How to Run Payroll in Paraguay: Employment Taxes & Setup

Milani Notshe

Research Specialist

Last Updated

February 13, 2026

In This Guide

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Running payroll in Paraguay involves many moving parts before your team sees money land in their accounts. Each month you need to calculate gross-to-net correctly, apply statutory withholdings and employer contributions, issue compliant payslips, plus file and remit on schedule. If anything slips through the cracks, you could face penalties, back-pay exposure, and unnecessary friction with your people.

If you’re hiring in Paraguay, whether you’re building a local presence or expanding your global footprint, this guide is for you. We’ll walk through the choices and compliance requirements that have the biggest impact on your speed and risk, from entity vs. no-entity hiring to worker classification and the statutory bodies you’ll interact with along the way. By the end, you’ll know exactly what to expect and how to keep payroll running smoothly, wherever you’re hiring.

Key Takeaways

Payroll cycle: Employers in Paraguay generally process payroll on a monthly basis.

Tax filing: Income tax withholdings and social security contributions are typically reported and remitted monthly.

Employer taxes: Employer obligations include contributions to the social security system (IPS) and other statutory funds calculated as percentages of employee wages.

Tax year: Paraguay follows the calendar year for tax purposes, from January 1 to December 31.

Payroll processing methods: Payroll is commonly handled in-house or outsourced to providers familiar with Paraguayan tax and social security requirements.

How to Choose Your Payroll Structure in Paraguay

Expanding into Paraguay? Building a compliant payroll setup involves much more than simply paying salaries. You’ll be responsible for employment compliance, monthly tax and social declarations, and mandatory benefits. Even small delays in filings or payments can lead to real penalties.

You have several operating models to choose from to make this easier. The right one depends on your legal footprint, your appetite for risk, and how quickly you need to start hiring. Let’s break down the main options and when to use each.

1. No Local Entity in Paraguay: Use an Employer of Record (EOR)

If you don’t yet have a legal entity in Paraguay, an Employer of Record is usually the fastest and lowest-risk way to hire. An EOR becomes the legal employer on paper, provides locally compliant employment contracts, and manages payroll under local regulations, while you continue to direct the work and manage performance.

This model is ideal for:

Testing a new market
Hiring your first team members
Scaling a distributed workforce without building local infrastructure,

Why it’s the fastest and least risky option:

You skip the lengthy process (and cost) of setting up an entity.
All local registrations, monthly declarations, and statutory payments are handled by a provider already set up in-country, dramatically reducing your compliance risk.

2. You Have a Paraguay Entity: Run In-Country Payroll

If you already operate a local entity, or you’re planning to establish one, running payroll directly gives you maximum flexibility and control. You can set your own policies, design benefits, and align payroll closely with your finance and internal approval processes. But this also comes with greater operational responsibility.

What you’re responsible for:

Registering with relevant authorities and maintaining compliance with statutory bodies (often involving CSS/IPRES or similar local institutions).
Accurately calculating and remitting payroll taxes and contributions every month – plus handling year-end requirements.
Issuing compliant payslips and maintaining audit-ready payroll documentation.

When this option makes sense:

You’re hiring at scale and want payroll fully “in-house,” even if you partner with a local provider for execution.
You need deeper integration with finance systems or custom benefit structures.

If you want to keep the entity but offload the admin, many employers choose global payroll services to handle calculations, filings, and payments while they remain the legal employer.

3. Contractors Only: Use Contractor Management

Paying independent contractors is often simpler than setting up full payroll, especially for short-term or highly specialized work.

However, you need to watch out for misclassification risk. In Paraguay, as in many jurisdictions, someone may legally qualify as an employee based on how they work – not what their contract says. If they’re under your direction, working like an employee, you may be responsible for full employer obligations.

When contractor payments work well:

You need specialised expertise for a defined scope or timeframe
The contractor operates independently, not under your control or supervision

You can also use contractor management services to streamline compliant contracts, invoicing, and payments.

