In this post, I’ll consider the employee requirements for banks in Puerto Rico. How many and which employees must be based in Puerto Rico? What are the recommended employee numbers or ratios for an international bank operating under Act 273?
We begin from Act 273, the law which requires a minimum of 4 employees in Puerto Rico (see Start a Bank in Puerto Rico in 10 Steps). But which employees and what about employees in other jurisdictions?i
The most important employee will be your Chief Compliance Officer. For regulators to feel comfortable converting your Permit to Organize into a Permit to Operate, you’ll need a Chief Compliance Officer they trust… and this person must be based in Puerto Rico.
Next, I recommend your Operations Officer be located in Puerto Rico. This person must have significant banking experience, and preferably experience at an IFE or an IBE on the island. They should have a solid understanding of your core system, US reporting requirements (such how to file a SAR, etc.), as well as reporting to local regulators. Your Operations Officer must be experienced in operating in Puerto Rico, which is going to be very different from operating in the USA or your home country.
During your startup stage, you might hire two lower-cost employees to reach the minimum number of 4 on the island. In most cases, you’ll have a customer service agent who also handles wire transfers and you might hire an assistant to the Compliance Officer. Again, compliance and due diligence will be the focus of regulators, so it should be your focus when starting out.
For more on the costs of these employees, see my downloadable PDF: Sample Operating Expenses of an IFE.
Once you’ve built out the business and receive your Permit to Organize, you’ll likely need to hire additional employees. Banking is a personnel-intensive endeavor. While you might wish to focus on hiring in a lower-cost country, you need to plan on having a good percentage of your workforce in Puerto Rico.
The general theme is that your bank in Puerto Rico should make all compliance, account opening, and transactional decisions from Puerto Rico. Likewise, all banking work and reporting should be done in Puerto Rico. This leaves sales, marketing, document completion, and collecting application information (building the file), to a foreign office.
Also, you should watch your ratio of employees in Puerto Rico vs. your employees abroad. If you were to have 10 employees in Puerto Rico and 100 in Mexico doing the work of the IFE, regulators are sure to take issue.
I usually recommend you have more employees in Puerto Rico than you do outside of Puerto Rico. At worst, a 50/50 ratio might be acceptable, so long as all banking and compliance decisions are made in Puerto Rico.
I also note that it is not necessary for your board of directors, CEO, or CFO to reside in Puerto Rico. Regulators will focus on compliance and operations and not so much on higher-level decision-makers.
Puerto Rico Bank Employees: Tax Considerations
And now I come to a very big warning regarding employee requirements for a bank in Puerto Rico. I’ve assumed that you’ll hire workers abroad in a lower-cost country such as China or Mexico. But, what if you want 50% of your staff to be in the United States, including the primary decision-makers such as your CEO and CFO?
This will create a big-time tax issue. Regulators might not have a problem if you follow the ideas above, but the IRS will have questions for you.
Your bank in Puerto Rico pays 4% tax on Puerto Rico sourcd income. And Puerto Rico source income is the net profits derived from work performed on the Island. Likewise, US source income, which is taxable in the United States, is derived from work performed in the US of A.
So, if your decision-makers are in the United States, as are 50% of your workers, 50% or more of your income would be US sourced and thus taxable by the IRS and your State. By putting a significant portion of your operation in the United States, you’ve lost 50% of the tax benefit of operating the business from Puerto Rico.
I also note that a US owner of a bank in Puerto Rico might have significant tax benefits if he or she moves to the island, spends at least 183 days a year there, and otherwise qualifies for Act 60, a tax program for individuals. For more on this, see: Puerto Rico Tax Incentives for Bank Owners
You might also find Where to set up a Bank Call Center to be helpful.
Puerto Rico Bank Employees: COVID Office Space Considerations
You’ll find that there are a number of new rules in Puerto Rico regarding office space requirements in the age of COVID. In most cases, the amount of space required per employee has doubled since the pandemic began.
As the amount of space required and the rules change every few months, I’ll just cover some general recommendations here. Be sure to discuss these issues with the person setting up your bank prior to leasing any space.
Prior to the global pandemic, the average space per employee was about 75 to 150 square feet depending on their work description. This includes their workspace and the area around their workspace.
As of 2021, the typical amount of space per employee was about 196 square feet. That includes the workspace as well as the amount of space in meeting rooms and common areas. This space is not mandated by law, but what employees expect this year.
If you’re planning your bank workspace now, below are some base numbers you can use to build out your space. You might also find this calculator from Office Finder helpful.
While these numbers might come down and may depend on your number of vaccinated employees, I find that most bank workers in Puerto Rico have become used to this larger amount of workspace.
I hope you’ve found this article on employee requirements for banks in Puerto Rico to be helpful. Please contact me at email@example.com for assistance in setting up a bank on the island. I will personally write your business plan and handle your license application.
If you’re just getting started in this process, I suggest you take a look at Start a Bank in Puerto Rico in 10 Steps.