Payroll in Colombia
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Mercans is your go-to partner for top-notch payroll (Managed & SaaS) services in Colombia. Our commitment to delivering exceptional payroll solutions in Colombia is unwavering. With years of experience in the payroll industry, Mercans ensures accurate and compliant payroll services in Colombia, making us the preferred choice for businesses of all sizes. Trust Mercans for timely and accurate payroll transactions, along with the convenience of multi-currency payments in the Colombian market. As your dedicated local payroll provider in Colombia, we boast a team of in-country payroll specialists with deep knowledge of local laws, offering comprehensive support for a seamless payroll experience tailored to your business needs.
Payroll Services in Colombia
At Mercans, our unwavering commitment to local compliance in Colombia goes beyond a mere checklist. We proactively navigate the intricate regulatory landscape, ensuring your business aligns seamlessly with the country’s norms. Here’s an insight into how Mercans expertly manages key activities, safeguarding both compliance and operational efficiency:
Comprehensive Services Include
Payroll Settlement
- Precise calculations encompassing health, pension, taxes, and other deductions.
- Inclusion of overtime, bonuses, and occasional transportation allowances.
- Monthly file creation for social security contributions.
Payment Processing
- Generation and meticulous delivery of payment slips.
- Efficient management of social benefits and parafiscal contributions.
- Streamlined handling of payroll receipts and interfaces.
Employee Benefits
- Maintenance of a comprehensive vacation book.
- Skillful consolidation of information related to layoffs and vacations.
- Generation of magnetic media for seamless electronic processing.
Regulatory Compliance
- Thorough preparation of annual Certificates of Income and Withholdings.
- Accurate calculation of a fixed semiannual percentage of withholding at the source on salaries.
Social Security Management
- Holistic payroll settlement covering parafiscal and social security aspects.
- Certificate issuance and secure payment receipts.
- Expert management of social security payments with the operator.
Advanced Reporting
- Strategic generation of legal reports and security studies.
- Methodical staff pick systematization for payroll automation.
- Comprehensive processing of payroll reports, including new hire reports, tax returns, and end-of-year reports.
Convenient Employee Portals
- Punctual delivery and processing of news.
- Efficient delivery of AFC forms, volunteers, and receipts.
- Seamless access to an online payroll portal for enhanced employee convenience.
Consultative Approach
- Continuous consultation through a robust process control platform.
- Timely delivery of meticulously prepared payroll and payment files.
- Consolidated social benefits reporting for a comprehensive overview.
Magnetic Media Reporting Overview
Regulatory Compliance
DIAN mandates submission of annual financial operations through magnetic media.
Efficient Execution
The Run Statutory Reports app ensures streamlined and effective report generation.
Format Adherence
Entities must follow specified report formats according to government resolutions.
Default Coverage
Report formats include payments in accounts, withholding taxes, deductible taxes on sales, generated taxes on sales, revenues in the year, open items of balance debtors, and liability balance on December 31st.
Additional Offerings
- Legal Entity Setup
- Compliance Information
- Annual Tax Filing Support
- Advisory Services
- Benefit Program Administration
- Technology Integration
- Training Sessions and Webinars
Count on Mercans to navigate the intricacies of the Colombian business landscape, offering a comprehensive suite of services designed to ensure compliance, operational efficiency, and success for your business.
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 Processing in Colombia – How to Calculate Payroll?
Before proceeding with the Payroll Process in Colombia, it is vital to grasp key concepts:
- Data of the employee to whom the payment will be made.
- Employee’s monthly base salary.
- Days worked by the employee.
- Employee’s eligibility for transportation assistance.
- Overtime worked by the employee.
- Consideration of night surcharge in the employee’s settlement.
- Identification of non-salary income.
Once these concepts are clarified, commence the payroll settlement process. Download a payroll settlement form.
How to Process Payroll
Payroll Process in Colombia involves calculating values accrued for days worked and deductions made to the employee’s salary within a specific period. Employer and employee obligations include deductions and accruals such as health, pension, transportation assistance, and more.
