Employer of Record (EOR) Colombia

An Employer of Record (EOR) in Colombia, serves as the legal employer for businesses, offering a comprehensive solution for efficient workforce management. Functioning as the legal employer entails navigating the intricacies of local employment regulations, ensuring businesses maintain full compliance. Opting for an Employer of Record provides a strategic partnership dedicated to simplifying the complexities of employment law in diverse regions. The EOR manages payroll, statutory benefits, and all HR-related matters, allowing businesses to concentrate on their core operations. Choosing an Employer of Record facilitates a seamless and compliant expansion journey, not only in Colombia but also in locations like KSA, supporting businesses in various regions.

Roles and Responsibilities of Employer of Record (EOR) in Colombia

Key Responsibilities of the Employer of Record (EOR) in Colombia:

  • Oversee and ensure meticulous adherence to the intricacies of Colombia’s employment laws.
  • Manage the local payroll process with a high level of accuracy and attention to detail.
  • Take charge of the filing of employment-related taxes and crucial paperwork as mandated by Colombian regulations.
  • Furnish detailed payslips to workers, ensuring transparency and clarity regarding salary components.
  • Ensure the punctual and accurate distribution of salary payments to workers.

EOR Solutions in Colombia

  • EOR for Prospective Employees: Mercans offers seamless Employer of Record (EOR) solutions for businesses that have already identified their ideal candidates in Colombia. Our services encompass every aspect of the employee lifecycle, ensuring compliance with Colombia labor laws and regulations.
  • EOR + Recruitment: For those seeking assistance in talent acquisition, our EOR and recruitment services provide a holistic solution. We tap into our extensive network and expertise to help you find, onboard, and retain top talent, streamlining your expansion into the Colombia market.
  • Visa Sponsorship and Global Mobility: Navigating the intricacies of expatriate employment is simplified through our visa sponsorship and global mobility services. We facilitate the relocation of your international workforce, ensuring compliance with Colombia immigration and employment laws.
  • AOR for Contractor Payments: Businesses grappling with contractor payments can leverage our Assistance on Record (AOR) services. We handle the complexities of contractor payments, guaranteeing accuracy and compliance.
  • Converting Freelancers to Employees: Mercans supports the transition from independent contractors to permanent employees in Colombia. Our expertise ensures smooth conversions while adhering to legal requirements.
  • HCM Integration: Integrate Mercans’ EOR services seamlessly with your HCM system in Colombia for real-time data exchange, enhanced compliance, and cost-efficiency. Trust our expertise for a unified, compliant, and efficient approach, elevating your workforce management and payroll operations.

Things you need to know before hiring in Colombia

Employees vs Independent Contractor Compliance

ConsiderationEmployeesIndependent Contractors
Written Agreement RequirementOften required for clarity and legal protectionNot necessary, but advisable for clarity
Factors for Classification- Control over work
Control over working hours
- Method of Payment
- Similar factors with emphasis differences
Reporting Payments to AuthoritiesGenerally required for tax and legal purposesGenerally not required unless specific conditions met
Regulation of PaymentsCentral bank processing may be requiredNon-regulated market for incoming payments
Intellectual Property OwnershipTypically owned by the employer unless specifiedOwned by the contractor unless specified
Enforcement of Payroll Tax ObligationsEmployers responsible for payroll taxesIndependent contractors responsible; UGPP scrutiny for misclassification
Legal Accountability for Classification ErrorsLiability for employee benefits and compensationPotential lawsuits and UGPP inquiries for misclassification
Duration of RelationshipTypically ongoing with legal restrictionsNo limitations on duration
Nature of Work PerformedSubject to legal and regulatory limitationsAny legal services under Colombian law
Reimbursement of ExpensesMay be regulated by employment agreementPermissible without concerns about employment status

This comparison outlines key considerations between hiring employees and independent contractors in Colombia. It emphasizes factors such as written agreements, classification criteria, reporting obligations, payment regulations, intellectual property ownership, payroll tax enforcement, legal accountability, and considerations related to the nature and duration of the working relationship. Employers should carefully evaluate these factors to ensure proper compliance with Colombian laws and regulations.

