When hiring employees, companies must understand the employment contract laws in Puerto Rico to ensure compliance with local labour laws. The country follows both U.S. federal labour laws and its own employment regulations. This means businesses must carefully structure their contracts to avoid legal risks.
A basic employment contract in Puerto Rico should clearly outline essential terms such as job responsibilities, salary, benefits, work hours, probationary periods, and termination policies. While employment contracts can be verbal or written, signing employment contracts in Puerto Rico is highly recommended to protect both employers and employees. A written employment contract helps prevent misunderstandings and ensures that both parties are aligned on their rights and obligations.
In addition, employers must be aware of local regulations regarding employee classification (full-time, part-time, or independent contractor), mandatory benefits, and restrictions on at-will employment. Misclassification or missing key contract clauses can lead to compliance issues and legal challenges.
In this guide, we’ll talk about everything you need to know about the fundamentals of signing employment contracts in Puerto Rico, including contract terms and policies, contract extension, working hours, and more. This way, you can create a compliant contract with confidence.
In Puerto Rico, both written and verbal employment contracts are legally valid, but written agreements are strongly recommended for clarity and legal protection. Employers must ensure that contracts comply with both local and federal labour laws. In addition, an employment contract cannot provide fewer rights or benefits than those required by law.
A key part of the employment policy in Puerto Rico is ensuring contracts clearly outline job responsibilities, salary, work hours, benefits, and termination terms. Employers must also properly classify workers as full-time, part-time, or independent contractors to avoid legal issues. While Puerto Rico generally follows at-will employment, certain terminations may require severance pay or additional protections.
The Equal Employment Opportunity policy in Puerto Rico ensures that all employees and job applicants are treated fairly, regardless of race, gender, age, religion, disability, or other protected characteristics. Puerto Rico follows both U.S. federal anti-discrimination laws—such as Title VII of the Civil Rights Act, the Americans with Disabilities Act (ADA), and the Age Discrimination in Employment Act (ADEA)—as well as local laws like Puerto Rico Law 100, which provides additional protections against workplace discrimination.
Employment Opportunity policy plays a crucial role. Employers must ensure that contracts do not include any discriminatory terms or conditions that could violate equal opportunity laws. This means:
Newly hired employees in Puerto Rico typically go through a probationary period before gaining full employment status. For non-exempt employees (those entitled to overtime pay), the probationary period can last up to nine months.
For employees in executive, administrative, or professional roles, this period can extend up to twelve months. Unless explicitly stated otherwise in the employment contract, the probationary period is automatically applied. During this time, an employer can assess an employee’s performance, and termination may be easier compared to post-probation employment.
Most employers in Puerto Rico establish company policies to ensure compliance with employment laws and regulations. These policies often include codes of conduct, internal reporting procedures, workplace behaviour expectations, and disciplinary measures.
While not always required by law, clear company policies help create a structured work environment and protect both employers and employees in cases of disputes or compliance issues.
There is no legal requirement for third-party approval when establishing employment contracts or company policies in Puerto Rico. Employers have the flexibility to draft and implement their own agreements and workplace rules.
However, it is important to note that policies such as employee handbooks are considered legally binding and form part of the employment contract. This means that once an employer communicates these policies to employees, they must be consistently enforced to avoid legal complications.
While not mandatory, a written employment contract is highly advisable. It should outline important terms such as base salary, benefits, job responsibilities, and expectations. The contract can be written in any language, but the employee must understand it. If an employee signs a contract, it is legally presumed that they understand both the language and the terms stated.
Even though the 2017 Labour Reform provided more flexibility in employment agreements, certain legal obligations still must be documented in writing. For instance, non-compete clauses and other restrictive agreements are only enforceable if they are formally written and signed.
A verbal employment contract is legally valid, but it can create complications if disputes arise. Without a written record, proving the exact terms of the agreement becomes difficult. While verbal agreements are allowed, employers are encouraged to document employment terms in writing to ensure clarity and legal protection.
Regardless of whether an employment contract is written or verbal, it must comply with Puerto Rico’s labour laws, ensuring employees receive all legally required rights and benefits.
Employees in Puerto Rico are classified as exempt or non-exempt, which determines their eligibility for overtime pay and certain labour protections. These classifications follow Regulation No. 13 of the Puerto Rico Minimum Wage Board, which aligns closely with the U.S. Fair Labor Standards Act (FLSA).
Exempt employees in Puerto Rico are not entitled to overtime pay under labour laws. Regulation No. 13 defines administrative, executive, and professional exemptions, which means that employees in these roles must meet specific criteria related to job duties, salary level, and decision-making responsibilities. The regulation acknowledges exemptions for outside sales professionals (employees who primarily work outside the employer’s place of business) and certain computer-related occupations, such as software engineers or systems analysts, who may qualify under the professional exemption.
On the other hand, non-exempt employees in Puerto Rico are entitled to overtime pay when they work beyond the standard 40-hour workweek. Overtime is usually compensated at time and a half of the employee’s regular hourly wage. Employers must carefully track working hours and ensure compliance with overtime regulations to avoid violations.
As an employer, you must clearly define in the contract terms whether a position is exempt or non-exempt. If a role qualifies for an exemption, you must ensure that the job duties and salary meet the criteria outlined in Regulation No. 13 and the Fair Labor Standards Act (FLSA).
Employment contract extensions in Puerto Rico depend on the type of contract in place and the terms agreed upon by both parties.
For fixed-term employment contracts, an extension allows the employer and employee to continue the working relationship beyond the original end date. This extension should be documented in writing to ensure that all terms, conditions, salary adjustments, and job responsibilities are clearly outlined. Employers should also ensure that the extension complies with Puerto Rico’s labour laws, as repeated contract extensions could impact an employee’s classification and legal rights.