Obligations
| Employee - Deductions | 4% Pension, 4% Health |
| Employee - Other Deductions | Pending Loans with the Employer, Contributions to the FSP |
| Employer - Social Security | 12% Pension, 8.5% Health, 0.522% ARL |
| Employer - Parafiscals | 2% SENA, 3% ICBF, 4% Compensation fund |
| Employer - Accrual | Basic salary, Extra hours, Transportation assistance |
Earned
The total income for the employee, including salary, commissions, overtime, travel expenses, surcharges, and bonuses. This forms the basis for calculating payroll taxes in Colombia, including social security, parafiscal, and social benefits.
Transportation Assistance
A benefit aiding employees earning up to 2 current legal monthly minimum wages (SMMLV) for transportation expenses.
Social Security
Ensures employee guarantees for health, work accidents, and retirement.
ARL
Contribution rates based on the risk level of the employee’s activity.
ARL Colombia Contribution Rate
| Risk Level | Contribution Rate |
|---|---|
| Risk I | 0.522% |
| Risk II | 1.044% |
| Risk III | 2.436% |
| Risk IV | 4.350% |
| Risk V | 6.960% |
Parafiscal Contributions
Mandatory contributions supporting SENA, ICBF, and Compensation Fund.
Note
ICBF and SENA parafiscal contributions are applicable to employees with a salary equal to or greater than 10 SMMLV.
Pension Solidarity Fund (FSP)
A savings account collecting a percentage of the salary for workers earning more than 4 minimum wages.
Practical Case on Payroll Process in Colombia
Exercise Data
Basic salary
$1,160,000.
Commissions
$200,000.
Transportation assistance
$140,606.
Days worked
30 days
Release credit
$100,000.| Accrual | Values | Payroll appropriations | Values |
|---|---|---|---|
| Basic salary | $1,160,000 | Social Security | |
| commissions | $200,000 | Health 8.5% | $115,600 |
| Transportation assistance | $140,606 | Pension 12% | $163,200 |
| Total accrued | $1,500,606 | ARL 0.522% | $7,099 |
| Total | $285,899 | ||
| Deductions | Parafiscal contributions | ||
| Health contributions 4% | $54,400 | Sena 2% | $0 |
| Pension contributions 4% | $54,400 | compensation fund | $54,400 |
| Release credit | $100,000 | ICBF 3% | $0 |
| Total deductions | $208,800 | Total | $54,400 |
| Total payroll to pay | $1,291,806 | Total appropriations | $340,299 |
Important: Health and pension deductions, and payroll appropriations were calculated on a basis of $1,360,000 (basic salary + commissions).
Social Benefits
Social benefits distinguish employment contracts from service contracts. Employees under an employment contract can enjoy:
Severance payments
Equivalent to one month’s salary for each year worked.
Interest on severance pay
12% return on accumulated severance pay by December 31.
Service premium
One month’s salary for a year worked, paid in two installments.
Vacations
A 15-day break paid by the company for each year worked.
Provision of Monthly Social Benefits
8.33% Severance 1% Interest on severance pay 8.33% Service premium 4.17% VacationPractical Case on Liquidation of Social Benefits
Exercise Data
Basic salary
$2,000,000.Transportation assistance
$140,606Days worked
30 days.Social Benefit Settlement Concepts
| Aspect | Values |
|---|---|
| Total days worked | 30 |
| Salary | $2,000,000 |
| Transportation assistance | $140,606 |
| Total base salary settlement | $2,140,606 |
Social Benefits
| Aspect | Values |
|---|---|
| Bonuses (8.33%) | $178,312 |
| Severance (8.33%) | $178,312 |
| Severance interest (1%) | $1,783 |
| Vacations (4.17%) | $83,400 |
| Total liquidation of social benefits | $441,807 |
Ensure a seamless Payroll Process in Colombia with Mercans, where precision and compliance are our top priorities.