Employment Contracts in Colombia

Navigating employment law in Colombia can be intricate, especially for foreigners. The complexity lies not only in legal requirements but also in the variety of contract and compensation options available. The key is to comprehend the nuances to make informed decisions that align with business strategies.

Types of Employment Contracts:

Distinguishing contract types is crucial, as potential severance payments in case of disputes significantly differ. Colombian labor law ensures equal opportunities for local and foreign workers, emphasizing an employment relationship when personal service, subordination, and payment are established. Contract options vary mainly in duration:

Indefinite/Open-Ended Contract

  • Permanent, verbal or written.
  • Entails benefits, vacation, social security contributions.
  • Terminable by either party, with compensation based on salary and service duration.

Fixed Term Contract (contrato a término fijo)

  • Limited duration, renewable but requires written termination notice.
  • Must be in writing, automatically extended if notice not given.

Contract for Duration of Work

  • Tied to a specific project, with a defined end upon project completion.
  • Clear definition of expected duties is crucial.

Occasional Contract

  • Temporary agreement, verbal or written, for casual jobs.
  • Limited to a maximum of one month, complementing regular activities.

Registration and Contributions

  • Employers are responsible for registering employees in the Colombian Social Security System.
  • Contributions include pension, health care, labor risk, and withholding tax.

Understanding the intricacies of employment contracts in Colombia is essential for compliance and risk mitigation. Each situation should be assessed independently, considering local regulations to ensure a comprehensive understanding of employment relationships.

Working Hours

In Colombia, standard working hours are 6am-9pm, with either eight or nine hours per day. The labor law sets a maximum of 48 hours a week, extendable to 56 hours with overtime, subject to job requirements.

Probation Period

The Substantive Labour Code of 1950 outlines a probation period aimed at assessing the employee’s skills and familiarizing them with working conditions. The law specifies a maximum probationary duration of 15 days for domestic workers and two months for others, renewable upon agreement. During probation, employees receive full benefits, as detailed in the employment contract, and termination is possible without notice, with benefits still applicable.

Payroll in Colombia

Minimum Wages

As of November 2023, the current minimum wage in Colombia is COP1,300,606.00 per month, effective from January 1, 2023, until December 31, 2023. This amount includes a monthly transport allowance of COP140,606.00, making the total monthly minimum wage COP1,300,606.00.

Payroll Cycle

The payroll cycle occurs bi-weekly or monthly in Colombia. The provision of a 13th-month salary is compulsory, granting employees an additional month’s salary. This bonus is disbursed in two installments, typically in June and December.

Regarding Mercans’ payroll capabilities, they cover various aspects, including local currency payments for employees and contractors, comprehensive payroll setup, processing, and administration, as well as managing statutory filings and payments.

Social Security in Colombia

In Colombia, employers are mandated to enroll their employees in the comprehensive social security system, which encompasses pensions, healthcare, labor risks, and parafiscal contributions. This system includes contributions to the Family Compensation Fund, National Learning Service (SENA), and Colombian Family Welfare Institute (ICBF). Contributions are subject to a maximum limit of 25 times the minimum monthly legal salary for pensions, healthcare, and labor risks.

Every employee, except for certain foreign employees who may voluntarily affiliate with the pensions system, must be a part of the integral social security system. This system comprises the general pensions system, health social security system, and general system of professional risks.

The basis for contributions is determined by the employee’s monthly salary (excluding non-salary items), ranging from the minimum legal monthly salary to a maximum of 25 times the minimum legal monthly salaries for ordinary salaried employees. For those earning an integral salary, pension contributions are based on the lower of 25 minimum legal monthly salaries or 70% of the integral salary.

