II. Labor Contract

A labor contract is one by which a person undertakes to render a personal service to another, in exchange for remuneration, under the latter’s dependency and immediate direction.

A written contract is not required for all contract types; the terms and conditions of the labor contract, and the facts relating to its performance or amendment, may be proven by any means.

Moreover, a labor contract is presumed to exist in every personal work relationship until proven otherwise. Companies contracting independent services from individuals should therefore document the commercial nature of the engagement carefully, since mislabeled contractors are the most common source of unexpected severance liability.

III. Required Payments to Employees

(i) Christmas bonus (salario de Navidad): all employees are entitled to receive, no later than December 20, an extra amount equal to one-twelfth of the total ordinary salary earned during the year. The bonus is not subject to income tax, and is neither attachable nor assignable. By law the amount is capped at five minimum wages, although in practice many employers pay the full extra salary even above that cap.

(ii) Annual vacation: after one year of service, workers are entitled to fourteen (14) working days of paid vacation, compensated as follows: 14 days’ salary after 1 to 5 years of service; 18 days’ salary after 5 or more years.

(iii) Profit sharing (participación en los beneficios): employers must distribute 10% of annual net profits among their workers, capped at 45 days’ ordinary salary for workers with less than 3 years of service and 60 days’ ordinary salary for those with 3 years or more. Industrial, forestry and mining companies are exempt during their first three years of operation; free zone companies, agricultural companies with capital under RD$1 million, and non-profit entities are fully exempt.

Law 30-26 (June 2026) expressly confirmed the income tax exemption of statutory labor benefits, codifying criteria previously recognized by Supreme Court case law; payroll teams should still verify the tax treatment of benefits granted above the statutory minimums (see Tax Law, section IV).

IV. Termination of the Labor Contract

During the first three months of employment (the probation period), the labor contract may be terminated without liability for either party. After three months, termination triggers the payments described below, depending on the mode of termination.

Dominican law distinguishes four modes of termination: desahucio (termination without cause, by either party, on statutory notice), despido (dismissal by the employer for cause), dimisión (resignation by the worker for cause attributable to the employer), and mutual agreement. Cause is a high standard, defined by the exhaustive lists of the Labor Code, and includes serious misconduct and grave disobedience.

Workers dismissed for cause (despido justificado), or who resign without cause, are entitled only to the accrued proportional amounts for the year: Christmas bonus, unused vacation and, where applicable, profit sharing.

Workers terminated without cause by the employer (desahucio), or who resign for cause (dimisión justificada), are entitled to the full severance package: advance-notice pay (preaviso), severance pay (auxilio de cesantía) scaled to seniority, plus the proportional Christmas bonus, unused vacation and profit sharing. An unjustified dismissal (despido injustificado) additionally exposes the employer to the statutory penalty salaries while litigation lasts, up to the cap set by the Labor Code.

Severance liabilities are computed on ordinary salary and accrue with seniority; they should be quantified in due diligence for any acquisition of a Dominican operating business (see Mergers & Acquisitions).

Employers operating in the DR should also be familiar with the following employment-related obligations:

• Salary income tax withholding (see Tax Law, section IV).
• Social security contributions to the TSS (pensions, family health insurance and labor-risk insurance) under Law 87-01.
• Contributions for technical and professional training (INFOTEP).
• Occupational safety and health regulations.

This publication is provided for informational purposes only and not as legal advice. Any transaction related to any of the described aspects shall require advice and be specifically consulted with the Firm in advance. © Arthur & Castillo. All Rights Reserved. Next