Colombia is one of the most attractive economies in Latin America for foreign investment but there are some challenges when it comes to starting a business in the country, more specifically when paying your employees.
The payroll laws in Colombia are complex, which is why if you want to start a business in Colombia, having the local knowledge about payroll is necessary for success in the country.
Businesses in Colombia are governed by the Labour Code which oversees all employers and employees in Colombia. The Labour Code controls all the procedures that surround the conditions of employment and the contracts, the salaries that workers are given, social security contributions, holidays and paying of overtime. Contracts of employment must be written by an attorney and spell out the terms of employment for employees. The Labour Code may be updated by a new government once every four years.
Setting up payroll
After a company is incorporated in Colombia, they will receive a tax ID number which will be used to enrol in with social security entities, which are health insurance, pension, unemployment fund, welfare and labour risk. This process can take up until a month before the company is able to hire their first employee. Only after these enrolments occur can payroll be set up for employees.
The process of payroll in Colombia is very complex and having a local person to do the correct calculations is imperative to being compliant. The Labour Code must be followed along with the statutory laws which adds to the complexity.
The minimum wage in Colombia for 2018 is 781,242 pesos, or around $265 USD. Companies and some employees, like managers or directors can agree to integral pay of at least thirteen minimum wage salaries.
Employees are paid once a month or twice per month with the pay slips going straight to employee's email keeping the information confidential or through an ESS (employee self-services).
These are the rules regarding employee overtime:
- Night work is payable at a rate of at least 35% more than normal wage levels;
- Overtime during daytime working hours is paid at a rate of at least 25% above normal salary levels, while overtime at night is at least 75% above the norm;
- Overtime hours cannot exceed 12 hours per week or two hours per day;
- If employees work on a Sunday or during a public holiday, they are entitled to extra pay of 75% above normal rates as compensation.
The employees who earn an ordinary salary are also entitled to receive a 13th salary, which is paid twice a year, 50% on June and the other half in December.
The employees who earn ordinary salary are also entitled to receive an unemployment allowance, which is deposited annually (no later than February 14th) by the employer in an unemployment fund chosen by the employee.
Vacation and sick leave
In Colombia, the local vacation policy stats that employees are entitled to take 15 business days off annually. However, it is up to the company to establish an additional policy to give its employees more days off.
Staff members can also claim 18 weeks of paid maternity leave, eight days of paid paternity leave and five days of paid bereavement leave.
In terms of sick leave, companies are obligated to report the time to the social security system. Companies are not obligated to pay labour risk contribution during the sick leave.
Termination of the employment agreement
Employees dismissed without lawful cause are entitled to a severance payment, the amount of which varies depending on their salary and length of service. Staff members earning a salary that is less than 10 legal monthly minimum wages are entitled to:
- 30 days-worth of salary if they had less than one year of service;
- A severance payment of 30 days-worth of salary for the first year and 20 days-worth of salary for each consequent year if they have provided more than one year of service.
Employees earning salaries that are equal to, or higher than, 10 legal monthly minimum wages are entitled to:
- 20 days-worth of salary if they if they had less than one year of service;
- A severance payment of 20 days-worth of salary for the first year of service, and 15 days for consequent years if they have provided more than one year of continuous service.
How we can help
TMF Group Colombia has payroll experts who work to ensure that clients understand the complex processes in Colombia. We know the local laws and requirements and can set up a payroll calendar for your company and handle all the payroll for employees to remove the burden of the payroll process. Whether you want to set up a new business in Colombia or wish to get assistance with your payroll processing, talk to us.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.