Contribution CategoryPercentageEmployee ShareEmployer Share
Pensions, Healthcare, and Labor Risks28.5%25% (Approx. 8%)75% (Approx. 20.5%)
Mandatory Health SystemEmployee: 4% (For salaries above 10 minimum monthly wages)Employee: 4%Employer: 8.5% (Not applicable for salaries below 10 minimum monthly wages)
Pension SystemEmployee: 4% (Additional 1% for certain salary brackets)Employee: 4%Employer: 12%
Professional Risks (Aportes de Riesgos Profesionales)Employer: 0.522% to 6.96%--
Payroll Tax (for salaries > 10 min. monthly wages)Employer: 9% on salary items--

Note: Contributions are based on the monthly salary of the employee. Specific percentages and conditions may vary based on salary levels and the nature of the contribution.

Colombia Employee Hiring Cost

Let us assume the Gross Annual Salary for the employee is COP 99,999.96. However, the Total Annual Employer Costs, which include additional expenses such as social security contributions, benefits, and taxes, amount to COP 498,357.96. The difference between the Gross Annual Salary and the Total Annual Employer Costs represents the additional financial commitments and contributions the employer is responsible for beyond the employee’s salary.

Therefore, the Total Annual Cost of hiring this employee is the sum of the Gross Annual Salary and the Total Annual Employer Costs, resulting in COP 598,357.92. This figure represents the comprehensive financial outlay associated with employing the individual, providing a more holistic perspective on the overall cost to the employer.

Employee Benefits in Colombia

Employee Benefits in Colombia encompass diverse provisions, from health insurance to retirement plans, offering workers essential coverage and financial security. In Colombia, standard working hours are 6am-9pm, with either eight or nine hours per day. The labor law sets a maximum of 48 hours a week, extendable to 56 hours with overtime, subject to job requirements.

Paid Time Off (PTO) in Colombia

Vacation Leave Quota (Annual Leave)

In Colombia, employees are entitled to 15 business days of paid annual leave after completing 12 months of service with their employer. Vacation time is prorated for those with less than a year of service. Additionally, employees receive 18 paid public holidays, and they must be notified of their vacation dates at least 15 days in advance.

AspectDetails
Vacation Leave Entitlement15 business days annually
Prorated CalculationProportional for those with less than a year
Public Holidays18 paid holidays in addition to annual leave
Notice Period15 days in advance
Carry OverUp to 6 unused days, max. 2 years
PayoutBased on basic salary at the start of leave

Statutory Provisions Addressing Vacation Pay

  • The regulations do not explicitly address receiving compensation instead of annual leave or employees forfeiting their right to paid annual leave while still employed. However, employers are required to pay for any unused vacation upon termination.

Sick Leave in Colombia

  • Employees are entitled to up to 180 days of sick leave for non-work-related illnesses. The employer covers the first two days, and social security covers the remainder. Funding for sick leave benefits comes from both worker and employer contributions.
Aspect

Details
Duration

Up to 180 days
Employer Coverage

First two days, then covered by social security
FundingWorker (4%) and employer (8.5%) contributions

Maternity, Paternity, Parental, and Adoption Leave in Colombia

  • Maternity Leave: Mothers are entitled to 18 weeks of fully paid maternity leave, including one week of prenatal leave. Employers initially cover the cost, later reimbursed by the government.
  • Paternity Leave: Fathers, including adoptive fathers, get two weeks of fully paid paternity leave.
  • Shared Parental Leave: Parents can divide the final six weeks of maternity leave between them.
  • Adoption Leave: Adoptive parents receive leave on the same terms as biological parents.
AspectDetails
Maternity Leave Duration18 weeks, 100% paid
Paternity Leave DurationTwo weeks, 100% paid
Shared Parental LeaveAllows parents to divide the final six weeks of maternity leave
Adoption LeaveSame provisions as for maternity and paternity leave

Bereavement Leave in Colombia

Employees are entitled to five days of paid bereavement leave for the death of a close family member.

