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What reduced working hours in Chile means for biz, investors

The project to reduce statutory working hours in Chile will be enacted by the government on May 1.
Stock photo of Santiago to accompany article on reduced working hours in Chile
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The National Congress of Chile has concluded discussions on a reform to gradually reduce the working week from 45 to 40 hours and recognize different modes of labor flexibility. The project to reduce staturory working hours in Chile will be enacted by the government on May 1.

On April 11, the South American country’s Senate approved a series of changes to the Chilean Labor Code to reduce weekly working hours in Chile and recognize different flexibility modalities that can be applied by mutual agreement between companies and their and employees.

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The changes include a five-year transition period, reducing working hours in Chile by one hour of work per week per year, concluding in 2028. However, the door remains open for companies to anticipate the change without waiting for gradual implementation and numerous employers have stated their intention to meet that target sooner.

The 40-Hour Workweek Bill was initially proposed in 2017 by the current Minister of the General Secretariat of the Government, Camila Vallejo, and Deputy Karol Cariola. In August 2022, it was reactivated in Congress by President Gabriel Boric, who assumed office five months earlier.

The passing of the legislation represents an important victory for Boric, who has encountered a number of disappointments since coming to power in 2022, including the public rejection of a new progressive constitution that was put to a national referendum.

President Gabriel Boric (source: Facebook)

The legislative work of the 40-hour workweek project and the tripartite dialogue between workers, employers, and the Government have been led by Minister of Labor Jeannette Jara Román, who stated that passing the new legislation will now allow Chile to achieve a goal established by the International Labour Organization (ILO) more than 85 years ago.

“This project contemplates a long yearning, because since 1937 (the ILO) has been promoting the gradual reduction of the working day to 40 hours and in many countries this already exists. Now it is going to be a reality in Chile because there has been the will to make it happen.,” Jara was quoted as saying by Mexican newspaper of record El Economista.

The reform ensures that workers’ salaries remain intact and contemplates a differentiated application scheme for domestic workers and those working in land transportation, agriculture, flight crew members, and digital platform workers. In cases where the nature of the tasks does not allow for a reduction in weekly hours, additional rest days are provided throughout the year.

Flexibility promoted alongside reform of working hours in Chile

Along with the reduction of the weekly working hours in Chile, the reform also includes additional labor flexibility measures.

Among them are the 4×3 work model, consisting of 10-hour days for four days followed by three rest days; differentiated entry and exit schedules for parents with children under 12 years old; and an extra hours bank that can be exchanged for additional rest days.

The 40-Hour Workweek Bill also aims to establish flexibility by allowing the distribution of work hours based on a 40-hour weekly average in a cycle of up to four weeks. For unionized workers, the company must reach a collective agreement.

The bill establishes two new rights: time bands of two hours for mothers, fathers, and caregivers of children under 12 years old to anticipate or delay the start and/or end of work; and the possibility of compensating overtime hours for up to five additional holidays.

If approved by Parliament, the 40-Hour Workweek Law will be implemented gradually over five years from the first year it is published as law. This gradual approach is based on a sense of responsibility to the economy to avoid negative effects on productive activities, ensuring no impact on remuneration and establishing assisted inspections by the Labor Directorate in the case of requests from workers or employers.

The reduction of working hours in Chile, coupled with labor flexibility measures, indicates a significant shift in the country’s labor policies, with the country for decades being closely associated with neo-liberal deregulation.

How will working hours in Chile compare to other countries?

Once statutory working hours in Chile have reached 40 hours per week, assuming other countries from the region have not followed suit in a shorter timeframe, it will mean the country has some of the shortest standard working hours in Latin America, alongside Ecuador.

Argentina, one of the largest economies in Latin America, has a standard workweek of 48 hours, with a daily limit of 8 hours for work in the commercial sector. Overtime is generally paid at a higher rate, and workers are entitled to a minimum of 14 days of paid annual leave. While Argentina’s workweek will remain longer than the new working hours in Chile, the two countries will have similar regulations regarding daily maximum hours and paid leave.

Brazil, the region’s largest economy, has a standard workweek of 44 hours, with a daily limit of 8 hours. Brazilian labor laws also require overtime pay for hours worked beyond the standard limit and mandate 30 days of paid annual leave for workers. The Brazilian workweek is shorter than that of Argentina but longer than the new standard working hours in Chile.

Mexico, the second-largest economy and second-most populous country in Latin America behind Brazil, has a standard workweek of 48 hours, with a daily limit of 8 hours. Mexican labor laws require overtime pay for hours worked beyond the standard limit and provide a minimum of 12 days of paid annual leave, increasing with years of service, after legislation passed in December 2022 dramatically increasing paid time off allowances.

