Chile HR and payroll glossary

Impuesto único Single second-category income tax

Impuesto Único de Segunda Categoría

The income tax on employment income, withheld monthly by the employer on pay after pension, health and unemployment contributions. The monthly table is set in UTM: exempt up to 13.5 UTM, then 4% rising to 40% above 310 UTM. For an employee with one employer and no other income, the withholding is final. Source

UTM Unidad Tributaria Mensual (monthly tax unit)

Unidad Tributaria Mensual

A tax unit updated monthly for inflation, in which the income tax table is expressed. It was CLP 72,151 for October 2026, so the tax-free band of 13.5 UTM was CLP 974,038.50 a month. Source

AFC (Seguro de cesantía) Unemployment insurance

Seguro de Cesantía

Unemployment insurance run by the AFC. On an indefinite contract the employee pays 0.6% and the employer 2.4% of pay up to 135.2 UF a month; on a fixed-term contract the employer pays 3.0% and the employee nothing. Part of the employer's share builds an individual account the worker draws on when the job ends. Source

AFP Pension Fund Administrator

Administradora de Fondos de Pensiones

The private companies that run Chile's individual-account pensions. The employee pays 10% of taxable pay into their account plus the AFP's own commission (0.46% to 1.45% in 2026, averaging about 1.11%), on pay up to 90 UF a month. The employer withholds and pays it over. Source

Employer pension contribution (Ley 21.735)

Cotización del empleador (Ley 21.735)

A new employer-paid pension contribution from the 2025 pension reform. It is 3.5% of taxable pay from August 2026 to July 2027 (up from 1%) and rises each year to 7%; it goes partly to the worker's own account and partly to a new social insurance fund. Source

Fonasa / Isapre National Health Fund / Private health insurer

Fondo Nacional de Salud / Institución de Salud Previsional

Every employee must pay 7% of taxable pay (up to 90 UF a month) for health cover, either to the public Fonasa or to a private Isapre. Isapre plans often cost more than 7%, and the employee pays the difference; only the legal 7% is tax-deductible. Source

Mutual (Ley 16.744) Work-accident and occupational-disease insurance

Seguro de accidentes del trabajo y enfermedades profesionales

Compulsory accident insurance paid by the employer, usually through a mutual society. The basic rate is 0.90% of taxable pay, plus an additional rate set by the employer's risk and claims record (0% for most offices). Source

SIS Disability and survivors' insurance

Seguro de Invalidez y Sobrevivencia

Insurance attached to the AFP pension that pays out on disability or death. It is paid by the employer: 1.78% of taxable pay from August 2026, capped at 90 UF a month. Source

Feriado legal Statutory annual leave

15 working days of paid leave after one year of service (Saturdays do not count), plus one extra day for every three further years once the employee has 10 years' service in total. Source

Gratificación Statutory profit share

Gratificación legal

Companies that make a profit must share it with employees. Most employers choose the option of paying 25% of each employee's pay, capped at 4.75 minimum monthly wages a year, and usually pay it monthly; the alternative is 30% of the company's profit shared out. It is taxable and subject to contributions. Source

UF Unidad de Fomento (inflation-indexed unit of account)

Unidad de Fomento

A unit of account indexed daily to inflation, used for social security caps, severance caps and often for senior salaries and contracts. It was CLP 41,247.63 on 31 October 2026, so the 90 UF contribution cap was CLP 3,712,287 a month. Source

Contrato indefinido / a plazo fijo Indefinite / fixed-term contract

Contrato indefinido / Contrato a plazo fijo

Chile has no general probation period, so employers often hire first on a fixed-term contract of up to one year (two years for professionals and technicians). It becomes indefinite if renewed a second time or if the employee keeps working after it expires. Source

Finiquito Termination settlement

The signed document that closes the employment relationship and records the final payments: pending pay, accrued leave, notice pay and severance. To be valid it must be ratified before a notary, the Labour Directorate or another authorised official, or signed electronically through the Labour Directorate. Source

Indemnización por años de servicio Severance for years of service

Due on dismissal for the company's needs after one year: 30 days' last monthly pay per year of service (and part-year over six months), capped at 11 years, with monthly pay capped at 90 UF. If a court finds the dismissal unjustified it adds a surcharge of 30% to 100%. Source

Ley 40 horas 40-hour week law (Ley 21.561)

Ley de 40 horas

The law cutting the maximum ordinary working week in steps: to 42 hours from 26 April 2026 and to 40 hours from 26 April 2028. Overtime is paid at 150%, up to two hours a day; senior managers without direct supervision are outside the limits. Source

Necesidades de la empresa Dismissal for the company's needs (Article 161)

The ground employers use in practice for dismissals that are not disciplinary, such as restructuring. It requires 30 days' written notice or one month's pay in lieu (aviso previo), plus severance for years of service. Senior managers can also be dismissed at will (desahucio) on the same terms. Source

Dirección del Trabajo Labour Directorate

Dirección del Trabajo (DT)

The labour inspectorate. It enforces the Labour Code, handles complaints and conciliation, ratifies finiquitos and registers employment contracts and termination notices, which employers must also send to it. Source

SII Internal Revenue Service of Chile

Servicio de Impuestos Internos

The tax authority. It publishes the monthly income tax table and UTM; employers pay withheld tax monthly and file an annual sworn statement of the pay and tax of each employee. Source