PUERTO RICO: An Introduction to Labour & Employment

Puerto Rico Challenges in the 2024 Labour Market

Puerto Rico employers face perhaps one of the most uncertain labour markets in years. With new generations entering the employment ranks and challenges in terms of recruiting and remote work, a significant hike in the minimum wage, and the continuous development of data security and artificial intelligence, Puerto Rico's statutory framework has not fully adapted to these rapid changes. As a result, employers often find themselves with more questions than answers regarding the legal implications of some of these challenges. So, what are they exactly?

Recruitment

One of the most significant challenges that Puerto Rico employers continue facing is recruiting the best talent to fit business needs. While it is possible that this is the result of new generations’ approach to the workplace, the fact is that in a competitive job market employers are not necessarily succeeding in hiring the best. But why? It may be the fact that candidates’ expectations have drastically shifted from those of the Baby Boomers and GenXers when they first entered the workforce. Thus, while a fair salary is still the predominant factor considered by job candidates when applying for a job, there are other aspects that may influence their decision to apply or even to accept less pay if they believe the work is more meaningful. Prospective employers should therefore be mindful that job candidates will also conduct their own analysis of a given workplace  before applying or considering a job offer. This analysis generally includes less obvious considerations such as the employer’s mission and values, work-life balance, the setting of clear boundaries and expectations, transparency in terms of a clear career-ladder, opportunities for growth and learning, and remote work. 

Remote Work

The rise of remote work has fundamentally altered the employment landscape, presenting both opportunities and significant challenges for Puerto Rico employers The fact that most labour and employment laws were enacted with a traditional in-person work environment in mind means that the statutory language often fails to address the nuances of remote work, leading to both legal and practical difficulties. Issues such as overtime, workplace safety, worker’s compensation coverage, data security and privacy concerns are amplified in a remote work environment. Simply put, employers are tasked with ensuring compliance with laws that were not designed for the remote work context, much less for “wandering workers” or “digital nomads” who work remotely from locations outside their employer's typical operational or even geographic areas.

Within this context, Puerto Rico enacted Act No. 52 of June 30, 2022, which amended the concept of “engaged in trade or business” under the Puerto Rico Internal Revenue Code of 2011 to address the pandemic-related issue of employees working remotely from the Island for employers with no business nexus to Puerto Rico. Act 52 stipulated that businesses with employees working remotely from Puerto Rico would not be deemed “engaged in trade or business,” provided certain conditions were met, exempting those employers from several registration requirements. Then, Puerto Rico enacted Act No. 27 of January 17, 2024, known as the “Act to Facilitate the Implementation of Remote Work in Private Enterprise and to Encourage the Establishment of Air Bases in Puerto Rico.” The Act seeks to encourage employees and employers without local presence or business to consider Puerto Rico the ideal place to work remotely, either temporarily or permanently, and recognizes the government’s public policy to support such alternatives as it helps attract more people to Puerto Rico and expands job opportunities for Puerto Ricans in industries that do not necessarily have a presence on the Island. While there are still gaps that employers must deal with, these laws are a step forward for creating a more welcoming environment for remote work.

Wage and Hour

Most Puerto Rico wage and hour laws are complex and still respond to an employment landscape out of tune with a growing global business approach to the employment market. Amid requirements regarding overtime, meal period, premium pay, statutory vacation and sick leave for non-exempt employees, and the impact of incentives, differentials and bonuses on an employee’s salary for purposes of calculating overtime and leaves of absence, employment law continues to pose hurdles and hidden challenges for prospective employees seeking to set up operations in Puerto Rico. Additionally, the recently increased minimum wage for most employees to USD10.50 per hour has created new challenges for employers to maintain a cost-effective and profitable business. The penalties for non-compliance are significant, so employers should seek legal guidance to prevent it.

Artificial intelligence (“AI”)

AI is increasingly being used in the workplace to streamline operations, enhance decision-making and improve efficiency. For example, many employers are using AI in its recruitment processes. Concerns regarding the impact created by AI in the workplace are a dime-a-dozen, and Puerto Rico is no exception. The integration of AI in the management of human resources imposes new responsibilities on employers, such as ensuring data privacy and security, maintaining transparency and providing adequate training for employees to adapt to AI tools. This is specially important in Puerto Rico, wherein employers must have just cause for termination (not at-will jurisdiction) and, generally, impose progressive discipline to employees for failure to comply with Company policies and procedures.

While AI can be a great tool, businesses must ensure that there is human supervision of these AI-driven processes to, among others, avoid implicit bias or discrimination in AI algorithms so that AI does not become a problem instead of a solution.   

Cyber Security

Today’s interconnected digital landscape is fertile ground for cybercrime. This has become an unfortunate reality for government institutions and corporations, large or small, and it is no different in Puerto Rico. The World’s Economic Forum Global Risk Report for 2023, ranked cybercrime as the 8th biggest risk in terms of severity of impact, both in the short term and over the next decade. The importance of cybersecurity in the protection of digital systems and data from unauthorized access, theft or damage, cannot be understated. Implementation of a cybersecurity strategy should be an organization-wide priority, including risk assessment, establishing security policies and procedures, network and endpoint security, access controls, data encryption, incident response plans and third-party risk management. The risk becomes exponentially higher given the proliferation of mobile devices and remote work. Since social engineering targets the workforce, the best way a company can defend against it is through employee training. A properly trained workforce which understands the risks and how to respond reduces the unpredictability of the human error factor and turns employees (tech savvy or not) into the company’s first line of defence against cybercriminals.

 Conclusion

More than ever, employers need to act proactively and develop strategies to effectively address the multiple challenges they face in the labour market through training and the implementation of workable policies and procedures. It is of utmost importance for employers to seek legal guidance to better face these challenges, anticipate obstacles and minimize potential risks.