Labor Reform and changes in hiring employees

July 21, 2017
Labor Reform and changes in hiring employees

Get up to date in the changes in the Labor Reform.

Law No. 4 of January 26, 2017, establishing The Labor Transformation and Flexibility Law (the “Law), commonly known as the Labor Reform, brings important changes to hiring employees. As a business owner, you should be up to date on these changes. Among what’s new, Attorney Anabel Rodríguez Alonso, a partner in the law firm of Schuster Aguiló, LLC, noted some areas of particular importance:

I. Probation period

    • Under the Labor Reform, a written contract between the employer and employee is not required.
    • Exempt employees (i.e., executives, managers and professionals, as defined by the Federal Labor Standards Act and the Department of Labor and Human Resources Regulations) will have an automatic probationary period of 12 months.
    • The probationary period for non-exempt employees increases from ninety (90) days to nine (9) months under the Law.
    • The probationary period will be interrupted when the employee takes a leave authorized by Law (i.e., illness, military or pregnancy). Once the employee returns to work, the probationary period will continue for the established term.

II. Temporary employees – The Labor Reform defines temporary employees as:

a. those who perform a specific task or project;

b. who do unusual tasks of short duration;

c. or replace an employee during a leave or absence.

III. Term contract employee – This is based on a working relationship that is established for a specific time period or a particular project.

The Law stipulates that renewal of these contracts will be considered valid and legitimate as long as they do not exceed three (3) years and that in the case of exempt employees they are established by an agreement between both parties. However, it warns that if the circumstances and frequency of renewals create an expectation of indefinite employment, the contract will not be considered to be a term contract.

IV. Independent contractor – A clear presumption that a person is an independent contractor is created if the person:

  • Has an employer identification number or employer Social Security number
  • Has filed income tax returns claiming to be self-employed
  • Has an established working relationship through a written contract, and
  • Has been contractually requested to have permits or licenses, among other credentials.

These points are just part of the changes in the Labor Reform in reference to hiring employees. We invite both you and your Human Resources personnel to study the Labor Transformation and Flexibility Law ( to get all the details, so you can provide orientation for your employees.

This article is the second in an educational series about the Labor Reform that was prepared for you by the Banco Popular Business Banking Division with the goal of helping you develop your business. We invite you to read the following article about the changes in accumulating benefits for employees of small and medium-size businesses by clicking here.



This article is for informational purposes only and does not constitute an endorsement or guarantee of accuracy or applicability. Popular, Inc. (“Popular”), its subsidiaries and affiliates do not provide legal, tax or accounting advice. The information provided in this article should be used only as a guide and not as a source of professional advice. The information provided here is current as of April 26, 2017, and does not consider, future changes. The law firm Schuster Aguiló, LLC, and Popular, Inc., and/or its subsidiaries, affiliates, or related entities are not responsible for losses or damages (direct or indirect) that may result from the reliance on the information contained herein. All information provided in this article, or any other related topic should be confirmed and corroborated with your own advisor.