, 1976, terminations from employment must be with just cause and, usually, by following a progressive discipline process.

Rules of registration

Pursuant to Puerto Rico’s Special Child Support Act, every employer who hires or rehires a person must provide the following information to the Child Support Administration: employee’s name, address and social security number and employer’s federal employer identification number. The forms may be sent by mail or by magnetic or electronic media. The form may also be submitted through the Puerto Rico Department of Labor.

Employers are required to report this information no later than 20 days after the date on which the employer hires or rehires the person — or twice per month with a lapse of no less than 12 days or more than 16 days between transmissions if the information is submitted electronically or magnetically.

New hires are also required to complete the Department of Homeland Security U.S. Citizenship and Immigration Services Form I-9, Employment Eligibility Verification, as well as a Puerto Rico Department of Treasury Form 499 R-4.1, Withholding Exemption Certificate.

Probationary period

An automatic probationary period applies to all employees in Puerto Rico unless a shorter period is agreed by the employer and employee.

Exempt employees: 360 days
Non-exempt employees: 270 days

This, however, is not applicable to employees on a temporary contract, hired through an employment agency.

No extensions are permissible should the performance be unsatisfactory. The probationary period is automatically extended by the employee taking statutory leave of absence and continues for the remaining period once the employee returns to work.

There are no statutory periods of termination during the probationary period.

Working hours

There’s no minimum or maximum statutory requirement for the number of working hours.

Rest breaks

It’s customary to give a one-hour unpaid meal break to all employees.

Non-exempt employees are required by federal law to take a one-hour meal break when scheduled to work for more than five consecutive hours and longer than six hours.

Overtime

Exempt employees are not entitled to overtime pay.

Non-exempt employees are entitled to overtime pay under the following circumstances:

Employers are required to pay for all overtime hours worked in excess of 40 during any week at 1.5 times the regular rate of pay.
Employers must also pay daily overtime (excess of eight hours in a calendar day) at 1.5 times the regular rate of pay.
Employers are also required to pay for work performed on an employee’s day of rest at 1.5 times their regular rate of pay.

The day of rest, also known as the seventh day, is a calendar period of 24 consecutive hours during which no work should be performed if any work has been carried out during all of the previous six calendar days. The day of rest need not fall on any particular calendar day.

Vacation allowance

Exempt employees are not entitled to statutory vacation.

Non-exempt employees accrue vacation in months in which they work at least 130 hours, at four different rates depending on years of service:

Years of service

Days per month

Maximum days per year

One

0.5

Six

Two to five

0.75

Nine

Six to 15

One

15+

1.25

Vacation benefits are not accrued during the first six months of employment; however, once an employee completes six months of employment, they’ll accrue vacation leave retroactively to the first day of employment. It’s important to note that vacation accrual is payable over salary.

Statutory Insurances

Unemployment insurance

Unemployment insurance is mandatory at state and federal level. Employers are entitled to contribute a maximum of 5.4% of annual wages to the state (SUTA) and 0.6% to the federal unemployment tax (FUTA).

Workers’ compensation

The Puerto Rico Compensation System for Work-Related Accidents Act provides certain economic benefits and job reinstatement rights to employees who become temporarily disabled due to work-related illness or injury.

Employers are required to pay mandatory premiums of 1% of the employee’s salary to a public corporation known as the State Insurance Fund Corporation (SIFC), based on the total amount of salaries paid and the types of risks involved.

In addition to economic benefits, the SIFC also provides the medical and rehabilitation services that ill and or injured employees may need. This government system may not be substituted with private coverage. In exchange for payment of the mandatory premiums, employers are generally granted immunity from any civil action and damages resulting from employee work-related accidents.

Non-Occupational Disability Insurance

SINOT (Act No. 139 of 26 June, 1968) provides up to 12 months (equivalent to 360 days) of protected leave and certain economic benefits to employees who become temporarily disabled due to non-occupational illness or injury.

SINOT coverage is compulsory for all employees, exempt and non-exempt.

For purposes of computing the disability period, paid vacation and/or sick leave cannot be deducted from the maximum period of benefits.

Holiday & Leave

There’s no statutory holiday entitlement. An employer may provide holiday entitlement on a voluntary basis. It’s customary to honour Good Friday as a holiday for employees.

