As a lawyer at Alvarado y Asociados in Nicaragua, I have had the opportunity to assist many investors that want to incorporate a company in this country.
One of the first things I mention when meeting with investors is how important it is for them to know the basic labor benefits that they will have to ensure to workers of the country where the investment will be placed. It is really important to know about this because it allows the investors to prepare a budget for the investment. Through this article, I will provide a summary of these basic labor benefits that must be paid to workers in Nicaragua.
According to Law 625 “Minimum Wage Law”, it is mandatory that the employer pay the employee a minimum wage for the work provided. This minimum wage is reviewed by the competent authorities at least every 6 months in accordance with the particular conditions in each economic sector.
Social Security coverage
An employee has the right to be registered in the National Social Security Institute (“INSS”, in Spanish) and the employer is obliged to register the employee and pay INSS 18% of the employee´s salary as social security contribution on a monthly basis (this contribution will increase to 18.5% on 2016 and 19% on 2017).
In addition, the employer must pay 2% of the employee´s monthly salary to INATEC, which is a national institute created to provide employees with technical education through scholarships granted by such institute.
The employee must also contribute 6.25% of his/her monthly salary to INSS, which is withheld by the employer and paid directly to INSS. INSS provides a social plan that covers basic contingencies for the employee, such as sickness, accidents and maternity, among others.
According to the Labor Code of Nicaragua, the employee is entitled to 15 paid days of vacation for each 6 months of continuous work for the same employer. The current criteria of the Labor Authorities considers that the vacation time must be used by the employee and can only be paid to the employee if/when the labor relationship ends and the employee has unused vacation days accrued to the date of termination, in which case, the Labor Code stipulates that the this payment must be made according to the employees last salary, but in the case of a variable salary, it shall be calculated according to the average of the last 6 months of salary received by the employee.
Employees in Nicaragua are entitled to nine paid holidays per year: January 1st; Easter Thursday and Good Friday; May 1st; July 19th; September 14th and 15th; December 8th and 25th. Additionally, they are entitled to a paid day off (“asueto” in Spanish) during the day of the patronal party of the city where they work—which in the city of Managua is on August 1st and 10th of each year.
Thirteenth month payment (Aguinaldo)
Another benefit that an employee receives is the “thirteenth month payment” or Aguinaldo, as known in Spanish, which corresponds to an extra month of salary that must be paid by the employer by the first 10 days of December of each year (or no more than ten days after termination of a labor relationship). An employee who has been employed for less than a year should receive a pro-rated thirteenth month payment based on the time she/he has been with the company.
The thirteenth month payment must be made according to the highest salary received by the employee during the last 6 months of that year.
When an employee who was hired under an indefinite contract, (a contract that does not provide the date of termination. The definite contract does provide the time of duration of such contract), is terminated without justified cause or he/she resigns with 15 days of notice, according to the article 45 of the Labor Code of Nicaragua, he/she is entitled to receive one month of salary per each one of the first three years of work and twenty days of salary per each year worked as of
the fourth year, with a maximum of 5 months salary as an antiquity payment. The current criteria of the labor authorities is to consider that the employee must receive a pro-rated payment when the employee worked less than one year.
Indemnification for trusted employee
Article 47 of the Labor Code of Nicaragua stipulates the indemnification for a trusted employee and in order to pay it, the following characteristics must be met:
(i) the employee must be considered a trusted employee— an employee who has held a management position requiring more than the usual “trust” or has held any position that requires that they represent the employer in front of third parties or the rest of employees (in some cases, the authorities have considered as trusted employees, those employees who handle confidential information of the employer such as an accountant for example);
(ii) it is necessary that the employee be dismissed by the employer;
(iii) it is necessary that the dismissal of the employee be made by infringing on a labor provision contained in the Labor Code or other labor rules, or that it constitutes an act of restriction of the employee´s right or that it was executed as a form of reprisal against the employee as a consequence of the execution of one of his/her labor or union rights;
(iv) that the abovementioned elements be proved by the employee before the labor judge, who by a judgment shall determine whether or not the indemnification for a trusted employee applies to the case, and if so, stipulates the amount to pay for this indemnification, which according to the Labor Code, shall be between two to six months of salary, provided that the employee has worked for the employer for over a year.
Thus, it is the labor judge who determines if the dismissal of the trusted employee was made in character of reprisal or against the employees labor rights, for which it will be necessary that this employee serve a lawsuit before the competent authority and proves that he/she was dismissed under the abovementioned circumstances; as a matter of example, it could happen if the employer dismisses the employee while he/she is on vacation, or under a sick leave, or for being part of a union, or any other cause alleged by the employee to persuade the judge that the dismissal was illegal, and that therefore, he/she is entitled to receive the trusted employee payment; otherwise, it legally does not apply.
Female employees are entitled to a total of 12 weeks paid maternity leave (4 weeks prior to childbirth and 8 weeks after childbirth). In the event that twins are born, the mother receives 10 weeks after childbirth. When it comes to maternity benefits, INSS is obliged to pay 60% of the employees wage and the employer is obliged to pay the remaining 40%; so that the employee receives 100% of her salary as a maternity benefit. Employers are prohibited from terminating female employees during maternity leave or while they are pregnant, except with a justified cause duly stated and approved by the Labor Ministry.
In addition to the basic labor benefits mentioned above, it is really important to inform that in Nicaragua exists the “Ley de Derechos Laborales Adquiridos” (Law of Labor Vested Rights) which provides that the rights granted to the employees must be considered acquired in absolute terms by them, and therefore, cannot be diminished nor altered in damage of such workers, being very important to bear in mind that any benefit additional to the basic benefits required by the Nicaraguan
labor legislation that the employee grants to the workers shall be considered as a labor vested right of the employee, which cannot be diminished nor removed in his/her damage. Finally, in order to protect the investment and the operation of the company once incorporated in Nicaragua, it is recommendable to have a lawyer specialized in the labor matter to provide assistance in any labor case that arise in the company and that can bring labor contingencies that may damage the company.