Payroll Compliance in Colombia
At Mercans, we prioritize local compliance in Colombia, ensuring that your business adheres to the intricacies of the country’s regulatory landscape. Our commitment extends beyond mere adherence; we take proactive measures to handle various critical activities essential for seamless operations. Below are key activities that Mercans efficiently manages, safeguarding your compliance and operational efficiency:
| Process | Declaration/ Registration (service description) | Submission Frequency | Due Date |
|---|---|---|---|
| Employee Yearly Income Certificates: | Consolidate payments, earnings, social security deductions, social benefits and any other payment done to employee during fiscal year | Annual | March 16 ( usually due date is reported by DIAN ) |
| IFRS Process | Yearly Declaration: Annual declaration of earnings and income tax deductions made during the year, Also include information related to social benefits balance , Payments done through third parties. (January 1st - December 31st) each year | Annual | March or April depends on DIAN Resolution |
| Tax Relief Annual | Yearly Declaration: This is an annual process where the employee updates the tax relief and supports based on previous year data. The standard pre.tax deductions are : Private Health Insurance, Dependents, Mortgage Housing Loan paid directly by the employee ( previous year) | Annual | April ( certificates based on previous year) |
| Social Security Calculations | Monthly Declaration: Based on earnings for employee during the month ( Related to rules and Law resolution actual) EPS 12,5% ( Exemption 10 SMLV) AFP 16% ARL Risk Levels ( 0,522%- 2436%) Parafiscals 9% ( Exemption 10 SMLV) | Monthly | It depends on Tax Company ID last 2 digit number |
| Social Security New Hire | Registration: Starters: The new start must be registered with the Social Security Authority in this case we need to register on EPS, AFP, ARL and CCF) | Event Based | *EPS, AFP. CCF- The start or hire date *ARL - Previous day to Hire Date, in order to guarantee be covered for any accident or sick leave |
| Social Security Leaves or End Service Termination | Leavers: The local authorities should be informed about the termination of the employment contract during the following month after the termination, at the time of submitting the social security contributions. | Monthly | *EPS, AFP. In the same general social calculation FILE *ARL ,CCF- The same day of termination |
| Leaves to be Reimbursed | Sick, maternity, paternity, Accident Leaves to be reimbursed by the Government | Event Based | Transcription At least 1 year |
| AFC and Fvol Contributions by employee | Total amount discount through payroll for employees to deducted Income Tax | Monthly | Usually the same payroll payment date or depending to agreements with entities |
| Third Payments | Amounts discounted to employees who has garnishments, Cooperatives, donations, Loans with external entities | Up to them | Usually the same payroll payment date or depends agreements with entities |
Payroll Cycle and Payslip Components in Colombia
Navigating the payroll cycle in Colombia requires a comprehensive understanding of the intricacies outlined by the Colombian Labor Code. This vital process involves the meticulous management of payroll components, each playing a crucial role in ensuring accuracy, compliance, and transparency. From the earned portion and deductions to essential data points encompassing employee and employer details, the Colombian payroll cycle demands precision and adherence to legal standards. In this dynamic landscape, Mercans stands as a trusted partner, adept at guiding businesses through the complexities of Colombian payroll, offering expertise in compliance and a seamless payroll experience tailored to local regulations.
