Payroll in Ecuador: a restricted activity

Ecuador has a feature few countries share: its economy is dollarised. Payroll is run in United States dollars, which removes exchange risk for a group that budgets in a hard currency but deprives the state of any monetary adjustment, with the consequences that follow for how salaries are set.

Social administration is concentrated around the Instituto Ecuatoriano de Seguridad Social (IESS), which covers health, pensions and occupational risks and whose employer portal is the compulsory route for every filing. The Servicio de Rentas Internas (SRI, the tax administration) handles tax, and the Superintendencia de Compañías supervises corporate life.

Documents are drawn up in Spanish. Professionally, signing financial statements and tax returns is reserved to a contador whose qualification is on the register: the useful check is not membership of a single professional body, which does not exist, but registration of the qualification held by the professional who signs. Bank accounts and payments are local yet dollar denominated.

Enrolment of the employee with the IESS must take place from the first day of work: it is a frequent control point and one of the few where the Ecuadorian administration moves quickly.

The entity is settled beforehand. Almost every foreign employer uses an Ecuadorian company or a branch registered with the Superintendencia de Compañías, whose certificate of legal existence is issued free of charge online.

The unique taxpayer number, the RUC, is obtained from the SRI. Check that the declared activities genuinely match those to be carried on, since this governs the validity of invoices and returns.

The employment contract is written and is registered in the labour ministry's information system. A payslip is given to the employee, and their income tax is withheld before salary is paid, on the basis of an annual projection incorporating the deductible expenses they declare at the start of the year: that declaration drives the calculation and must be collected annually.

Added to this are statutory payments the contract need not provide for because the law does: thirteenth and fourteenth salaries, the reserve fund and profit sharing, each on its own calendar.

Termination distinguishes statutory grounds from compensated unilateral dismissal, whose cost should be modelled at hiring.

The stacking of statutory pay components is the costliest feature to overlook. The thirteenth salary, the fourteenth salary, the reserve fund and profit sharing are distinct entitlements falling due at distinct dates, and none substitutes for another. Each has its own basis of calculation, which rules out a single global provision. An offer expressed as gross monthly salary structurally understates the annual cost.

Withholding rests, moreover, on a projection declared by the employee. Without their deductible expenses form, the employer withholds more and the employee discovers it on the first payslip: collecting that document belongs to the hiring process.

The instrument appointing the legal representative has a fixed term and must be entered in the commercial register. An expired appointment invalidates signatures, a frequent cause of delay in Ecuadorian files.