Your First Ecuadorian Employee: A Meticulous Checklist for Legal Compliance

Ecuadorian labor law, primarily governed by the Código del Trabajo (Labor Code), is profoundly protective of employee rights. This is a non-negotiable reality for employers. Key principles include the stability of employment (estabilidad laboral), fair compensation, and strict adherence to mandated benefits. Assuming you can apply foreign employment standards is a fast track to legal disputes.

Step 1: Define the Employment Relationship and Role

Before you draft a single document, clearly define the nature of the employment.

Job Title and Responsibilities: A precise job description prevents "scope creep" and future disputes.
Employment Contract Type: While several contract types exist, the law heavily favors one:
- Contrato a Plazo Indefinido (Indefinite Term Contract): This is the default and most secure contract type. After the initial probationary period, an employee can only be terminated for specific, legally-defined "just causes."
- Other Contracts (Fixed-Term, Project-Based): These are exceptions, not the rule. Using them improperly can result in the Ministry of Labor reclassifying the contract as indefinite, often with retroactive penalties.
Remuneration: The salary must meet or exceed the Salario Básico Unificado (SBU), set annually by the government. For 2024, the SBU is $460 USD per month. Offering less is a direct violation of the law.
Probationary Period (Período de Prueba): Artículo 15 of the Labor Code allows for a one-time, 90-day probationary period for indefinite-term contracts. During this window, either party may terminate the contract without the indemnity payments required for a standard dismissal. This period must be explicitly stated in the contract.

Step 2: Obtain Your Employer Identification Number (RUC)

As a business entity, you must register with the Servicio de Rentas Internas (SRI), Ecuador's tax authority, to obtain a Registro Único de Contribuyentes (RUC). This number is your unique identifier for all tax and employer obligations. You cannot legally hire an employee without it.

Step 3: Register as an Employer with the Ministry of Labor

All employers must register on the Ministry of Labor's online platform, the Sistema Único de Trabajo (SUT). Be aware that many online guides still reference the old "GIRTT" system, but the SUT is the current, unified portal for all labor-related procedures. You will need your RUC and the legal representative's identification to create your employer account.

Step 4: Prepare and Register the Employment Contract

The employment contract is the cornerstone of the relationship. It must be in Spanish and meticulously drafted to comply with Artículo 21 of the Labor Code.

Essential Clauses: Include full legal details of both parties, job description, start date, place of work, remuneration, and working hours (the standard is 8 hours/day, 40 hours/week, per Artículo 47).
Mandatory Benefits: The contract must acknowledge the employee’s right to all legally mandated benefits, including:
- Décimo Tercer Sueldo (13th Salary): An annual bonus equivalent to one month's salary, paid by December 24th.
- Décimo Cuarto Sueldo (14th Salary): A bonus equivalent to one SBU ($460 in 2024), paid by August 15th for the Sierra/Amazon regions (including Cuenca) and March 15th for the Coast/Galapagos.
- Vacations (Vacaciones): 15 calendar days of paid vacation after the first full year of service, as per Artículo 69 of the Labor Code.
- Fondo de Reserva (Reserve Fund): After the first year of employment, you must pay an additional 8.33% of the employee's salary. This can be paid directly to the employee monthly or accumulated in their IESS account. This is a significant cost that many new employers overlook.
- Profit Sharing (Utilidades): Per Artículo 97 of the Labor Code, businesses are required to distribute 15% of their net profits among their employees and dependents annually. This is a constitutional mandate.

Hyper-Specific Detail: The 13th and 14th salaries don't have to be paid in a lump sum. An employee can provide a written request at the beginning of the year to have these benefits paid out monthly (mensualización) with their regular salary. Be prepared for this request, as it is very common.

Crucial Deadline: Following a recent change via Acuerdo Ministerial MDT-2023-140, all employment contracts must be registered on the SUT platform within 30 days of the employee's start date. Failure to meet this deadline can result in fines.