There’s currently no legislation requiring private sector employers to close their businesses on government and/or nationally observed public holidays.

Employers are not required to pay any compensation should they require their employees to work on these days*.

*Please note: the only exception applies to retail establishments, whereby any employees working on Good Friday or Easter Sunday should be paid overtime at 1.5 times their regular rate.

Sick Leave

Sick leave entitlement for exempt employees is not mandated federally. However, salaried employees who don’t have sick leave benefits stipulated in their contracts can generally take sick leave where necessary.

Non-exempt employees are covered by the Minimum Wage, Vacation and Sick Leave Act. This entitles them to accrue one day of paid sick leave for each month in which the employee works for a minimum of 130 hours.

Catastrophic illness leave (Act No. 28 of 21 January, 2018)

Applies to both exempt and non-exempt employees with a catastrophic illness listed in the Puerto Rico Health Insurance Administration’s (PRHIA) special coverage. Entitlement is an additional paid sick leave of up to six days once they’ve exhausted their accrued regular sick leave.

Maternity and paternity leave

The Puerto Rico Working Mothers Protection Act entitles all female employees to a period of up to eight weeks’ paid leave (up to four weeks before and four weeks after birth).

In August 2020, this law was extended to women who adopt children over the age of six.

Other

Employee withholdings must be made regarding FICA (social security and Medicare), income tax and federal income tax, as applicable.

Employ and pay anywhere

Specialising in multi-country payroll solutions

TopSource Worldwide offers comprehensive payroll outsourcing services, ensuring seamless and accurate management of your organisation's payroll functions. With cutting-edge technology and a team of experienced professionals, we handle payroll processing, tax compliance, and regulatory requirements with precision.

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Calculate Your Employer of Record Taxes in Seconds

Employment Cost Calculator in Puerto Rico

Our Employment Cost Calculator simplifies complex tax calculations for global businesses. Accurately assess tax obligations, ensuring compliance with local regulations. Streamline payroll management effortlessly with our user-friendly tool, providing transparency and efficiency in international workforce taxation.

In addition to calculating your EOR taxes, our calculator can also help you:

Understand the different types of EOR taxes
Stay up-to-date on the latest changes to EOR tax regulations
Avoid penalties for non-compliance

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Employer of Record FAQ

Frequently Asked Questions about Puerto Rican employment solutions

What is an Employer of Record in Puerto Rico?

An Employer of Record (EOR) is a professional services provider that assumes the responsibility of being the legal employer for a company's workforce in Puerto Rico. This entails managing tasks such as payroll processing, tax withholding, benefits administration, and ensuring compliance with local labour laws and regulations.

How do global employment services work?

Global employment services operate as a comprehensive solution for businesses seeking to expand their workforce across borders. These services, often provided by Employer of Record (EOR) companies like TopSource Worldwide, streamline the complexities of international employment.

What are the benefits of working with an Employer of Record in Puerto Rico?

Employer of Record companies assume the legal responsibilities associated with employment, alleviating the burden of compliance, payroll, and HR management in Puerto Rico. This allows companies to expand globally without the complexities of establishing legal entities in each location.

What is the difference between EOR & PEO?

An EOR acts as the legal employer, handling tasks like payroll, tax compliance, and benefits administration. This allows companies to expand internationally without establishing legal entities. On the other hand, a PEO shares employer responsibilities with the client company, often co-employing workers.

How are employer payroll taxes calculated in Puerto Rico?

Calculating employer payroll taxes involves understanding the various taxes associated with employing workers and complying with tax regulations in Puerto Rico. Key components include federal and state income taxes, Social Security, Medicare, and unemployment taxes.

What global employment solutions does TopSource offer?

TopSource Worldwide facilitates hassle-free global expansion by acting as the legal employer, handling payroll, tax obligations, and HR responsibilities. With expertise in global entity management, TopSource assists businesses in navigating the intricacies of legal structures across borders.

Our author

Mark Robbins

Global Sales Director

Mark is the Sales Director at Topsource Worldwide. He has been a pioneering figure in the global expansion space since 2013. He is the first salesperson to sell EOR services in Europe, a feat he accomplished in 2013.