AspectDetails
DurationUp to five working days
Employer CoverageEmployer pays for bereavement

Jury Duty Leave in Colombia

  • Not specified by law.

Military Leave in Colombia

  • Military service is unpaid leave, lasting 1 to 2 years. Employers must reinstate employees within 30 days after military service.
AspectDetails
DurationUnpaid leave, 1 to 2 years
ReinstatementMust reinstate within 30 days

Voting Leave in Colombia

Employees are eligible for half a day of paid leave for voting. The employer covers the cost.

AspectDetails
DurationHalf-day of paid leave
Employer CoverageEmployer pays for voting leave

Marriage Leave in Colombia

Employees are entitled to five days of paid leave for their wedding.

AspectDetails
DurationUp to five working days
Employer CoverageEmployer pays for marriage leave

Public Holidays in Colombia

Private employers must provide paid leave for 18 public holidays in addition to annual leave.

AspectDetails
Number of Holidays18 paid public holidays
Separate from Annual LeaveYes

Public Holidays

Private employers in Colombia are obligated to grant paid leave for 18 public holidays. These statutory holidays are distinct from and provided in addition to annual leave.

Number of HolidaysSeparate from Annual Leave
18Yes

Complete List of Recognized Holidays in Colombia:

DateHoliday
1 JanuaryNew Year’s Day
2nd Monday in JanuaryEpiphany (Three King’s Holiday)
20 March (Movable)St. Joseph’s Day (Movable)
2 April (Movable)Palm Sunday (Movable)
Thursday before EasterMaundy Thursday
Friday before EasterGood Friday
1 MayLabor Day
22 May (Movable)Ascension (Movable)
12 June (Movable)Corpus Christi (Movable)
19 June (Movable)Feast of the Sacred Heart (Movable)
3 July (Movable)Feast of Saints Peter and Paul (Movable)
20 JulyIndependence Day
7 AugustBattle of Boyacá Day
21 AugustAssumption of Mary
16 October (Movable)Columbus Day (Movable)
6 November (Movable)All Saints’ Day (Movable)
13 November (Movable)Cartagena Independence Day (Movable)
8 DecemberFeast of the Immaculate Conception
25 DecemberChristmas

Overtime Pay

Overtime compensation for daytime hours is set at 125.00% of the regular pay rate, while for nighttime overtime, the rate increases to 175.00% of the standard pay rate.

13th Month Salary

The payment of a 13th-month salary is obligatory in Colombia and is usually distributed in two parts. Employers are required to disburse the initial half before June 15 and the remaining half before December.

Employee Termination

An employer has the authority to terminate an employee without cause by providing compensation. However, if the termination is for cause, the employer is not obligated to provide compensation. Article 62 of the Labour Code outlines an exhaustive list of serious misconduct or situations that may constitute cause for termination. These reasons include:

  • Serious indiscipline or negligence.
  • Acts of violence or mistreatment.
  • Conduct in which an employee discloses technical or commercial secrets, or reveals private matters to a third party.
  • Systematic poor performance.
  • Any serious violation of special obligations or prohibitions as per the law, or any fault agreed upon by the parties.
  • When an employee becomes entitled to a pension.

Notice requirements:

Generally, notice before termination is not required, except in two scenarios:

  • A 30-day notice is necessary when a fixed-term contract will not be extended.
  • A 15-day notice is mandated when the contract is terminated because the employee is entitled to a pension.

In both cases, it is permissible to provide the equivalent days’ salary in lieu.

Dismissal without notice:

Under what circumstances can an employer dismiss an employee without notice or payment in lieu of notice?

In general, employers can dismiss an employee without notice or payment in lieu except when:

  • A fixed-term contract is not extended, requiring 30 days’ notice.
  • The contract is terminated because the employee gains the right to a pension.

Severance pay

Employees have the right to indemnification pay upon termination, unless there is a cause. The calculation is based on years of service, the contract term, and the employee’s salary.

