In the summer of 2022, Puerto Rico enacted Act 52-2022, 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 “out-of-state” 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. At the time, we cautioned Act 52 was only a piece in the “wandering worker” puzzle and that companies still needed to be careful about allowing workers to telework from Puerto Rico since Puerto Rico labor and employment law still applied to the employment relationship.

A year and a half later, on January 17, 2024, Governor Pedro R. Pierluisi signed into law House Bill 1745, the "Act to Facilitate the Implementation of Remote Work in Private Enterprise and to Encourage the Establishment of Air Bases in Puerto Rico.” Recognizing how Covid-19 paved the way to working from home, the Act seeks to encourage employees and employers without local presence or businesses to consider Puerto Rico the ideal place to work remotely, either temporarily or permanently. The new measure recognizes it is the government’s public policy to support remote working alternatives as it helps attract more people to Puerto Rico and expands the opportunities for Puerto Ricans to secure jobs in industries that do not necessarily have a presence on the Island.  Moreover, considering that Puerto Rico is currently experiencing a boom in the tourism industry, which makes it attractive for airline carriers to establish air bases in our jurisdiction, the Act also expressly excludes their employees from the application of Puerto Rico employment laws provided they are covered by a collective agreement.

The Act creates different requirements depending on whether or not the employee is considered domiciled in Puerto Rico.

A. Domiciled Employees

For the employee to be covered under the Act, the employment relationship needs to comply with the following:

• The employee must be an executive, manager, or professional under the Fair Labor Standards Act and regulations of the Puerto Rico Department of Labor and Human Resources;
• The employee is domiciled in Puerto Rico; and
• The employee executes the work remotely.

Pursuant to the Act, these employment relationships will be governed by what is stipulated in the employment contract. Importantly, these employees are specifically excluded from the application of any local labor laws except that, to the extent the employer does not offer similar benefits/coverage, the employee must be covered by occupational and non-occupational injury insurance under the Compensation System for Work-Related Accidents Act (Act 45-1935) and the Non-Occupational Temporary Disability Insurance (Act 139-1968) and chauffeur insurance, if applicable, under the Chauffeurs’ Social Security Act (Act 428-1950). Additionally, unless the employee is eligible to apply for unemployment benefits in another jurisdiction, the employer must cover the employee under the Employment Security Act (Act 74-1956).

B. Non-domiciled Employees

Where a non-domiciled employee voluntarily decides to relocate to Puerto Rico to work remotely for an employer that is not engaged in business in Puerto Rico as defined in the Act, the employer will be exempt from complying with all state labor laws, including “benefits, obligations, insurance, and any other provision applicable to such employment relationship” in Puerto Rico.

The employment relationship will instead be governed strictly by what was agreed in the employment contract or, in the absence of a contractual agreement, according to the applicable law in the jurisdiction where the employee is domiciled. Should the employee become domiciled in Puerto Rico, the rules discussed in Section A, above, apply.

C. Airline Industry Collective Bargaining Agreements in Puerto Rico

Airline industry employees covered by a collective bargaining agreement whose airline employers open bases in Puerto Rico are excluded from Puerto Rico employment legislation. The terms and conditions of employment of these unionized employees will be governed exclusively by the provisions of their collective agreement.

*Jeylimar Fuentes-Rivera, a third-year law student from the University of Puerto Rico Law School, assisted in the preparation of this article.