Expanding into Puerto Rico presents unique opportunities, from benefiting from a skilled workforce and tax incentives, to U.S. regulatory advantages. As a U.S. territory, Puerto Rico offers easier market entry than other foreign countries while providing cost savings and access to a bilingual talent pool.
However, navigating local labour laws and compliance requirements can be complex. This is where an Employer of Record (EoR) can help. An EoR is a third-party organisation that legally employs employees on behalf of a company, handling payroll, benefits, taxes, and compliance.
A reliable EoR like CXC ensures businesses stay compliant with local employment laws and regulations while allowing them to operate without establishing a legal entity. This means businesses can focus on growing their business while EoR handles HR and legal tasks related to international hiring.
Here’s how an EoR can help you expand in Puerto Rico:
When hiring talent in Puerto Rico, businesses must understand local labour laws, payroll requirements, and employee benefits. Here are the some of the most important things to know:
Since Puerto Rico is a U.S. territory, hiring employees in the country is similar to hiring in the mainland, but there are unique legal and tax requirements businesses must need to keep in mind, such as:
Employers in Puerto Rico have the legal right to conduct background checks on job applicants, including criminal and credit history screenings. However, these checks must comply with both federal and local regulations. The Fair Credit Reporting Act (FCRA) establishes guidelines for obtaining and using consumer reports, ensuring that employers secure the applicant’s consent before conducting a background check.
Moreover, the Equal Employment Opportunity Commission (EEOC) has issued guidance to prevent background checks from unreasonably impacting certain protected groups, which means employers must use these screenings carefully to avoid potential discrimination claims.
While background checks are allowed, Puerto Rico’s Act 150-2019 imposes restrictions on credit history inquiries. Most private employers are prohibited from investigating an applicant’s credit history or obtaining a credit report from a credit agency.
There are exceptions for specific roles where a credit report is required under federal law, such as certain financial or government-related positions. Employers should be cautious when considering credit information in hiring decisions to ensure compliance with these legal protections.
In Puerto Rico, it’s allowed to conduct criminal background checks on employees and job applicants, but they must comply with both federal and local laws.
Under the FCRA, employers must obtain written consent from the individual before performing a background check. If adverse action (such as denying employment) is taken based on the findings, the employer must provide a copy of the report and inform the applicant of their rights.
When hiring employees in Puerto Rico, employers must report essential details such as the employee’s name, address, Social Security number, date of birth, hire date, and salary.
Under the Puerto Rico Equal Pay Act, employers are generally prohibited from asking job applicants—or their current or former employers—about their past or current salary. However, there are a few exceptions to this restriction:
This law encourages pay equity by ensuring that a candidate’s previous earnings do not unfairly influence their future compensation. To stay compliant, employers should focus on setting salaries based on the job role, market rates, and the applicant’s qualifications rather than past earnings.
Employees are individuals hired by an employer to perform work in exchange for wages or a salary. Regular employment in Puerto Rico can take different forms, including indefinite, fixed-term, and part-time agreements. Each type of contract has specific legal requirements that affect job security, benefits, and termination procedures.
Independent contractors in Puerto Rico are self-employed individuals or businesses that provide services to companies under a contractual agreement rather than an employer-employee relationship. This means they work on a project or service basis rather than receiving a salary. They have control over how, when, and where they perform their work (within the contract’s scope).
Unlike employees, they do not receive employee benefits such as paid leave, health insurance, or a Christmas bonus. They are responsible for handling their own taxes, including income tax and self-employment tax.
While independent contracting is a recognised and common work arrangement, it is essential to clearly distinguish independent contractors from employees to avoid legal and tax complications. Businesses hiring independent contractors should ensure proper classification to avoid misclassification risks, which can lead to hefty fines and potential legal disputes.
Also known as temporary employees, agency workers are individuals hired through staffing agencies to meet a company’s short-term or project-based needs. These workers are employed by the staffing agency rather than the company where they perform their duties.
Puerto Rico’s labour laws ensure that agency workers receive fair treatment and benefits comparable to regular employees, even though they are not directly employed by the company where they work. Regulations cover aspects such as:
There is no legal restriction on the language in which an employment contract is written, as long as the employee fully understands it. This means that an employment contract can be in English, Spanish, or any other language if both the employer and employee agree.
To ensure the validity of the contract:
The primary language spoken in Puerto Rico is Spanish. It is the most widely used language in daily life, government, business, and education. Although many Puerto Ricans are bilingual, Spanish remains the dominant language across the island.
Yes, both Spanish and English are official languages in Puerto Rico. The island’s government recognises English alongside Spanish. This means that official documents, legal proceedings, and government communications can be conducted in either language. However, in practice, Spanish is the predominant language used in most workplaces, courts, and everyday interactions.
While English is widely taught in schools and commonly spoken in business settings, especially in tourism and international trade, not all Puerto Ricans are fluent in English. Therefore, businesses operating in Puerto Rico should prioritise Spanish for employee communications, contracts, and legal documents, while also accommodating English where necessary.
While Puerto Rico is a U.S. territory, it has distinct tax and employment regulations that companies must follow.
Before hiring employees, companies must establish a legal presence in Puerto Rico. This can be done in several ways:
1. Register as a foreign entity. If a company is already established in the U.S. or another country, it must register with the Puerto Rico Department of State to operate legally.
2. Obtain an Employer Identification Number (EIN). Businesses must obtain an EIN from the IRS for federal tax purposes.
3. Register with the Puerto Rico Department of Treasury (Departamento de Hacienda). This is required for tax compliance and payroll withholdings.
4. Enroll with the Puerto Rico Department of Labor & Human Resources (Departamento del Trabajo y Recursos Humanos, DTRH). Employers must report new hires and comply with unemployment insurance and labor laws.
Once a company is legally registered, it must set up payroll to ensure proper employee payments, tax withholdings, and benefits administration. Here’s a checklist to ensure full compliance when hiring employees:
1. Business registration & compliance
2. Employee classification & hiring
3. Payroll and tax withholding setup
4. Payroll processing and payments
5. Tax filings & compliance reporting
6. Employee benefits and compliance
7. Stay updated on Puerto Rico’s payroll regulations
Rico can be complex due to its unique tax system and labour regulations. Companies unfamiliar with local compliance requirements often partner with an Employer of Record (EoR) to handle payroll administration, tax filings, and employee benefits, ensuring a smooth expansion into the Puerto Rican market.
Hiring employees in Puerto Rico usually means setting up a legal entity, which can be costly and time-consuming. Employers can avoid this hassle by working with an Employer of Record (EoR), like CXC.
Through our EoR solution, you can confidently hire employees in Puerto Rico, without worrying about compliance issues. We’ll handle everything from payroll to benefits to employment contracts on your behalf — so all you have to think about is finding the right person for the job.
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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