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What To Know About Payroll Processing In Paraguay

Payroll in Paraguay centers on four main obligations: income tax withholding, social security and pension contributions, labor accident insurance, and periodic payroll reporting to the Subsecretaría de Estado de Tributación (SET) and the Instituto de Previsión Social (IPS). You need to calculate and withhold employee contributions, add employer statutory costs, and submit accurate declarations within strict monthly deadlines that can vary slightly by taxpayer size and registration number.

Non-compliance can trigger fines, surcharges, interest, and audits, and it can also delay employee benefits from IPS and damage trust with your team. This guide walks you through how to calculate Paraguayan payroll taxes, align with current 2026 rates and thresholds, file and pay through the SET and IPS systems, and structure your setup whether you operate via a local entity or an Employer of Record. Where rules differ by income level or business profile, you will see what to check and which authority or regulation to consult.

Types Of Payroll Taxes In Paraguay

In Paraguay, payroll taxes combine income tax withholding, mandatory social security contributions to IPS, and labor risk insurance that together define the true cost of employment. You must track both employer and employee shares, apply the correct percentages to covered earnings, and respect monthly filing and payment schedules enforced by SET and IPS.

Impuesto A La Renta Personal (IRP) – Personal Income Tax Withholding

IRP is Paraguay’s personal income tax, and employers act as withholding agents when employees are registered under the tax system. Withholding is based on taxable income thresholds, with typical effective rates around 8%–10% for many employees and a top marginal rate of 10%, and you must remit the withheld amounts to SET according to the employee’s tax regime and your RUC schedule.

Employers are responsible for calculating the correct withholding, issuing supporting payslips, and filing monthly or periodic returns through the Marangatu portal. Late or incorrect payments can lead to interest, fines, and potential audits by SET, especially if discrepancies appear between payroll records and electronic filings.

Instituto De Previsión Social (IPS) – Pension, Health, And Social Security

IPS is the core social security system covering pensions, health insurance, and certain family and sickness benefits. Employers contribute approximately 16.5% of covered payroll, while employees contribute around 9% of their gross salary, with contributions calculated on regular earnings up to IPS-established ceilings.

Employers must register workers with IPS, submit monthly contribution reports, and pay via authorized banks or electronic channels within the statutory deadlines. Failure to pay IPS on time can result in surcharges, interest, and suspension of benefit coverage for employees, and repeated non-compliance can trigger enforcement actions and collection procedures.

Labor Accident And Occupational Risk Insurance

Paraguayan employers must also fund labor accident and occupational risk coverage, typically integrated into the broader social security and labor insurance framework. Rates vary by sector and risk profile, but a common benchmark is around 1%–2% of payroll paid solely by the employer on top of the standard IPS contribution.

These contributions are usually reported together with other social security payments and follow the same monthly payment cadence. Underreporting payroll or misclassifying risk levels can lead to back assessments, penalties, and increased premiums after inspections by labor and social security authorities.

How To Pay Employees In Paraguay

Employees in Paraguay are typically paid in Paraguayan guaraníes (PYG) via local bank transfer, although cash is still used in some smaller businesses and rural areas. Most employers run monthly payroll, and while the Labor Code does not fix a single national payday, it expects regular, predictable payment cycles and timely settlement of wages and the mandatory 13th salary (aguinaldo).

If you do not have a Paraguayan entity, you can hire through an Employer of Record, work with a local payroll partner, or register a subsidiary and obtain a RUC tax ID before onboarding staff. Payslips should clearly show gross salary, overtime, bonuses, IPS contributions, IRP withholding where applicable, other deductions, and net pay, and they must align with the figures reported to SET and IPS.

Payment Currency: Pay salaries primarily in Paraguayan guaraníes (PYG) unless a compliant foreign-currency arrangement is documented.
Pay Frequency: Use a consistent monthly cycle and ensure wages are paid no later than the agreed payday in the employment contract.
Payment Method: Prefer local bank transfers to trace payments and match them with payroll and tax records.
Payslip Content: Include employee details, period covered, gross earnings, each statutory deduction, employer contributions, and final net pay.
Entity Requirement: Obtain a local entity and RUC or use an Employer of Record if you cannot register quickly.
Record Keeping: Store payroll records, contracts, and proof of payment for at least the minimum statutory retention period required by tax and labor authorities.
Alignment With Filings: Ensure amounts on payslips reconcile with monthly IPS and SET declarations to avoid discrepancies.