Payroll Cycle
In the realm of payroll management, diverse cycles cater to the unique needs of both employers and employees. Understanding these cycles is crucial for ensuring timely and accurate compensation. Here’s a brief overview:
Monthly Cycle
Duration
Encompasses a standard period of 30 days.Commonality
Widely used in long-term employment contracts.Weekly Cycle
Duration
Payments are processed and disbursed after seven days of work.Commonality
Provides a more frequent compensation structure for shorter-term engagements.Fourteenth Cycle
Duration
Involves payments every 14 days.Commonality
Suited for scenarios where a more frequent payout is necessary, yet not as frequent as weekly cycles.Biweekly Cycle
Duration
Payments occur every two weeks.Frequency
Employees receiving biweekly paychecks typically receive two in a given monthPayslip Components
In Colombia, employment payrolls serve a crucial fiscal purpose, acting as a foundational document for employees to file their income tax returns, elucidates Facele. This financial record also facilitates accessibility, consultation, and traceability for companies. According to the Colombian Labor Code, specific elements compose a payroll, with essential data listed below:
Header Information
Inclusion of the employer and employee names for identification purposes.Earned Portion
Comprising the gross salary and additional earnings.Deductions
Miscellaneous contributions deducted from the accrued portion.Net Value to be Received
The final amount the employee is entitled to after deductions.Additional optional data, though not mandatory, may include:
Provisions or Appropriations
Details related to both employer and employee.To ensure accuracy and compliance, certain crucial data is paramount and should never be omitted:
Employee Data
Full name of the employee. Citizenship card information. Unitary Tax Registry (RUT). Data from the income card group.Employer Data
Tax name of the employer.net Tax Identification Number (NIT).Earned Portion
Comprising the base salary and agreed-upon additions (e.g., overtime, commissions, night shift surcharges, holidays, or transportation assistance).Deductions
Reductions applied to the earned portion. Social security contributions paid by the worker. Health contributions (4% paid by the employee). Pension contributions (4% by the employee). Contributions to the pension solidarity fund (1% of 4 minimum wages). Additional deductions such as cooperative contributions, debts with the employer, or withholding at source.Net Salary
The result of subtracting deductions from the accrued portion, representing the final emolument received by the employee. As Facele emphasizes, this is the most scrutinized and sought-after data by employees.Personal Income Tax in Colombia
In the realm of Colombian taxation, the general income basket encompasses various types of income, each contributing to the overall fiscal landscape. These income categories are meticulously defined to ensure a comprehensive approach to taxation:
Employment Income
Definition: Income received for services performed in Colombia, irrespective of the payment location. This includes salaries, wages, fringe benefits, commissions, and any earnings arising from the labor relationship.
Capital Income
Definition: Encompasses interest, financial income, royalties, rentals, and income from intellectual property (IP). This category addresses the diverse forms of income generated from capital investments.Non-Employment Income
Definition: Encompasses all types of income that do not fall within the classifications of employment or capital income. This broad category accommodates various sources of revenue that defy classification in other baskets.Non-Employment Income
Definition: Encompasses all types of income that do not fall within the classifications of employment or capital income. This broad category accommodates various sources of revenue that defy classification in other baskets.Tax Rates for Fiscal Residents
For fiscal residents, whether nationals or foreign individuals, the applicable tax rates for the general income basket, pension income basket, and dividend income basket are outlined in the table below:
| Taxable Income (TU*) | Marginal Rate (%) | Tax Liability |
|---|---|---|
| Over | Not Over | |
| 0 | 1,090 | 0 |
| 1,090 | 1,700 | 19 |
| 1,700 | 4,100 | 28 |
| 4,100 | 8,670 | 33 |
| 8,670 | 18,970 | 35 |
| 18,970 | 31,000 | 37 |
| 31,000 | And Up | 39 |
In December 2006, the Colombian government approved a reform of the Colombian tax system, introducing the Tax Unit (TU) to measure different limits and thresholds. The value of each TU is equivalent to 38,004 Colombian pesos (COP) for fiscal year (FY) 2022 and COP 42,412 for FY 2023. This reform aims to maintain relevancy by adjusting the values annually through decree.
Benefits of Payroll Outsourcing in Colombia – Why to Outsource Payroll to Mercans?
For our Payroll services, we have strategically adopted a robust tool that seamlessly operates across diverse countries, ensuring regional uniformity and meeting the specific requirements of our clients. This tool aligns with our commitment to delivering:
High Safety Standards
Incorporating industry-leading security measures to safeguard sensitive data. ISO 27001 and ISAE3402 certifications ensure a stringent adherence to information security protocols.Adequate and Sustainable Performance
Ensuring consistent and sustainable performance that meets the dynamic demands of payroll services.
Flexibility and Scalability
Offering flexibility and scalability to accommodate evolving client needs and adapt to changing business environments.
Collaborative Cloud Tool
Utilizing a Cloud-based platform that facilitates collaborative work, promoting efficiency and accessibility across teams.
