Law 27-2024
Law 27-2024 addresses which employment laws will govern the employment relationships of remote employees working from Puerto Rico for employers with no business nexus to Puerto Rico, depending on whether the employees are domiciled in Puerto Rico or elsewhere. Law 27-2024 exempts nondomiciled employees temporarily residing in Puerto Rico from Puerto Rican employment laws and contributions. These employees are not entitled to employment benefits under Puerto Rican law, including workers’ compensation, unemployment, or certain disability benefits. The employment relationship will be governed by the employment contract, or if there is no contract, by the laws of the employee’s domicile location. The employer will have no income tax withholding obligations for these employees. If there is any tax obligation, the employee will be the one to file separately.
Domicile Considerations
The concept of “domicile” is crucial in determining the applicable laws. Domicile is based on the employee’s intention to reside in a particular location. Factors such as where the employee’s family, doctors, and children’s schools are located will be considered. If an employee is domiciled in Puerto Rico, and exempt under the Fair Labor Standards Act (FLSA), certain requirements apply. The employment relationship will be covered by an agreement between the parties, and Puerto Rican employment laws will not apply unless agreed upon. However, workers’ compensation, short-term disability, unemployment insurance, and driver’s insurance for employees who drive as part of their duties in Puerto Rico will be applicable unless the employer provides similar or greater benefits through private insurance.
Implications for Employers
Foreign employers hiring domiciled employees in Puerto Rico must comply with specific requirements. For example, if short-term disability and unemployment benefits are provided through a private policy or in another state, employers do not need to register with the Puerto Rico Department of Labor or obtain workers’ compensation insurance. However, if these benefits are not provided, employers must register and make the necessary contributions (even when income tax withholdings are not required).
Note: The exclusions and rules apply only to (i) nondomiciled employees and (ii) domiciled employees who are exempt under the FLSA. For domiciled, nonexempt employees covered by the FLSA, all Puerto Rican employment laws will be applicable.
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Submitter: Sumbul