  • Indefinite-term contracts: For employees with a salary below 10 times the minimum monthly wage, the indemnification amount is 30 days of their salary for the first year of service, plus 20 additional days for each subsequent year. For those with a salary above 10 times the minimum monthly wage, the amount is 20 days for the first year and 15 additional days for each subsequent year.
  • Fixed-term contracts: The indemnification amount corresponds to the salary for the remaining time until completion of the term, or the term determined by the duration of duty or contracted work, with a minimum of 15 days.

Personal Income Tax

Navigating Personal Income Tax in Colombia involves understanding progressive rates linked to specific income brackets, impacting general, pension, and dividend income baskets.

General Income Basket

Income TypesDescription
Employment IncomeIncome received for services performed in Colombia, including salaries, wages, fringe benefits, commissions, and all income arising from the labor relationship.
Capital IncomeIncludes interest, financial income, royalties, rentals, and intellectual property (IP) income.
Non-Employment IncomeAll types of income that cannot be classified in other baskets.
Taxable Income (TU)Marginal Rate (%)Tax Liability
OverNot over
01,0900%
1,0901,70019%
1,7004,10028%
4,1008,67033%
8,67018,97035%
18,97031,00037%
31,000And up39%
  • TU is a measure for thresholds, equivalent to COP 42,412 for FY 2023.

Pension Income Basket

Included IncomeDescription
Retirement and Disabilities PensionsIncludes pensions, labor risks compensations, and compensations substituting pensions.
  • Recent reform exempts foreign pension income up to TU 1,000 from taxation.

Dividend Income Basket

Included DividendsDescription
Dividends Subject to Tax at Corporate LevelPaid to fiscal residents.
Tax Rates and Credits
Progressive Rates0% to 39%, aligned with the General Income Basket.
Tax CreditsAvailable based on income levels. See progressive rates in the General Income Basket table.
Untaxed DividendsTaxed at 35%, net income subject to individual tax (0% to 39%).

Non-Resident Tax Rates

Applicable Tax Rates
Dividend IncomeIncreased to 20% for non-residents (previously 10%).

Local Income Taxes

Local Tax on Individual Income
No local taxes on individual income in Colombia

Note: This table provides a structured overview; for actual financial or tax transactions, it’s recommended to consult a tax professional or authority due to potential changes or specific conditions.

Work Permit

Foreigners planning to work in Colombia must secure a work permit, which is contingent on the nature of their intended employment. Since June 2013, it’s no longer mandatory for foreign nationals to possess a valid work visa before entering the country. Alternatively, individuals can enter on a tourist visa and subsequently apply for the appropriate work visa internally.

For those seeking an employment relationship with a Colombian entity, obtaining a Visa Temporal TP-4 is essential. This permit is valid for the contract’s duration, up to a maximum of three years, allowing multiple entries.

Individuals interested in independent work, entrepreneurial activities, or hiring employees should opt for the Visa Temporal TP-7, valid for one year with an annual renewal requirement.

Before mid-2013, conducting business in Colombia necessitated residing under a TP-7 visa. However, recent legislation enables small business ventures (Persona Natura) to operate with a tourist visa and a Certificado de matrícula mercantil (application through the Bogota Chamber of Commerce), eliminating the need for a separate work permit under this arrangement.

Conclusion

In conclusion, navigating the Colombian employment landscape requires a nuanced understanding of the legal and regulatory framework. Mercans offers comprehensive Employer of Record (EOR) services, simplifying the complexities associated with workforce management, payroll, and compliance. By providing tailored solutions that adhere to the intricacies of Colombian labor laws, Mercans empowers businesses to focus on their core operations, ensuring a seamless and compliant employment experience in this dynamic South American market. With expertise spanning various aspects of human resources and a commitment to keeping abreast of legislative changes, Mercans stands as a strategic partner for businesses aiming to thrive in Colombia’s evolving business environment.

This document was prepared for informational purposes only. As local laws & regulations keeps on changing. Please consult your tax & legal advisors as well.
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