Do I Need a Local Entity to Hire in El Salvador?

In El Salvador, a "local entity" typically refers to a business structure like a subsidiary or branch office that allows you to operate as an employer within the country. This setup is essential for managing payroll, tax obligations, and employment contracts in compliance with local laws.

Without establishing a local entity, you generally cannot fulfill employer obligations such as registering for payroll taxes, managing social security contributions, or issuing compliant employment agreements. However, using an Employer of Record (EOR) can provide a practical solution, allowing you to hire employees without the complexities of setting up a local entity.

What is Required to Employ Someone in El Salvador?

• Local employing entity required to directly employ? Yes (necessary for direct employment and compliance)
• Payroll registration required? Yes (must register with the Ministry of Finance)
• Withholding/tax remittance required? Yes (mandatory payroll tax withholdings apply)
• Social contributions required? Yes (employers must contribute to social security)
• Local employment agreement required? Yes (written contracts are legally required)
• Mandatory benefits to budget? Yes (includes vacation, sick leave, and social security)
• Works council/collective agreements considerations? Usually (depending on the sector, collective agreements may apply)

Best Options If You're Hiring in El Salvador

Can I Hire Contractors Instead of Setting Up an Entity?

Yes, but you should be cautious about misclassification risks.

While hiring contractors in El Salvador doesn't require a local entity, you must ensure that the contractor relationship is genuinely independent. Misclassification can lead to legal issues if the contractor is deemed to be functioning as an employee. Consider the following:

• Ensure the contractor has multiple clients and is not exclusively working for you.
• Limit your control over how they perform their work.
• Clearly define the scope and duration of the project in the contract.

How Long Does Entity Setup Take And What Does It Cost?

Typical entity setup timeline: It often takes 4–6 weeks to set up an entity in El Salvador, depending on necessary registrations and approvals.

Ongoing cost categories (entity route):

• Accounting, bookkeeping, and statutory filings: Estimated $300–$800 per month
• Payroll provider: Estimated $20–$50 per employee per month
• Employer registrations and recurring compliance: Estimated $200–$500 per year
• Corporate tax filings and annual reporting: Estimated $500–$1,500 per year

EOR cost components (no-entity route):

• A per-employee EOR service fee (from $399 per month with Playroll)
• Pass-through statutory costs (e.g., employer social security contributions, typically around 7.5% of gross salary)
• Any optional benefits you choose to provide beyond statutory minimums

How an Employer of Record Can Help You Hire in El Salvador

Hiring in El Salvador can be complex, but it doesn’t have to require setting up a local entity or taking on long-term overhead. With an Employer of Record like Playroll, you get a simple, predictable way to hire compliantly while keeping costs transparent and under control. We help you:

• Hire employees in El Salvador quickly without establishing a local entity, eliminating incorporation costs, ongoing administration, and exit complexity.
• Stay fully compliant with local payroll, tax, and employment regulations with Playroll’s payroll services.
• Control your total employment costs, with a clear monthly EOR service fee (from $399 per employee).
• Focus on growing your business, while we manage contracts, payroll, compliance, and labor law obligations end to end.
• Scale up or exit the market easily, without the financial or legal burden of closing a local entity.