Employer of Record in Paraguay: how to hire compliantly without an entity.
Employ full-time employees in Paraguay without setting up an entity. Locally compliant contracts, monthly payroll, statutory benefits, taxes. Below: what the law actually requires, in plain English.
- Country
- Paraguay
- ISO code
- PY
- Region
- South America
- Phone code
- +595
- Employ Latam coverage
- Full EOR + contractor payments
Last updated July 2026
Overview
Paraguay sits in the heart of South America, landlocked between Brazil, Argentina, and Bolivia. It runs on a formal civil-law system, and employment is governed primarily by the Código del Trabajo (Labour Code, Ley N° 213). The regulatory environment is relatively straightforward compared to larger regional economies, which makes it an accessible entry point for companies expanding into Latin America.
The official currency is the Paraguayan guaraní (PYG). Contracts and payroll must be expressed in local currency. The standard working week is 48 hours across six days, with an eight-hour workday. Most professional roles follow a Monday-to-Friday schedule in practice, but the statutory ceiling is what drives compliance.
Social security sits with the Instituto de Previsión Social (IPS). Employers contribute 16.5% of gross salary; employees contribute a separate portion withheld at source. The employer is responsible for calculating, withholding, and remitting both sides to the IPS on time.
One point worth noting: Paraguay does not have a universal statutory 13th-month bonus in the way Mexico or Brazil do. Any end-of-year bonus is typically discretionary or driven by a collective agreement, not the Labour Code. Budget accordingly.
Country at a glance
| Detail | Paraguay |
|---|---|
| Currency | Paraguayan guaraní (PYG) |
| Working week | 48 hours (6 days statutory maximum) |
| Standard workday | 8 hours |
| Probation period | Up to 30 days |
| Notice period | 30 days (employer-initiated, without cause) |
| 13th-month salary | Not statutory; discretionary or CBA-driven |
| Payroll cycle | Monthly (standard for full-time employees) |
To hire legally in Paraguay without a local entity, you need an employer of record. The EOR holds the employment relationship, issues a locally compliant contract, runs payroll in PYG, handles IPS contributions, and manages statutory benefits. You direct the work.
Employ Latam can get a new hire onboarded and live within 72 hours of receiving signed documents. Pricing starts from $349 per employee per month, varying by country and team size.
Employment contracts and worker types
Paraguayan labour law (Código del Trabajo, Ley N° 213) presumes every employment relationship is indefinite unless a valid fixed-term contract exists and meets statutory criteria. That presumption matters: if a fixed-term contract is poorly structured or extended beyond its original term, it converts automatically into a permanent one.
Written contracts are not always legally required, but in practice every formal hire needs one. An EOR issues a locally compliant employment contract as the legal employer, so the worker is properly classified from day one.
Contract types at a glance
| Contract type | Typical use | Max duration | Probation allowed |
|---|---|---|---|
| Indefinite (indefinido) | Ongoing, permanent roles | No limit | Yes, typically 30 to 60 days |
| Fixed-term | Seasonal work, defined projects, temporary cover | 5 years; beyond that, treated as indefinite | Yes, within the fixed term |
| Part-time | Fewer than 48 hours per week; pro-rated benefits apply | No limit (indefinite or fixed) | Yes |
| Apprenticeship (aprendizaje) | Skill training for workers aged 16 to 18 | Tied to training period | Not applicable |
A few specifics worth noting:
- Fixed-term contracts must be justified by the nature of the work. Convenience is not a valid reason.
- Part-time contracts must state working hours and pay basis clearly. Benefits are pro-rated, not eliminated.
- Apprenticeship contracts cap working hours at 24 per week and require pay of at least 60% of the national minimum wage.
Contractor vs. employee
Misclassifying an employee as an independent contractor carries real risk in Paraguay. If the work is ongoing, directed by the company, and performed personally, the relationship is likely employment under the Labour Code. Courts and the Ministry of Labour look at the substance of the arrangement, not the label on the contract.
If you need a contractor relationship for a genuinely project-based engagement, document the scope, deliverables, and independence clearly. For anything that looks like a regular working relationship, hire through an EOR on an employment contract.
What the EOR handles
When you hire through Employ Latam, we issue the employment contract, classify the worker correctly, and run payroll in Paraguayan guaraní (PYG). You manage the work. Onboarding can go live in 72 hours.
Payroll, taxes, and the 13th-month salary
Paraguay runs on a monthly payroll cycle. Salaries are paid in Paraguayan guaraní (PYG). All contracts and offer letters must state compensation in local currency, and payroll filings align with monthly remittance deadlines set by the Instituto de Previsión Social (IPS) and the tax authority (SET, Administración Tributaria).
Salary frequency and the 13th-month question
Paraguay does not mandate a statutory 13th-month bonus the way some other LATAM countries do. There is no aguinaldo equivalent written into the Labour Code as a universal obligation. In practice, some employers pay a Christmas or year-end bonus, but this is either discretionary or driven by a collective bargaining agreement. If you are hiring outside a unionized sector, no blanket 13th-month payment is legally required. Check any applicable collective agreement before assuming.
