Legal Gratification in Chile: A Government-mandated Profit Share

Accounting

What is Legal Gratification, in Chile? How does it work? How does it impact payroll? We’re glad you asked! Legal gratification is a form of profit sharing for companies located in Chile. This is a government-mandated profit sharing service. How does one calculate the legal gratification?

First, you will need to know what Minimum Monthly Income is and how it works with Legal Gratification. The IMM or Minimum Monthly Income is the legal minimum monthly pay for any employee working full time (a normal work week not to exceed 45 hours). This amount is set by Congress after conferring with employer representatives and workers. Any change to the law typically takes effect in January and/or July of each year.

Legal Gratification and the Minimum Wage or Minimum Monthly Income (IMM) are very closely related. Changes to the IMM will almost always mean a change to the amount of Legal Gratification paid to employees.

So, what exactly is Legal Gratification? Well, Legal Gratification is a government mandated profit-sharing bonus due to all employees of a Chilean organization. It is calculated using the method that calculates the amount of legal gratification as 25% of the employee’s base salary capped at 4.75 times the IMM. When the IMM increases, so does the cap for Legal Gratification.

As recently as January 1st, 2018, Chile’s monthly minimum wage increased from CLP 270,000 to CLP 276,000. This implies that as of this month, all full-time that receive the minimum wage should have their salary level adjusted. Furthermore, those employees who receive legal gratification paid as a multiple of 4.75 times the annual minimum wage, should see this item increased from the cap of CLP 106,875 (if they receive this legal gratification payment monthly) to CLP 109,250.

 

In cases where legal gratification is paid monthly, this increase in minimum wage results in an increase in the monthly amount of legal gratification paid. The base salary specified in the work contract can be lowered in to take into consideration the fact that legal gratification must be added, so that the total cost to the company is not increased. Once a base salary is stipulated and agreed to with the employee, it cannot be lowered without the employee’s consent.

Also, if employees in Chile with contracts subject to a time clock must work overtime, they are entitled to 1.5% of their regular hourly salary, unless the collective bargaining agreement or employment contract indicate a higher amount. Overtime hours should not exceed more than 10 per week, or 2 hours per day.

And that is the breakdown of what Legal Gratification is in Chile. For all your payroll, secretarial, human resources and management in Chile, contact us today at info@got.international and we will reach out to you with more information within 24 hours.