Payroll Set Up Checklist (Entity Vs No-Entity)

Getting payroll right in Paraguay starts with choosing whether you will operate through your own legal entity or rely on an Employer of Record to hire on your behalf. Your choice affects how you register with SET and IPS, who signs employment contracts, and who is legally responsible for payroll taxes and labor compliance.

With a local entity, your finance and HR teams manage registrations, calculations, filings, and payments directly, while a no-entity model shifts most of that operational burden to an Employer of Record or local partner. In both cases, you must still understand the underlying rules so you can budget accurately and review payroll outputs before approving payments.

Decide Hiring Model: Choose between setting up a Paraguayan entity or using an Employer of Record for faster market entry.
Obtain Tax ID (RUC): Register the company with the Subsecretaría de Estado de Tributación to obtain a RUC and access the Marangatu portal.
Register With IPS: Enroll the company and each employee with the Instituto de Previsión Social for pension and health coverage.
Open Local Bank Account: Set up a Paraguayan bank account to pay salaries, IPS contributions, and tax liabilities in PYG.
Define Payroll Policies: Document pay frequency, overtime rules, allowances, and bonus structures consistent with Paraguayan labor law.
Configure Payroll Software: Implement payroll software or a provider that supports Paraguayan tax rules, IPS rates, and electronic filings.
Collect Employee Data: Gather IDs, tax registration details, bank information, and signed contracts before the first payroll run.
Map Cost Of Employment: Budget for approximately 16.5% IPS plus 1%–2% labor risk insurance on top of gross salaries.
Set Internal Cutoffs: Establish internal deadlines for timesheets, approvals, and data changes ahead of statutory due dates.
Align With Advisors: Coordinate with local legal and tax advisors to monitor regulatory changes affecting payroll.

Example Of Salary Tax Calculation

Imagine a full-time employee in Asunción earning a monthly gross salary of PYG 8,000,000. You would first calculate employee IPS contributions at roughly 9% of gross pay, then apply any applicable IRP withholding based on the employee’s annualized income and tax registration status.

On the employer side, you would add around 16.5% IPS plus 1.5% for labor accident insurance to estimate the total cost of employment. The result is a clear view of net pay for the employee and the full statutory burden your company must fund and remit to IPS and SET.

Step 1 – Determine Gross Pay: Confirm the monthly gross salary, including fixed allowances and recurring bonuses.
Step 2 – Calculate Employee IPS: Apply the 9% employee IPS rate to gross salary to find the social security deduction.
Step 3 – Estimate IRP: Annualize income, check IRP thresholds, and calculate any income tax withholding due for that month.
Step 4 – Compute Employer Contributions: Apply approximately 16.5% IPS plus around 1.5% labor risk insurance to gross salary.
Step 5 – Derive Net Pay And Total Cost: Subtract employee deductions from gross to get net pay and add employer contributions to see the full employment cost.

Submitting Employee Tax In Paraguay

In Paraguay, you submit payroll-related taxes and contributions primarily through the SET Marangatu portal and the IPS online system, followed by payment via authorized banks or electronic transfers. Before filing, you need your company RUC, IPS employer code, payroll period details, employee identifiers, and the breakdown of contributions and withholdings.

SET Portal Filing: Log into Marangatu with your RUC credentials to complete and submit monthly tax forms for IRP and related obligations.
IPS Online Declarations: Use the IPS system to upload or enter monthly contribution data for each employee.
Bank Payment: Generate payment slips or references and pay via partner banks or online banking within the allowed window.
Payroll Software Integration: Use payroll software that can export or directly submit files in the formats required by SET and IPS.
Third-Party Provider: Engage a local payroll provider or Employer of Record to handle filings while you review and approve summaries.
Reconciliation And Archiving: Reconcile payment confirmations with filed returns and store them with payroll reports for audit readiness.

