When a foreign group opens operations in Peru, one question comes up almost immediately: how can the new entity staff up without committing to permanent headcount before it knows whether the business will work? Peruvian law has a specific answer for that situation. The contrato por inicio o incremento de actividad (contract for start-up or increase of activity) is a fixed-term contract designed for the uncertainty that comes with a new business activity or an expansion of an existing one.
It is also one of the most frequently misused contracts in the Peruvian market. Because the idea of a “new activity” sounds broad, it is tempting to use it for any hire at a young company, or to keep using it long after the business has settled into a stable rhythm. This article explains when the contract fits, how to draft it and when to stop using it. For the full menu of fixed-term options, see fixed-term employment contracts in Peru.
What the contract is for
Peru’s Labor Productivity and Competitiveness Law (LPCL) starts from a presumption of indefinite employment. Fixed-term contracts, known as contratos sujetos a modalidad, are exceptions that require an objective cause. Article 57 of the LPCL sets out this particular type, for needs arising from:
- the start of a new business activity, and
- an increase in an existing activity.
The rationale is uncertainty. When a business starts something new, it cannot reliably predict the permanent staffing level it will need. The law allows it to hire on a fixed term while that uncertainty lasts, up to a maximum of three years.
In practice, companies rely on this contract when commencing operations in Peru, opening a new establishment, entering a new geographic or product market, or launching a new line of business within an existing company. Each of those situations can qualify, but none qualifies automatically. The question is always whether the activity was genuinely new or increased when the contract was signed and whether the employee’s role is tied to it.
Key point
The contract justifies itself through uncertainty about future staffing. The more predictable and permanent a role is, whatever the age of the company, the weaker the case for using it.
Start-up versus increase
The two branches work differently in practice. A start-up is usually easier to evidence: incorporation documents, the date operations commenced, the opening of a new site. An increase requires the employer to show that an existing activity grew in a way that created additional, uncertain staffing needs, which calls for data: new contracts won, volumes, capacity expansion. An increase that is merely asserted is difficult to defend.
It also helps to distinguish this contract from the contract for market needs. Market needs cover temporary, non-cyclical increases in demand for an existing activity, and may last up to five years. The start-up contract is about the newness of the activity itself. Choosing the wrong type is a common error, and an objective cause that describes one situation while the contract names the other is an obvious point of attack.
Limits and formalities
| Element | Rule | Practical note |
|---|---|---|
| Maximum duration | 3 years for this contract type | Count from the first contract, including renewals |
| Aggregate cap | 5 years across all fixed-term contracts with the same employee | Relevant if the employee later moves to another type |
| Form | Written, in triplicate, stating duration and objective cause | The cause must be specific to the activity and the role |
| Registration | Filed with the labor authority within 15 calendar days | Made through the MTPE online platform |
| Rights | Same benefits as indefinite employees | CTS, gratificaciones, leave, social security |
The Ministry of Labor and Employment Promotion (MTPE) administers the filing. Employees on these contracts are otherwise ordinary employees: they must be registered in the T-Registro electronic payroll by their first day and receive CTS (a severance fund the employer deposits twice a year into the employee’s bank account) and gratificaciones (statutory bonuses paid in July and December).
Drafting the objective cause
A defensible cause for this contract usually contains four elements:
- The activity. Name the new activity or the specific increase: the new plant, the regional office, the product line, the contract with a new client portfolio.
- The date. State when the activity started or the increase occurred, so that the “newness” can be checked against the contract date.
- The uncertainty. Explain briefly why permanent staffing needs cannot yet be determined.
- The role. Describe how the employee’s position serves that activity.
Supporting documents should be kept on file: the board or management decision approving the new activity, licenses or lease for the new site, commercial contracts, business plans or volume data. SUNAFIL, Peru’s national labor inspection authority, can request them, and they are equally relevant if the contract is later challenged in court.
Watch out
Avoid causes such as “due to the company’s growth” or “given the start of operations” without further detail. They are generic, cannot be tested against facts and are exactly the kind of wording that supports a finding of simulation.
Illustrative scenario
Illustrative scenario
Illustrative scenario: a Spanish food-distribution group sets up a Peruvian subsidiary and opens a distribution center outside Lima. It hires forty warehouse operators and six supervisors on start-up contracts of one year, each citing the opening of the distribution center, its start date and the uncertainty about sustained volumes in a new market. The country manager and the finance lead are hired on indefinite contracts, since those roles exist regardless of volume. At the end of the first year, volumes are below plan in some areas and above plan in others; the subsidiary renews most operators for a further year with an updated cause and lets some contracts expire. In the third year, with volumes stable and the center operating at a steady level, the subsidiary moves the remaining operators to indefinite contracts rather than approaching the three-year maximum.
The scenario shows the contract working as intended: it covers the period of genuine uncertainty and gives way to indefinite contracts once the business stabilizes. The alternative, renewing to the limit and then switching the same employees to a different fixed-term type, is the pattern most likely to lead to reclassification, as discussed in when fixed-term contracts become indefinite in Peru.
Common mistakes
- Using the contract for roles that are permanent from day one, such as senior management or core administrative functions.
- Continuing to invoke a “new” activity several years after it started.
- Describing an “increase” that is not supported by any data.
- Using identical wording in every contract regardless of the role.
- Letting the employee continue working after the three-year maximum or after a term expires without renewal.
- Confusing this contract with the market-needs contract, or with a seasonal contract where the need is cyclical.
Consequences of getting it wrong
If the objective cause is false or generic, or the limits are exceeded, the contract is deemed indefinite. The main cost appears when the employer ends the relationship believing it is an expiry: the employee may treat it as a dismissal without cause and claim statutory compensation or reinstatement. Inspectors may also impose fines for related infringements, such as missing filings, and require the employer to recognize indefinite status. For foreign-owned subsidiaries, the issue often reappears in audits or in a later sale, where a buyer will count these employees as indefinite.
Before choosing this contract
- Is the activity genuinely new, or is there a documented increase in an existing one?
- Does the uncertainty about staffing levels actually exist for this role?
- Is the employee’s job directly tied to the new or increased activity?
- Would the market-needs, seasonal or project contract fit the situation better?
- Is there documentary support for the cause, kept in the employee file?
- Is there a plan for what happens as the three-year limit approaches?
Key takeaways
The start-up or increase of activity contract is a legitimate tool for new operations in Peru, but it is time-limited by design. It fits the early, uncertain phase of a new business line and should be retired as the business stabilizes. Companies that combine it with indefinite contracts for permanent roles, write specific causes and plan the transition before the limit arrives keep its benefits without the reclassification risk. For the wider framework, see our guides to employment contracts in Peru and contract elements and forms. Our employment contract drafting work includes designing the hiring structure for new operations.