Meanwhile, for independent contractors, contract terms are generally more flexible and tailored to the nature of the work being performed. The length of an independent contractor agreement is determined by the mutual agreement of the parties involved, and there are no legal restrictions in Puerto Rico on how long or how often these contracts can be extended. Independent contractor agreements should clearly define:
While Puerto Rican law allows flexibility in the extension of independent contractor agreements, companies must be mindful of misclassification risks. If an independent contractor is treated like a regular employee—working under employer supervision, following set schedules, or depending on the company for work—it may raise legal concerns regarding their classification. Employers should ensure that contract extensions do not create an employer-employee relationship, which could lead to tax and labour law compliance issues.
Employees in Puerto Rico can be hired under indefinite or fixed-term contracts, depending on the nature of the job.
The Act 80 governs employment contracts and defines two specific types of fixed-term agreements: temporary employment contracts and term employment contracts.
These contracts serve as exceptions to the “just cause” requirement under the Unjust Dismissal Act. This means that employers are not obligated to provide severance pay upon termination at the contract’s expiration.
Temporary employment contracts in Puerto Rico
A temporary employment contract is used when hiring an employee for a specific project, a short-term task, or to replace another worker on leave. This type of contract must clearly outline the purpose of employment and the expected duration.
These contracts are common in industries where work demand fluctuates or when an employer needs extra help for a limited time.
A term employment contract is used when an employee is hired for a predetermined period, rather than an ongoing basis. This contract must explicitly state the duration of the employment, whether it’s for a few months or a couple of years.
There are limits on how long these contracts can last, as Puerto Rican law presumes a fixed-term contract to be valid if it does not exceed three years, including any renewals.
While verbal agreements are legally valid in Puerto Rico, having a written contract is strongly recommended. A well-documented agreement should specify job responsibilities, salary, benefits, duration, and termination conditions to prevent misunderstandings and legal disputes.
Moreover, if a fixed-term contract is repeatedly renewed in a way that suggests an ongoing employment relationship, it may be legally reclassified as an indefinite contract. This means the employee could gain permanent employment rights, including protection under the Unjust Dismissal Act. Employers must ensure that contract renewals do not create an expectation of indefinite employment unless that is the intent.
A fixed-term contract ends automatically on its expiration date. However, if an employer terminates the contract early without just cause, they may be required to compensate the employee for the remaining duration.
The Puerto Rico Work Hours and Days Act establishes the standard workweek as 40 hours per week, with a typical workday consisting of eight hours. Any hours worked beyond 40 per week or more than eight hours per day are considered overtime, requiring additional compensation.
Shift work and flexible schedules are common in industries like healthcare, customer service, and tourism, where 24/7 operations are necessary. Employers must also ensure that employees receive one full day of rest per calendar week, in compliance with local labor laws.
Employees covered by the law must receive at least 1.5 times their regular hourly wage for overtime work, unless a different rate applies under collective agreements. Some industries or collective bargaining agreements may require double pay for overtime, especially for work done on official holidays or rest days. For certain night shifts or hazardous jobs, additional pay requirements may apply.
Certain job positions, particularly executive, administrative, and professional roles, may be exempt from overtime regulations under Regulation No. 13, which aligns with the Fair Labor Standards Act (FLSA).
Moreover, employers in Puerto Rico cannot force employees to work overtime without proper compensation.
Unlike some Latin American and European countries, Puerto Rico does not have an official siesta (midday break) as part of its standard work schedule. However, many businesses, particularly in retail and government sectors, may allow for extended lunch breaks, typically lasting one hour.
Monday – Friday
Remote work in Puerto Rico has gained significant traction, especially with the introduction of Act 52-2022, which provides guidelines for taxation and employer responsibilities. Understanding these policies is crucial for both remote workers and businesses looking to hire talent from Puerto Rico while remaining compliant with local regulations.
Act 52-2022 introduced key changes that impact remote workers and businesses, including tax obligations, employer responsibilities, and updates to the Sales and Use Tax (SUT) framework. The act aims to create a more structured environment for remote employment while ensuring Puerto Rico remains a competitive hub for remote workers.
Remote workers in Puerto Rico must adhere to local tax regulations. While their income is exempt from U.S. federal income tax, they are still required to pay Puerto Rico’s individual income tax. Since taxes are not automatically withheld by employers based outside of Puerto Rico, remote workers must make quarterly estimated tax payments to the Puerto Rico Treasury Department.
Moreover, individuals who hold financial accounts outside of Puerto Rico or the U.S. must report them if the total balance exceeds $10,000 during the tax year. This reporting requirement is meant to ensure transparency in financial transactions.
Act 52-2022 also introduced significant tax amendments that affect corporations, digital products, and financial reporting:
For an employer outside of Puerto Rico, they must the following condition to avoid the obligation of withholding income taxes for a remote worker based on the island:
Failure to meet these conditions could result in additional tax obligations for the employer.
Like all countries, Puerto Rico has its own rules and regulations when it comes to employment contracts — and non-compliance could land your company in hot water.
Thankfully, our team is experienced in drawing up tailored, compliant contracts in Puerto Rico (and more than 100 countries worldwide). That means that, when you work with us, you won’t need to waste time worrying about whether you’ve got it right. Instead, you can focus on what matters: growing your business.
With our EoR solution, you can engage workers anywhere in the world, without putting your business at risk. No more worrying about local labour laws, tax legislation or payroll customs — we’ve got you covered.
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