Identifying and sizing employment liabilities in a Peruvian subsidiary

When a parent company asks its Peruvian subsidiary for an estimate of employment exposure, the answer often arrives as a single number from the local HR team or a list of open lawsuits from outside counsel. Neither is enough. Group finance needs to know what is already owed, what could become payable, how likely each item is, and which assumptions drive the figure; auditors will want to trace each number back to payroll data.

Peru is a jurisdiction where this exercise is unusually tractable. Unlike at-will systems, Peruvian employment law fixes most indemnities, premiums and benefit formulas by statute, so a large part of the exposure can be calculated rather than guessed. The difficulty lies elsewhere: in spotting the liabilities that do not appear in any ledger because the subsidiary does not know it has them. This article sets out a working method for identifying, classifying and sizing those liabilities, and for presenting them in a way that survives scrutiny at group level. It sits within our broader guide to employment risk in Peru.

Four families of employment liability

Each family calls for different evidence and a different sizing method.

1. Amounts already owed. These are obligations that have accrued under the law but have not been paid correctly: CTS deposits calculated on an incomplete base (CTS is a severance fund the employer deposits twice a year into a bank account chosen by the employee), gratificaciones (two statutory bonuses paid in July and December) that omit regular variable pay, overtime that was worked but not paid, or unused annual leave beyond the legal window. They exist whether or not anyone claims them.

2. Pending claims. Lawsuits, pre-litigation demands and complaints already filed by current or former employees. These are visible, but their outcomes are uncertain.

3. Administrative exposure. Open or foreseeable proceedings before SUNAFIL, Peru’s national labor inspection authority, which can impose fines and compliance orders. An inspection often starts from a single employee complaint and then extends to the whole workforce.

4. Structural risk. Liabilities embedded in how the subsidiary organizes work: fixed-term contracts without a valid objective cause, contractors who operate like employees, outsourcing arrangements that could be recharacterized, or employees classified as “trust” or “management” staff to exclude them from working-time limits. Nothing is owed until someone challenges the arrangement, but when that happens the effect usually reaches an entire group of workers.

Where to look: the identification phase

Identification is a document exercise supported by a few targeted interviews. A practical sequence for a subsidiary review, of the kind we describe in more detail in how an employment audit works, covers the following sources.

• Payroll and headcount data. The electronic payroll (planilla electrónica, made up of the T-Registro worker register and the monthly PLAME filing submitted through SUNAT, the tax authority) should be reconciled with the HR master file and with the general ledger. Gaps between them are the first red flag.
• Contracts. Every fixed-term contract should state its modality and objective cause in writing; the total term of successive fixed-term contracts cannot exceed five years. Employees who keep working after a fixed-term contract expires are, by law, treated as indefinite-term employees.
• Time records. Peru requires a permanent attendance register covering entry, exit and overtime. Comparing it with access-control logs, system logins or shift rosters is the fastest way to detect unpaid overtime.
• Leave balances. Any employee who has not taken annual leave within the year following the year in which it accrued is entitled to an additional indemnity. Leave balances by employee and accrual year matter more than the total.
• Third-party arrangements. Outsourcing, staffing and independent-contractor agreements, together with evidence of who actually directs the work.
• Inspection and litigation files. SUNAFIL notices received through its electronic mailbox, inspection records, compliance orders, lawsuits and settlement history.
• Health and safety records. Risk assessments, training logs, medical examinations and accident registers. Gaps here create administrative exposure and, after a serious accident, much larger civil and criminal consequences.

Sizing: statutory formulas first

Once each liability is identified, the next step is to translate it into money. The table below summarizes the main statutory measures that drive sizing. Figures in soles depend on each employee’s pay; the formulas are what matter.

For administrative exposure, SUNAFIL fines are expressed in UIT, Peru’s tax reference unit, which is S/ 5,500 in 2026 (Supreme Decree 301-2025-EF). The fine depends on severity, company size and the number of workers affected. For a company outside the micro and small enterprise regime, the 2026 table yields, for example, S/ 8,635 for a serious infringement affecting up to 10 workers and S/ 14,465 for a very serious one, rising steeply with headcount. The law caps each infringement at 50, 100 or 200 UIT (minor, serious, very serious) and the total for all infringements found in one inspection at 300 UIT. Our article on how labor fines are calculated walks through the table in detail.

