New law promotes remote work within Puerto Rico for out-of-state employers

A new law in Puerto Rico, Act No. 27-2024 (Act 27), makes it easier for foreign employers to hire employees to work from within Puerto Rico, and for persons to relocate to work remotely within Puerto Rico for employers that do not maintain a presence on the island.

Enacted on January 17, 2024, with Puerto Rico Governor Pedro Pierluisi’s endorsement of House of Representatives’ Bill 1745, Act 27 establishes that covered private employers are not required to comply with Puerto Rican employment legislation and that the employment relationship will only be subject to the employment contract, with minimal exceptions.

Act 27, which is effective immediately and governs over any conflicting law, applies if the employee is an executive, administrator, or professional, as defined in the Fair Labor Standards Act (FLSA); is domiciled in Puerto Rico; and works remotely for an employer who is not dedicated to business or the sale of taxable goods in Puerto Rico. The “dedicated to business” criterion is analyzed pursuant to the Puerto Rico Internal Revenues Code of 2011 and the regulations and interpretations of the Puerto Rico Department of Treasury, and relates to location of the employer’s offices, clients, and economic nexus.

In 2022, Act No. 52-2022 made more flexible the definition of an “entity dedicated to business in Puerto Rico” in the Puerto Rico Tax Code by excluding from certain local tax requirements qualified employers that did not have operations on the island, but had employees working remotely from Puerto Rico.

Under the new law, covered employers will still need to comply with Act No. 74 of June 21, 1956, which regulates unemployment benefits, unless the employee is allowed to request similar benefits in another jurisdiction. Local statutes regulating workers’ disability compensation (Act No. 45 of April 18, 1945), other insurance for occupational and non-occupational injuries (Act No. 139 of June 16, 1968), and chauffer insurance (Act No. 428 of May 15, 1950) will also still apply unless the employer provides coverage equal or superior to that established in those laws.

Additionally, if an employee is not domiciled – that is, present and with the intent of remaining indefinitely – in Puerto Rico, they may still benefit from this legislation. A covered employer of a non-domiciled employee who wants to work remotely from Puerto Rico will not have to comply with Puerto Rico employment laws, including those related to benefits, obligations, and insurance. Instead, the relationship will be governed by the employment contract and, if there is no contract, by the laws of the jurisdiction in which the employee is domiciled. If the employee later decides to indefinitely relocate to Puerto Rico, and the employer approves it, the provisions of Act 27 for domiciled employees will apply.

For airline employees covered by collective bargaining agreements working for airlines that establish hubs in Puerto Rico, Act 27 provides that they, in particular, will be exempt from Puerto Rico employment laws and that their employment relationship will be exclusively governed by the terms of their collective bargaining agreements.

All employees working in Puerto Rico under the new law will pay income tax in accordance with the Puerto Rico Internal Revenues Code of 2011.

Act 27 is expected to incentivize employers that are apprehensive about compliance with Puerto Rico employment laws to allow their employees to work from Puerto Rico, as well as to promote the return of Puerto Rican professionals who have moved abroad for the sake of employment.

Previously, Act No. 36-2020 was enacted to regulate remote work for Puerto Rico government employees, but, for the private sector, this statute is the first legislative effort to regulate remote work, and it only applies to out-of-state employers.

In the period following enactment of this law, the Department of Labor anticipates significant inquiries from employers, and it is expected to issue informational materials.

For more information or for assistance with responsive courses of action, please contact the authors or your DLA Piper relationship attorney.