SEE ALSO: How doubling vacation days in Mexico affects workers, biz

Colombia’s standard workweek is set at 48 hours, with a daily limit of 8 hours. Colombian labor laws mandate overtime pay for hours worked beyond the standard limit and provide 15 days of paid annual leave. Like Mexico, Colombia has a longer workweek than Chile and fewer provisions for paid leave. However, Colombia is in the process of reducing working hours.

Peru has a standard workweek of 48 hours, with a daily limit of 8 hours. Peruvian labor laws require overtime pay for hours worked beyond the standard limit and mandate 30 days of paid annual leave for workers. Peru’s workweek is similar to that of Brazil, being longer than the new limit on working hours in Chile, but offering more generous paid leave provisions.

While other countries in the region have varying workweek lengths and regulations, Chile’s progressive move may inspire similar reforms in neighboring countries, paving the way for a more balanced work-life culture across Latin America.

It is worth noting that Chile is one of the most developed and prosperous nations in Latin America, being one of only two countries in the region, alongside Uruguay, that has a gross national income (GNI) per capita great enough to be classified as a “high income” nation, according to standards set by the World Bank.

When comparing reduced working hours in Chile to other developed nations, the new 40-hour limit will bring the South American country more in line with its industrialized peers.

In the United States, the Fair Labor Standards Act (FLSA) sets the standard workweek at 40 hours. Overtime is generally paid at one and a half times the regular rate for hours worked in excess of 40 hours in a week. However, the United States does not have a federally mandated limit on the total number of hours an employee can work per week, leaving room for considerable variation in practice.

European countries, on the other hand, have more regulated working hours. The EU’s Working Time Directive (WTD) stipulates a maximum 48-hour workweek, including overtime, and requires a minimum of four weeks of paid annual leave for employees.

Many EU countries have adopted shorter workweeks than the directive’s maximum limit. For instance, Germany and France have standard workweeks of 35 to 38 hours, with more stringent regulations on overtime and paid leave.

The United Kingdom, although no longer part of the EU, still adheres to the WTD, setting the maximum workweek at 48 hours. However, UK employees can voluntarily opt-out of the 48-hour limit, enabling more flexible working arrangements, similar to Chile’s approach.

In the Nordic countries, such as Sweden and Denmark, working hours are generally shorter, averaging around 37 hours per week. These countries also emphasize work-life balance, often providing flexible working arrangements and generous parental leave policies.

Japan, another developed nation, has a reputation for long working hours; however, recent labor reforms have aimed to reduce overwork and improve work-life balance. Japan’s Labor Standards Act establishes a 40-hour workweek, with a cap of eight hours per day. In practice, however, many employees work overtime, which has led to a nationwide issue known as “karoshi” or death from overwork. The Japanese government has been implementing policies to encourage better work-life balance and reduce overtime.

Comparing new working hours in Chile to those in other developed countries, it is evident that Chile’s policy is now more aligned with global trends. However, Chile’s five-year transition period and the specific provisions for different industries demonstrate the country’s unique approach to accommodating the needs of its workforce and economy.

What reduced working hours in Chile means for business and investors

The reduction of working hours in Chile has several implications for businesses and investors. However, it is worth noting that the gradual transition has been implemented with the intention of reducing any negative effects as much as possible.

Effect of reduced working hours in Chile on business

Labor costs: Reducing work hours may lead to increased labor costs as businesses may need to hire additional staff to maintain productivity levels or pay overtime wages to existing employees.

Efficiency: Companies may need to reorganize work processes and invest in technology and automation to maintain or improve efficiency and productivity.

Employee morale and retention: The reduction in work hours could lead to increased employee satisfaction and better work-life balance, which may result in higher employee retention and lower turnover rates.

Competitiveness: Depending on the industry, reduced working hours could put some businesses at a disadvantage compared to international competitors with longer work hours.

Effect of reduced working hours in Chile on investors

Market perception: Investors may view the reduction in working hours as a positive development for employee well-being or as a negative factor affecting productivity and labor costs. This perception could impact the attractiveness of Chilean companies as investment targets.

Performance: In the short term, the transition to reduced working hours may lead to volatility in company performance as businesses adjust their operations. Long-term effects will depend on how effectively companies adapt to the new policy.

Regulatory environment: Investors may need to consider the potential for further labor policy changes in Chile and assess their impact on the investment landscape.

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If you were interested in this article about reducing working hours in Chile, check out the rest of our coverage of this prosperous South American nation. You can also read more about us.

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