Items that formulas do not capture

Interest on labor debts, court costs and the time a case takes to reach judgment must be estimated rather than calculated. Reinstatement orders are the hardest to price: back pay accrues until the employee returns. A stated assumption (“judgment in approximately three years, reinstatement ordered”) is more honest than false precision.

Classifying by likelihood

Group reporting usually distinguishes between outflows that are probable, possible and remote. Counsel should not decide the accounting treatment, but it should give finance a reasoned view of likelihood for each item, based on the strength of the evidence and the prevailing approach of Peruvian courts and SUNAFIL.

A few working rules help keep the classification consistent:

• Accrued shortfalls backed by payroll data are generally at the probable end: the obligation already exists and the calculation is objective.
• Structural risks depend on facts. A fixed-term contract with a generic cause (“increase in activity” without any explanation) is much more exposed than one with a documented, verifiable reason. Peruvian courts and inspectors apply the principle of primacy of reality, looking at what actually happens rather than what the documents say.
• Litigation should be assessed claim by claim, considering the procedural stage, the quality of the employer’s evidence and whether reinstatement is being sought.
• Inspection exposure is higher when a proceeding is already open or when the same issue affects many employees who could file complaints.

Building the risk matrix

The matrix is the document that travels to the parent company. It should be readable by someone who does not know Peruvian law and testable by an auditor. A workable format has one line per risk, grouped by family, with these fields: description, employees affected, legal basis, likelihood, low / base / high amount, key assumptions, owner and remediation action.

Likelihood and impact can then be plotted on a simple grid:

The discipline matters more than the grid: every number has an assumption, and every risk has an owner and a decision.

Presenting ranges to group finance and auditors

Finance teams and auditors in the parent company will read the matrix with three questions in mind: is the population complete, are the calculations reproducible, and are the assumptions reasonable? The presentation should answer them before they are asked.

1. Reconcile the population. State the headcount used and reconcile it to payroll and to the ledger. Explain exclusions.
2. Separate the cash that is owed from the contingent exposure. Accrued shortfalls should be presented apart from litigation and structural risk; mixing them invites challenge.
3. Show three scenarios. Low (only what is certain), base (what is most likely given the evidence) and high (adverse but plausible). Explain what moves an item between scenarios.
4. Disclose the assumptions. Salary base, time horizon, likelihood rationale, whether fines are assumed to be cured or not, exchange rate if reporting in another currency.
5. Attach remediation. For every material item, the cost of fixing it and the effect of fixing it on the range. Remediation often costs less than the contingency it removes.
6. Date the analysis. Peruvian reference values change: the UIT is updated every year, and an increase to the minimum wage, currently S/ 1,130, has been announced but still requires a supreme decree. Figures tied to these values need a date.

Common mistakes in subsidiary reporting

• Reporting only litigation. The claims list is the visible part; accrued and structural items are often larger.
• Using averages instead of employee-level data. Indemnities, caps and tenure-based calculations make averages misleading.
• Treating the estimate as a one-off. Exposure changes every month as tenure grows, contracts renew and leave accrues.
• Leaving remediation out of the picture. Without a cost-to-fix, management cannot compare paying now with carrying the risk.

When the same analysis supports a sale, a refinancing or an acquisition, it becomes the backbone of employment due diligence in Peruvian transactions and of the pre-closing risk review.

Key takeaways

Sizing employment liabilities in Peru is mostly a matter of disciplined data work applied to statutory formulas. The legal rules are precise enough that accrued shortfalls and indemnities can be calculated; what requires judgment is likelihood, timing and the treatment of structural risks. A ranged, assumption-driven matrix, reconciled to payroll and refreshed each quarter, gives group finance and auditors something they can rely on, and gives local management a remediation plan rather than a number to defend. An independent employment audit is often the most efficient way to produce the first version.