Our guide to Payroll in Nicaragua

Doing Business in Nicaragua

Investing in Nicaragua

Investing in Nicaragua presents a complex picture with both opportunities and significant risks. On the one hand, the country offers low labor costs, free trade agreements, natural resources, and a growing tourism industry. These factors can be attractive to businesses seeking cost reduction, market access, and investment opportunities.

Basic Facts

General Information

Full name: Republic of Nicaragua

Population: 7,142,529 (as of 2024)

Capital: Managua

Major Language(s): Spanish

Major Religion(s): Roman Catholic

Monetary Unit: Nicaraguan Córdoba (NIO)

Main Exports: Key exports include textiles and apparel (20%), gold (12.6%), coffee (9.7%), and agricultural products like beef and shrimp

GNI Per Capita: Approximately $2,500 (2022 estimate)

Internet Domain: .ni

International Dialing Code: +505

Registrations and Establishing an Entity

To process payroll in Nicaragua, your entity must first establish a legal structure (e.g., Sociedad Anónima, Sociedad de Responsabilidad Limitada) and register with the National Registry of Commerce. You'll need a Tax Identification Number (NIT) from the General Directorate of Revenue (DGI).

For payroll specifically, have written employment contracts for all employees, register with the Nicaraguan Social Security Institute (INSS), and maintain accurate payroll records including employee information, salaries, deductions, social security contributions, tax withholdings, and leave/vacation records.

Banking

To manage payroll or conduct business transactions in Nicaragua, it is generally necessary to open a local bank account. This makes it easier to manage the local currency and comply with local regulations.

The official currency of Nicaragua is the Nicaraguan Cordoba (NIO). While U.S. dollars (USD) are widely accepted in many places, official transactions should ideally be conducted in NIO to avoid unfavorable exchange rates.

Most banks in Nicaragua operate from 8:30 AM to 4:00 PM Monday through Friday and from 8:30 AM to 11:30 AM on Saturdays.

Working Week

The standard workweek consists of 48 hours, generally distributed over six days. This means that employees generally work eight hours per day from Monday to Saturday.

Regular daytime working hours are defined as work performed between 6:00 a.m. and 8:00 p.m. For night shifts, which are considered work between 6:00 p.m. and 6:00 a.m., the maximum hours allowed are reduced to 7 hours per day and 42 hours per week.

Any work performed beyond the standard 48 hours is classified as overtime, which must be compensated at a rate of 200% of the employee's regular salary for those additional hours. Employees are limited to a maximum of 9 hours of overtime per week.

Employees are entitled to a minimum uninterrupted break of 30 minutes during the workday, which is considered paid time. In addition, after six consecutive days of work, employees are entitled to a full day of paid rest.

Employment Law

Annual leave

Every worker is entitled to 15 continuous and paid vacation days per year, accrued after six months of uninterrupted service with the same employer. Upon termination, the employee is entitled to payment of accrued and proportional vacation benefits.

Maternity leave

Pregnant employees in Nicaragua are entitled to four weeks of leave before childbirth and eight weeks after, or ten weeks in cases of multiple births, with full pay based on their most recent or highest salary. This leave does not affect their rights to seniority, vacation, or the thirteenth month. If childbirth occurs earlier than expected, unused prenatal leave is added to the postnatal period. In cases of accidental pregnancy interruption, non-viable birth, or other complications, the employee is entitled to paid leave based on medical certification. This leave is mandatory for the employee to take and for the employer to grant.

Paternity leave

In Nicaragua, fathers are entitled to five days of paternity leave after the birth of a child. This leave is paid and can be used continuously from the moment of birth or distributed within the first month from the date of birth. In addition, this right is also extended to fathers who are in the process of adoption, starting from the notification of the resolution granting personal care of the child.

Sick leave

Employees are entitled to sick leave that can be extended up to 26 weeks (approximately 6 months) for each episode of temporary disability. This period is extendable for another 26 weeks if the disability persists.

Sickness benefit is paid from the fourth day of incapacity, except in cases where the employee is hospitalized, in which case the benefit is paid from the first day.

During the period of sick leave, the employee receives a subsidy equivalent to 60% of the average salary calculated over the last eight weeks of contributions. This allowance is paid up to a maximum of 52 weeks in total.

To be eligible for the subsidy, the employee must have contributed at least eight weeks within the 22 weeks prior to the date of the onset of the disability.

Christmas bonus

Every worker has the entitlement to be paid an additional month's salary by his employer after one year of continuous work, or the proportional part corresponding to the period of time worked, greater than one month and less than one year.

The additional annual salary or thirteenth month shall be paid according to the last month of salary received, except when the salary is earned by commissions, work, piecework and any other complex modality; in these cases it will be paid according to the highest salary received during the last six months.

The thirteenth month shall be paid within the first ten days of December of each year, or within the first ten days after the termination of the employment contract. In case of failure to do so, the employer will pay the employee an indemnity equivalent to the value of one working day for each day of delay.