Payroll Tax Due Dates In Paraguay

Tax Type	Due Dates
IPS Social Security Contributions	Monthly, generally due by the 10th to 15th of the following month depending on the employer code and IPS schedule.
IRP Withholding (Personal Income Tax)	Monthly, due in the following month according to the RUC-based calendar published annually by SET.
Employer Labor Accident Insurance	Monthly, paid together with IPS contributions by the IPS monthly deadline.
Salary Tax And Payroll Summary Reporting To SET	Monthly, due on staggered dates in the following month based on the employer’s RUC termination digit.
Annual IRP Reconciliation For Employees	Annually, typically due in the first half of the year following the tax year as defined in the SET calendar.
Annual Employer Payroll Information Statements	Annually, due on dates set by SET’s yearly resolution for large and medium taxpayers.

Running Payroll Processing in Paraguay

So, what does it actually take to run payroll in Paraguay? It involves calculating monthly salaries, applying the right statutory deductions, and making sure your team gets paid accurately and on time, while staying fully compliant with local tax and labour laws.

Let’s walk through what that looks like in practice:

Monthly Payroll Workflow

Gather all the essentials: hours worked, leave taken, new joiners, leavers, and any salary or benefit changes.
Double-check timesheets, leave balances, overtime, and any variable pay to make sure everything is accurate.
Work out gross earnings, including base salary, bonuses, commissions, and allowances.
Apply mandatory and voluntary deductions, like income tax, pension contributions, benefits, and any company-specific deductions. Then, calculate net pay after all deductions.
Run internal reviews, compare with previous payroll cycles, and get the necessary approvals.
Pay employees via bank transfer and share payslips through email or your payroll system.
Send statutory payments and required reports to tax authorities.
Update your records and ensure payroll entries flow correctly into your accounting system.
Share payroll summaries with finance and address any open questions or discrepancies.

How Playroll Streamlines Processing

Keeping track of all these steps, especially in a new market, is no easy task. Regulations change, requirements shift, and it’s easy for things to fall through the cracks. Playroll makes this effortless by managing the entire payroll process for you: onboarding employees, handling calculations and deductions, issuing payslips, transferring funds in Paraguayan Guaraní, and taking care of statutory filings and compliance.

Income Tax And Social Security In Paraguay

Understanding the tax obligations for both employers and employees is crucial when operating in Paraguay's business landscape. This section explains how taxes and statutory fees affect payroll and individual earnings in Paraguay.

Employer Tax Contributions

Employer payroll contributions are generally estimated at an additional 17.5%–19% on top of the employee salary in Paraguay. This range reflects the standard IPS rate of around 16.5% plus typical labor accident and occupational risk insurance of about 1%–2%, depending on sector and risk classification.

Tax Type	Tax Rate
IPS Employer Contribution (Pension, Health, Family Benefits)	Approximately 16.5% of covered payroll
Labor Accident And Occupational Risk Insurance	Approximately 1%–2% of payroll depending on risk category
Maternity And Sickness Insurance (Employer Share Within IPS)	Included within the 16.5% IPS employer rate
Unemployment And Severance Funding (Via Statutory Benefits)	Cost reflected through severance obligations rather than a fixed percentage contribution
Employer Administration Fee To Payroll Provider (If Outsourced)	Commercial rate, often 1%–3% of payroll or a fixed fee per employee

Employee Payroll Tax Contributions

In Paraguay, the typical estimation for employee payroll contributions cost is around 9%.

Tax Type	Tax Rate
IPS Employee Contribution (Pension And Health)	Approximately 9% of gross salary
IRP Personal Income Tax Withholding	Up to 10% of taxable income for employees within the IRP regime
Additional Voluntary Pension Savings	Optional, rate defined by the chosen private plan
Union Dues (If Applicable)	Typically 1%–2% of salary where a union agreement exists
Other Voluntary Deductions (Loans, Advances)	As agreed in writing with the employee, within legal limits

Individual Income Tax Contributions

Individual income tax in Paraguay is structured as a schedular system where IRP applies once annual income exceeds specific thresholds set in tax units. Residents generally face a flat 10% rate on taxable income above the threshold, with effective rates lower for those just entering the system.

