Statutory benefits review in Peru

For a group used to a single annual salary figure, Peru’s benefits system can look fragmented. Alongside the monthly salary, employers pay two statutory bonuses a year, deposit a severance fund twice a year, contribute to public health insurance and, above a headcount threshold, share profits with employees. Each benefit has its own base, calendar and exclusions, and errors in one tend to repeat in the others.

The business problem

CTS is a severance fund the employer deposits twice a year, within the first 15 days of May and November, into a bank account in the employee’s name. Gratificaciones are two statutory bonuses, each equal to a monthly salary for a full semester worked, paid in the first half of July and December, together with an extraordinary bonus equivalent to the health contribution the employer would otherwise have paid on them. Companies with more than 20 employees on average that generate business income must also share a percentage of their pre-tax profits, which varies by sector.

The difficulty lies in the base. Peruvian law treats as remuneration anything the employee receives for their work that they can freely dispose of, whatever it is called. Some items are excluded by law, but a regularly paid bonus or allowance usually is not. When a group introduces a bonus or allowance without checking its classification, the error multiplies across every benefit calculated on that base. Our guide to employee benefits in Peru sets out the system; our notes on CTS and on computable pay cover the calculation issues.

How we approach it

We start with an inventory of every item the entity pays: salary, bonuses, commissions, allowances, benefits in kind and group plans. For each one we determine whether it is remuneration, whether it enters the base for CTS and gratificaciones, and whether it is regular enough to be averaged in. We then test the calculations on a sample of employees and extrapolate the difference.

Where we find errors, we propose corrections in a realistic sequence and estimate the historical exposure. Where the group wants to introduce a new pay item, we advise on how to structure it so that its treatment is clear from the start.

What the engagement includes, and its limits

The service covers pay item classification, calculation review on a sample, exposure estimates, corrective recommendations and structuring advice. Annual leave issues are covered by our annual leave service.

We do not run payroll, and this is not a tax opinion: income tax withholding and corporate deductibility are for the company’s tax advisors, with whom we coordinate. Our review relies on the data provided and on a sample unless the scope is extended.

Coordination with the parent company, finance and payroll

This service sits at the boundary between legal and payroll. Lynch Payroll executes monthly payroll; we advise on the decisions that generate it. Whoever runs the payroll, we work with them to understand how each item was processed before concluding that it was wrong, and to implement corrections without creating new errors. Finance receives an exposure estimate suitable for provisioning, and the regional reward team a bilingual memo explaining how group pay items are treated in Peru.

Getting started

Send us a pay item list, a sample of payslips and recent CTS and gratificación calculations. From there we can scope the review.