Peru’s government under President Keiko Fujimori is preparing its first request for delegated legislative powers, with a draft bill that includes a graduated labor obligations scheme for micro and small enterprises and reforms to contract termination procedures.
The bill is expected to be approved by the Council of Ministers on August 2 before being sent to Congress. The document has already drawn divided public opinion.
A progressive path to formalization
At the center of the proposal is a progressive regime for micro and small enterprises, known as mypes. Under this approach, businesses would gradually take on labor obligations as their economic capacity grows, rather than facing immediate full compliance with employment law. Obligations covered would include contributions to the national health insurer EsSalud, pension funds, severance pay known as CTS, legal bonuses, vacation time, working hours, overtime, profit-sharing and protection against dismissal.
Labor and Employment Minister Juan Sheput said the circulated document is a working draft and that any labor reform would need to be built in a multidisciplinary manner.
María Haydeé Zegarra, a labor law partner at Rebaza, Alcázar and De Las Casas, said the proposal could move away from the all-or-nothing logic that currently discourages small businesses from formalizing. Under a graduated system, she said, companies could join the formal economy incrementally, taking on obligations as their capacity increases, with a particular focus on guaranteeing access to health coverage and a pension system.
Daniel Paniura, an associate at Philippi Prietocarrizosa Ferrero DU and Uría, said it was positive to seek to organize the regulatory framework, though he noted that details of implementation remain unknown. He said unifying the legal framework would not necessarily mean all businesses face identical obligations from the outset, given that mypes operate under very different conditions from large companies.
Current rules and cost pressures
Under existing rules, microenterprises are not required to pay CTS or legal bonuses and access a separate health coverage scheme, while small enterprises carry some of those obligations under more favorable conditions than larger companies. Zegarra suggested one option would be to create intermediate business categories based on revenue levels, with compliance obligations rising alongside company growth.
Both specialists agreed that one of the key challenges will be ensuring the reform encourages formalization without driving up labor costs excessively. Paniura noted that non-salary labor costs in Peru represent approximately 72 percent of the average formal wage, compared with a regional average of 51 percent according to figures from the Inter-American Development Bank. He said any changes to EsSalud contributions, CTS or bonuses would carry the greatest financial impact for mypes.
Both experts also agreed that formalization depends not only on the labor regime but also on tax burdens, administrative procedures, licensing requirements and bureaucracy.
Contract terminations: rules exist but rarely work
The proposal also covers the termination of employment contracts for objective reasons, aiming to give companies more flexibility when facing economic or technical changes. Brian Ávalos, a labor law partner at Payet, Rey, Cauvi, Pérez Abogados, said the government’s diagnosis has merit. He explained that existing legislation already provides for objective grounds to end contracts, including economic crises, corporate restructuring, technological changes and insolvency processes.
The problem, he said, is not the absence of rules but the difficulty of applying them. Companies face heavy evidentiary burdens and slow administrative procedures that in practice discourage use of these mechanisms, and the administrative authority often does not respond quickly enough when companies face crises or reorganization.
Jorge Toyama, a partner at Vinatea and Toyama, said the aim appears to be to provide greater legal clarity to a regime where concepts such as economic or technological cause are currently too broad, creating uncertainty for both companies and workers. He warned that greater clarity should not be interpreted as authorization for mass dismissals.
Benefits and youth jobs also in scope
On labor benefits covering vacations, overtime, bonuses, CTS and profit-sharing, Ávalos said improving the regime does not necessarily mean eliminating those benefits, but rather reviewing how and when they are granted. He raised the possibility of broadening the use of an all-in annual salary arrangement, and said that over the longer term an unemployment insurance scheme could eventually replace CTS, though he acknowledged such a change would require broad consensus.
The bill also addresses youth employment, with measures covering job training, labor market information, financing and hiring arrangements. David Tuesta, president of the Consejo Privado de Competitividad, said the worst youth labor regime is one that forces a young person to work without a contract. He noted that more than 70 percent of Peruvian young people begin their working lives in the informal economy and said it was welcome that the delegated powers request takes up this issue.