Income Bracket	Tax Rate
Up to IRP annual threshold	0%
Above IRP threshold up to mid-income level	10%
High-income earners above mid-income level	10%
Non-resident employment income	10%

Pension in Paraguay

Pension in Paraguay is primarily delivered through the IPS system, funded by combined employer and employee contributions on monthly salaries. Employees may also participate in voluntary private pension or savings plans to supplement their statutory IPS pension, especially for higher-income earners seeking additional retirement security.

Managing Common Payroll Challenges in Paraguay

Global employers operating in Paraguay often encounter unique payroll challenges that can affect compliance and efficiency, like navigating evolving tax laws and managing employee data. With a need for real-time accuracy, modern organizations must develop strategies to overcome these challenges effectively. Below, we explore some of the most common payroll hurdles and provide actionable solutions to streamline payroll processes in Paraguay.

Maintaining Accurate And Detailed Payroll Reports

Maintaining accurate global payroll reports is often challenging due to currency exchange complexities, data integration issues, and the need to keep employee information up-to-date –including tax information, hours worked, leave balances, and any changes in salary or job status. Generating accurate reports is easy with a comprehensive payroll automation tool that consolidates fragmented data sources, and can keep track of employee payments and deductions.

Keeping up with ever-changing tax laws & Compliance Laws

In Paraguay, tax laws and compliance regulations can change frequently, presenting a significant challenge for global employers. Monitoring updates to federal, state, and local tax codes is crucial to avoid non-compliance and costly penalties, but requires significant time and resources. Partnering with local experts or a reputable global HR platform is an effective way to maintain compliance. These services can help employers stay compliant with evolving regulations while freeing up time for more strategic work.

Consolidating Multi-Vendor Payroll Analytics

Managing payroll across multiple vendors often leads to fragmented data and inefficiencies, making it difficult to consolidate analytics. These challenges can hinder decision-making, especially when trying to gain a clear view of workforce costs and trends. To address this, organizations can invest in a centralized payroll management system that unifies data from multiple vendors. A consolidated platform simplifies payroll tracking, ensures data accuracy, and provides actionable insights into payroll expenditures.

Integrating Multiple HR & Payroll Systems

Global companies are prone to using multiple HR or payroll systems across regions, which can easily lead to fragmented payroll data, increasing the risk of delays and errors in employee compensation. To combat this, seamless integration between payroll and other systems is critical.

Payroll management systems that connect with existing HR and financial platforms can help streamline workflows by reducing manual inputs and ensuring that all departments operate with up-to-date, accurate information. In turn, this helps guarantee on-time, accurate payroll, boosting employee satisfaction.

How Playroll Can Streamline Payroll & Taxes In Paraguay

Expanding globally is an exciting milestone for any company, but it comes coupled with complex payroll challenges. It doesn’t have to be complicated. At Playroll, our easy-to-implement global payroll management software combines automation with hands-on support to make global payroll truly simple. Here's how Playroll helps:

Multi-Vendor Integration: Our platform syncs seamlessly with your providers and in-house systems to unify global payroll services in one platform.
Standardize Payroll Processes: Unify your operations in one dashboard to ensure payroll is running smoothly globally, with advanced approval flows and reports.
Improve Governance & Compliance: Improve compliance by centralizing all your compliance tasks and processes. Easily track your payment obligations, with digitized audit trails.
Advanced Reporting: Access and configure your data, your way, with a comprehensive suite of payroll analytics and reporting tools.

Disclaimer

THIS CONTENT IS FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSTITUTE LEGAL OR TAX ADVICE. You should always consult with and rely on your own legal and/or tax advisor(s). Playroll does not provide legal or tax advice. The information is general and not tailored to a specific company or workforce and does not reflect Playroll’s product delivery in any given jurisdiction. Playroll makes no representations or warranties concerning the accuracy, completeness, or timeliness of this information and shall have no liability arising out of or in connection with it, including any loss caused by use of, or reliance on, the information.

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