CTS 2023: What you need to know about the payment of this benefit

1. What is the Compensation for Length of Services?

The Compensation for Length of Services (“CompensaciĆ³n por Tiempo de Servicios” or “CTS” in Spanish) is an employment benefit whose main purpose is to protect employees from unemployment. This compensation is deposited twice a year, in May and November.

Within the first 15 days of May 2023, companies are required to pay the CTS to the employees on their payroll for the November 2022 – April 2023 period.

2. What are the requirements applicable to the payment of the CTS?

The CTS must be paid to all the employees who are subject to the regular labor regime of the private sector and who work at least 4 hours per day. In addition, to be entitled to receive this benefit, employees must have worked for at least one month.

3. Remuneration considered for the calculation of the CTS

The remuneration amount considered for the calculation of the CTS includes the base salary, as well as any other freely-available income regularly earned by employees.

4. How is the CTS calculated?

The CTS amount to be deposited by employers is calculated based on the type of company (whether it is a SME or a general regime company) and the time worked within the calculation period.

4.1. Companies subject to the Labor Regime of the Private Sector (Medium-sized and large enterprises):

The CTS amount is calculated based on one twelfth of the employee’s salary amount, which is multiplied by the number of months worked during the calculation period, as per the equation below:

1/12 x Salary amount x No. of months

In this regard, it is worth mentioning that the calculation of the CTS will include fractions of months worked, as shown below:

1/30 x 1/12 x Salary amount x No. of days

4.2. Companies subject to the special labor regime of SMEs:

The special provisions of this regime will only apply in case the company is included in the Registry of SMEs (called “REMYPE”); otherwise, the provisions of the general regime will apply.

In that sense, in the case of micro-enterprises (companies with annual sales of up to 150 tax units), employees will not be entitled to receive the CTS, while in the case of small enterprises (companies with annual sales between 1501 and 1,700 tax units), employees will be entitled to receive 15 daily salaries per each full year of services (i.e., 50% of the amount received by a general labor regime employee).

5. Free availability of 100% of the CTS

It is worth noting that, in accordance with Law No. 31480, employees are authorized to dispose of 100% of their CTS funds until December 31, 2023.

6. How much is the penalty imposed for the failure to pay the CTS?

The failure to comply with the full and timely payment of the CTS is considered as a serious infraction with respect to employment relationships. Consequently, companies may receive an administrative penalty that may range from 0.11 to 26.12 tax units, based on the number of affected employees and the type of company committing the infraction.

Moreover, companies are also required to provide employees with the respective CTS calculation report within 5 days of making the deposit. The failure to provide such document to employees is considered as a minor infraction and, in such case, employers may receive an administrative penalty ranging from 0.045 to 15.52 tax units, based on the number of affected employees and the type of company committing the infraction.

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1The value of 1 tax unit for year 2023 is S/ 4,950.