Employer and employee contributions
The core statutory obligation is IPS (social security), which covers old-age, disability, survivor, health, maternity, and workplace-injury benefits.
| Contribution | Employer rate | Employee rate |
|---|---|---|
| IPS (social security, health, pension) | 16.5% of gross salary | 9% of gross salary |
| Personal income tax (withheld by employer) | 0% (employer acts as withholding agent only) | Progressive; employer remits on employee's behalf |
The employer withholds the employee's 9% IPS share from gross pay and remits both portions to the IPS. For personal income tax, the employer acts as the withholding agent and pays the SET on the employee's behalf. Paraguay's income tax rates are progressive, and the SET sets the applicable brackets.
Budget at least 16.5% of gross salary as your employer-only cost on top of payroll. That is before any discretionary bonuses or additional benefits you choose to offer.
How payroll runs in practice
- Payroll processes monthly, with IPS and tax filings due on a defined monthly schedule.
- Employee IPS (9%) is deducted from gross pay before the employee receives net salary.
- Employer IPS (16.5%) is paid separately and does not reduce the employee's gross.
- All figures are calculated and remitted in PYG.
- Statutory contributions are subject to change by IPS or SET regulation. Rates should be reviewed periodically.
With Employ Latam, payroll runs in local currency, statutory contributions are handled each cycle, and you get a locally compliant employment contract from day one. Onboarding can be live in 72 hours. Pricing starts from $349 per employee per month, depending on country and team size.
Mandatory benefits, vacation, and parental leave
Paraguay's Labour Code (Ley N° 213) sets clear statutory minimums. These apply to all employees regardless of contract type, and none can be waived by agreement.
Leave entitlements
| Leave type | Entitlement | Paid by |
|---|---|---|
| Annual leave | 15 calendar days after 12 months of continuous service | Employer |
| Sick leave | Up to 90 days | IPS (after initial employer-paid period) |
| Maternity leave | 12 weeks (84 days) | IPS |
| Paternity leave | Not codified at the statutory level; typically employer policy | Employer |
| Public holidays | 13 to 15 days per year | Employer |
Annual leave
Employees earn 15 calendar days of paid leave after completing one full year of continuous service. The employer schedules when leave is taken, though it must be granted within the same year or as otherwise agreed. Part-time employees receive leave on a pro-rated basis.
Sick leave
The IPS system covers up to 90 days of sick leave. In practice, employers may need to cover pay during the early days before IPS reimbursement kicks in. Employees must present a certified medical note. Make sure your payroll process accounts for the IPS claim cycle so there are no gaps in the employee's pay.
Maternity leave
Pregnant employees are entitled to 12 weeks of paid leave, funded through IPS. The employment relationship is protected during this period. The employer does not bear the direct wage cost, but must maintain the contract and coordinate with IPS for the subsidy. There is no equivalent statutory paternity leave under the Labour Code. Some employers offer a short paid period as company policy, which should be spelled out in the employment contract.
Public holidays
Paraguay observes 13 to 15 public holidays per year, set by national decree. Employees are entitled to paid time off on each. If an employee works on a public holiday, the Labour Code requires additional compensation or compensatory time off. The exact list shifts slightly year to year, so payroll calendars need to be updated annually.
No statutory 13th-month bonus
Unlike several other LATAM countries, Paraguay does not mandate a 13th-month salary or aguinaldo equivalent under the Labour Code. Any end-of-year bonus is either discretionary or driven by a collective bargaining agreement. If your hire is covered by a union agreement, check the specific terms before finalizing the offer.
Severance, termination, and notice periods
Paraguay's Labour Code sets clear rules for ending an employment relationship. The key variable is whether the termination is with or without cause. Getting this wrong is one of the most common and costly mistakes employers make.
Termination with cause
An employer can dismiss an employee without severance if there is a valid legal cause (justa causa) under Article 81 of the Labour Code. Valid causes include serious misconduct, repeated insubordination, fraud, or abandonment. The employer must document the cause and follow the correct procedure. If the stated cause is later challenged and not upheld, the dismissal converts to a without-cause termination and full severance applies.
Termination without cause
When there is no valid cause, the employer owes both a notice period and severance pay. These amounts scale with tenure.
| Tenure | Notice period | Severance owed (without cause) |
|---|---|---|
| Under 1 year | 30 days | 15 days' salary per year worked (pro-rated) |
| 1 to 3 years | 30 days | 15 days' salary per completed year |
| 3 to 5 years | 45 days | 20 days' salary per completed year |
| 5 years or more | 60 days | 30 days' salary per completed year |
Notice can be worked out or paid in lieu. If the employer opts to pay in lieu, the notice amount is added to the final settlement. Severance is calculated on the employee's ordinary salary and must be paid in Paraguayan guaraní (PYG) at the time of separation.
Mutual agreement and resignation
Employees who resign are not entitled to severance under the Labour Code. A mutual termination agreement (rescisión por mutuo acuerdo) is possible, but any waiver of statutory rights must be documented carefully to be enforceable. In practice, employers often negotiate a separation package above the statutory floor to reduce dispute risk.