Tax & Social Security

Income tax

The income included as labor income are salaries and other income received by reason of the position such as: salaries, salary, seniority, bonuses, over salaries, variable salaries, recognition of performance, vacations and any other form of additional remuneration, in national territory.

The taxable base for labor income is the net income resulting from deducting from the gross non-exempt income, or taxable income.

Social Security

The Comprehensive Social Security Regime in Nicaragua is funded by mandatory contributions from affiliates, divided into different branches with varying contribution percentages for employers, workers, and the state. The state also contributes to financing through budget allocations. Payments are made monthly to the Nicaraguan Social Security Institute (INSS).

Employee: 7%
Employer: 21.50%

INATEC employer contributions

The National Technological Institute (INATEC) is a Nicaraguan institution in charge of promoting technical education and vocational training in the country. INATEC receives monthly contributions of 2% from employers, which are collected through the collection infrastructure of the Nicaraguan Social Security Institute (INSS).

Reporting

Monthly

Employers in Nicaragua have monthly obligations to ensure compliance with labor and tax regulations. They must register all employees with the Nicaraguan Institute of Social Security (INSS) upon starting operations and update records whenever there are changes in staff or salaries. Employers contribute to social security as a percentage of employees' gross salaries.

Additionally, employers must calculate, withhold, and pay income taxes on employees' wages to the General Revenue Directorate (DGI) monthly. While the annual bonus (aguinaldo) is paid in December, employers must account for it in monthly payroll calculations, as it equals one additional month’s salary.

Yearly

Employers in Nicaragua have annual obligations to ensure compliance with labor and tax regulations. They must submit an annual report on Income Tax (ISR) and other reports required by the Nicaraguan Institute of Social Security (INSS) and the General Revenue Directorate (DGI). The annual bonus (aguinaldo), equivalent to one additional month’s salary for employees who have worked the entire year, must be paid within the first ten days of December. Employers are also responsible for ensuring that all contributions and withholdings comply with current regulations to avoid penalties for non-compliance.

Payroll

According to the Labor Code, it is mandatory for employers to provide an individual and supporting receipt for the payment of wages to their workers. This implies that regardless of the format (physical or digital), the worker must receive proof of his salary.

Digital delivery is valid as long as it is guaranteed that the worker has access to his payroll and the necessary means to print it if he wishes to do it.

Reports

Employers must keep all documents supporting the information submitted in the payrolls, including payrolls, for a period of seven (7) years. This is important to ensure that the information is available for any audit that may be carried out by the General Revenue Directorate (DGI) or the Nicaraguan Social Security Institute (INSS).

New Starts

The process for registering new employers in Nicaragua involves several steps to comply with legal, labor, and tax requirements. First, the employer must establish the company with a properly registered deed of incorporation and obtain a commercial license from the local municipality.

Then, they must register with the Nicaraguan Institute of Social Security (INSS) by completing the necessary forms and submitting documents such as the deed of incorporation and the commercial license.

Next, the employer must register with the General Revenue Directorate (DGI) to obtain a unique taxpayer registration number (RUC) and fulfill tax obligations, including income tax declarations. Employers are also required to comply with labor regulations, including drafting employment contracts that outline terms, salaries, and rights in accordance with the Labor Code.

Finally, any changes in the workforce or employment conditions must be promptly reported to the INSS within the established deadlines.

Leavers

The legal process for terminating employees in Nicaragua requires determining the cause (justified, unjustified, or mutual agreement) and notifying the worker with a formal letter and, if applicable, a 15-day notice.

For justified dismissals, employers must file a request with the Labor Inspectorate and attend a hearing to determine validity. Employers must pay owed benefits, such as unused vacation and bonuses, and report the termination to the INSS within three days. All related documents must be retained for future reference.

Employee Benefits

In Nicaragua, many employers offer additional benefits beyond the mandatory labor protections to attract and retain talent. Common extra benefits include private health insurance that supplements mandatory coverage with extended services like dental and vision care. Employers may also provide performance-based bonuses and incentives, professional development opportunities through courses and training, and flexible work policies, including remote work options. Subsidies for transportation and meals are frequently offered, along with additional vacation days beyond the legally required 15 days every six months.

Visas & Work Permits

Processing a visa for Nicaragua takes 3-15 working days. Applicants must provide a valid passport, two passport-sized photos, proof of health insurance, a completed visa application form, the $185 visa fee, evidence of sufficient funds, a return flight ticket, an invitation letter from their employer, and a police clearance certificate. The process involves booking an appointment at a Nicaraguan embassy or consulate, submitting the required documents, and awaiting a response within three days via email or SMS.

Work permits are valid for 1-5 years and can be extended for $25. Family members can be included in the application, requiring additional documents such as a marriage certificate or birth certificate. If the worker changes employers, a new work permit application with the updated employment contract is necessary.

The official currency of Nicaragua is the Nicaraguan Cordoba (NIO). While U.S. dollars (USD) are widely accepted in many places, official transactions should ideally be conducted in NIO to avoid unfavorable exchange rates. Most banks in Nicaragua operate from 8:30 AM to 4:00 PM Monday through Friday and from 8:30 AM to 11:30 AM on Saturdays.