Step 5: Register the Employee with Social Security (IESS)

This is a non-negotiable, time-sensitive step. You must register your employee with the Instituto Ecuatoriano de Seguridad Social (IESS) to provide them with health insurance, disability coverage, and a pension.

The Aviso de Entrada: You must process the "Notice of Entry" on the IESS online employer portal on or before the employee’s first day of work. A common and costly mistake is assuming there is a grace period. There is not. Late registration incurs fines and retroactive liability for any medical emergencies.
Contributions: The total contribution is approximately 21.60% of the employee's salary. You are responsible for paying the employer's share (12.15%, which includes a small percentage for SECAP/IECE) and deducting the employee's share (9.45%) from their paycheck. These payments must be remitted to IESS by the 15th of the following month.

Step 6: Maintain Ongoing Compliance and Records

Your obligations don't end after onboarding.

Tax Withholding: Based on the employee's projected annual income, you must withhold income tax (Retención en la Fuente) and remit it to the SRI according to their progressive tax table.
Payroll Records: Maintain meticulous records of payslips (roles de pago), IESS payment receipts, and contract registration confirmations from the SUT. These are your primary defense in case of a labor inspection or dispute.
Severance Agreement (Acta de Finiquito): When an employment relationship ends for any reason, you must calculate the final settlement and register an Acta de Finiquito on the SUT system. The fee for this online registration is currently $10. Failing to do this correctly can lead to future legal claims.

Common Expat Pitfalls to Avoid

Misunderstanding Termination Costs: Firing an employee without just cause (despido intempestivo) requires a significant indemnity payment, calculated per Artículo 188 of the Labor Code. It is not as simple as giving two weeks' notice.
Ignoring the Fondo de Reserva and Utilidades: These are not optional bonuses; they are legally mandated payments that can significantly impact your annual budget.
Verbal Agreements: An oral agreement is legally considered an indefinite-term contract under the most employee-favorable terms. Always have a written, registered contract.
Misclassifying Employees as "Contractors": If you control a person's work schedule, provide their tools, and they are integral to your business, they are an employee. Misclassification to avoid IESS and benefits is illegal and carries severe penalties.
Bureaucratic Loops: Expect frustration with government online portals. For example, obtaining your Certificado de Cumplimiento de Obligaciones from the IESS can be a challenge. The Cuenca IESS office on Av. Huayna Cápac will often direct you to the online system, which can be buggy. Persistence and patience are key.

Legal Checklist for Your First Hire

[ ] Have you obtained your business RUC from the SRI?
[ ] Have you registered as an employer on the Ministry of Labor's SUT platform?
[ ] Is the employment contract written in Spanish and does it include the 90-day trial period?
[ ] Does the salary meet or exceed the current SBU ($460 for 2024)?
[ ] Have you budgeted for the 13th salary, 14th salary, Reserve Fund, and potential Profit Sharing?
[ ] Are you prepared to register the contract on the SUT within 30 days of the start date?
[ ] Are you prepared to process the IESS Aviso de Entrada on or before day one?
[ ] Do you have a system for managing payroll, deductions, and record-keeping?

⚠️ Legal Alert: When to Stop and Consult an Attorney.

If you are considering any contract other than a standard indefinite-term one, hiring a foreign national, or including complex non-compete clauses, you must consult an Ecuadorian labor law specialist. Furthermore, do not attempt to handle a disciplinary action or termination without legal counsel. The process for termination with just cause (visto bueno) is a formal administrative hearing, and mishandling a dismissal (despido intempestivo) or final settlement (acta de finiquito) is the single most common source of expensive lawsuits against foreign employers.

Hiring your first employee in Ecuador is a significant milestone. By treating the country's labor laws with the seriousness they demand, you not only protect your business from severe legal and financial repercussions but also build a foundation of respect and stability for your team.

Ready to navigate Ecuadorian employment law with confidence?

Let's ensure your business is legally sound and your team is well-supported. Schedule a free initial consultation to discuss your specific hiring needs.