What the final settlement includes
The final settlement (liquidación) at termination without cause typically covers:
- Severance pay per the table above
- Payment in lieu of notice (if applicable)
- Accrued and unused vacation pay
- Proportional salary for days worked in the final month
- Any outstanding bonus or commission owed under the contract
There is no FGTS-style severance fund in Paraguay. The employer pays the full amount directly at the time of separation.
Recent regulatory changes
Paraguay's labor framework is relatively stable, but a few updates in the past two years affect payroll costs and compliance obligations. If you're hiring now or planning to scale a team in 2025, these are the changes that matter.
Changes in the last 24 months
| Date | Change | Impact on employers |
|---|---|---|
| Jan 2024 | Minimum wage increased to PYG 2,680,839/month | Raises the floor for all salary calculations, IPS contributions, and apprenticeship wage minimums (60% of minimum wage) |
| Jan 2023 | Minimum wage increased to PYG 2,550,307/month | Adjusted IPS base calculations for all employees earning at or near the floor |
| 2023–2024 | IPS enforcement tightened on remote and platform workers | Employers using EOR or engaging remote staff must ensure IPS registration is completed before payroll runs; penalties for late registration increased |
| 2024 | SET (tax authority) expanded digital filing requirements | Employers must file payroll-related tax declarations through the Marangatú digital platform; paper submissions no longer accepted for most employer categories |
What this means in practice
Minimum wage adjustments flow directly into IPS contribution calculations. Because employer IPS is set at 16.5% of gross salary, each annual wage floor increase raises your baseline payroll cost automatically. Budget for this when modeling total employment cost.
The IPS enforcement shift is significant for remote-first hiring. Paraguay's social security authority has been clearer that workers hired through digital or cross-border arrangements must be registered and contributing from day one, not retroactively. An EOR handles this by default: the worker is registered with IPS before the first paycheck runs.
The SET's move to mandatory digital filing through Marangatú affects any employer acting as a withholding agent for income tax. If you're running payroll in-country without an EOR, you need Marangatú access and a local fiscal representative. With an EOR, this is handled as part of the payroll service.
What to watch in 2025
- A further minimum wage review is expected in early 2025. Paraguay typically adjusts the wage floor annually, so model a 5 to 8 percent increase as a planning assumption.
- Ongoing IPS discussions around contribution rate adjustments have not produced a confirmed change, but employers should monitor official IPS bulletins.
- No major Labor Code reform is currently enacted, though draft proposals on remote work formalization have been circulating in the legislature since 2023.
Frequently asked questions
- Do I need a local entity to hire in Paraguay?
- No. A foreign company cannot legally employ someone in Paraguay without either registering a local entity or using an employer of record. An EOR like Employ Latam holds the employment relationship on your behalf, so you can hire quickly without the cost or time of setting up a local company. You retain full control over the work; we handle the contract, payroll, and statutory contributions.
- What is the most common employment contract in Paraguay?
- The indefinite-term contract is the standard for most full-time hires and is what Paraguayan labour law defaults to when no valid fixed-term arrangement exists. Fixed-term contracts are used for seasonal roles, defined projects, or temporary cover, but they must be justified by the nature of the work and put in writing. If a fixed-term contract is extended past its agreed end date or the five-year maximum, it converts automatically into an indefinite contract.
- What is the total employer cost on top of gross salary in Paraguay?
- The primary statutory employer cost is the IPS contribution at 16.5% of gross salary. Paraguay does not require a universal 13th-month bonus by law, so outside of collective agreements there is no additional mandatory annual bonus to budget for. Your total employer cost above gross pay is therefore lower than in several neighboring countries, though you should still account for any sector-specific collective agreement obligations before finalizing your compensation model.
- How long is paid maternity leave in Paraguay?
- Maternity leave in Paraguay is 12 weeks (84 days) of paid leave. The cost is covered by the IPS social security system, not directly by the employer, though the employer must maintain the employment contract throughout. Employers should coordinate with IPS to ensure the subsidy is claimed correctly and the employee receives uninterrupted pay.
- How much severance is owed for terminating an employee without cause in Paraguay?
- The amount depends on how long the employee has worked for you. For tenures under three years, the baseline is 15 days' salary per completed year. That rises to 20 days per year for three to five years of service, and 30 days per year for employees with five or more years. You also owe notice pay (or working notice of 30 to 60 days depending on tenure), plus any accrued vacation and outstanding salary. All amounts are paid directly by the employer in PYG at the point of separation.
- What are the most important recent labor law changes in Paraguay that affect hiring costs?
- The main changes are annual minimum wage increases, which directly raise the IPS contribution base since employer social security is calculated at 16.5% of gross salary. The 2024 minimum wage of PYG 2,680,839 per month is the current floor, and a further increase is expected in early 2025. IPS enforcement on remote and platform workers has also tightened, meaning registration must happen before the first payroll run, not after.
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