Incorporating ISO 27001 and ISAE3402 certifications signifies our commitment to the highest standards of information security and operational integrity.
Key Features of Electronic Payroll Support:
Full Traceability
Enabling a traceable process from generation to transmission and validation. Each step is meticulously validated by our expert human team, ensuring consistency between stored information and that accepted by DIAN.Efficiency in Human Resources
Enhancing the efficiency of the human resources area by streamlining the payroll settlement process. Significant time savings achieved through the optimized use of our electronic payroll support.Certified Suppliers
Partnering with certified suppliers who uphold the highest standards of information security with ISO 27001 certification. Secure data transmission processes are facilitated through these certified suppliers, bolstering the integrity of our services.Mercans, with its adherence to ISO 27001 and ISAE3402 certifications, ensures that our clients not only benefit from a state-of-the-art payroll tool but also enjoy the peace of mind that comes with top-tier information security standards.
Employee Benefits in Colombia
Mercans, in adherence to Colombian local labor laws, ensures that employees receive the right benefits by staying vigilant about statutory deductions and entitlements. Our commitment is to guarantee compliance and provide employees with the benefits mandated by the law. Below are the key monthly payments and provisional costs associated with employee benefits:
A) Monthly Payments for Employee Benefits
Salud – EPS Basic Colombian Health Insurance
Mandatory basic health insurance for employees, ensuring access to essential healthcare services.Pension – Social Security
Contribution to the pension fund, securing employees’ financial well-being in retirement.ARL – Professional Risk – Workers Insurance
Coverage for professional risks and workers’ insurance, prioritizing employee safety in the workplace.Parafiscales – (Taxes and Parafiscal Contributions)
Comprehensive parafiscal contributions ensuring compliance with legal obligations.SENA – Gov. Education Program
Supporting government education programs through contributions to SENA educación institución.ICBF – Family Health Services Tax
Contributing to the Family Health Services Tax (Bien Estar Familiar) for the welfare of employees.CCF – Employee Benefit Fund
Facilitating contributions to the Employee Benefit Fund (Caja de Compensación) for employee welfare.Fosyga – Fondo de Solidaridad y Garantia
Contribution to Fondo de Solidaridad y Garantia for solidarity and guarantee funds.Fondo de Salud y Eventos Catastróficos
Supporting the Fund & Guarantee for catastrophic health events (Fondo de Salud y Eventos Catastróficos).B) Provisional Costs – (Paid on Termination, Beginning, End, and Mid-Year)
Prima de Servicios – Minimum Employee Bonus
Paid by the end of June and December, equivalent to half of the monthly salary, ensuring financial recognition.Vacaciones – Vacation Pay
Providing 15 business days of vacation pay annually for the first year of employment.Cesantías – Severance (Forced Government Savings)
Enabling forced government savings for severance, safeguarding employee financial security.Intereses a las Cesantías – Interest on Severance
Paying interest on severance, ensuring additional financial benefits to employees, paid before each January 31st directly.Mercans’ meticulous management of these monthly payments and provisional costs underscores our commitment to employee well-being and statutory compliance, creating a work environment that prioritizes both legal requirements and the welfare of our valued employees.
Start Working with Payroll Company in Colombia
In the vibrant and dynamic landscape of business opportunities, Colombia stands out as an exceptional destination, offering a rich cultural tapestry, economic growth, and a strategic gateway to Latin America. With a burgeoning market, diverse industries, and a workforce brimming with talent, Colombia presents an alluring environment for business expansion. Amidst this landscape, Mercans emerges as the ultimate choice for navigating the intricacies of the Colombian business landscape.
Our commitment to 100% local compliance, in-depth knowledge of Colombian labor laws, and a comprehensive suite of services make us the ideal partner for businesses aiming to establish a successful presence in Colombia. By choosing Mercans, businesses can leverage our expertise, ensuring seamless operations, statutory adherence, and a solid foundation for growth in this dynamic and promising market. With Mercans as your trusted ally, embark on a journey of success and prosperity in the heart of South America.