Colombia is full of talent, and with Medellin and Bogota becoming start-up hotspots, many companies are recruiting Colombian talent. When hiring in Colombia, organizations need to be aware of employment and labor laws, especially when it comes to differentiating between employees and independent contractors.
Significant differences between independent contractors and employees in Colombia involve social security contributions, fixed work hours, and benefits. In the instance that employees and independent contractors are misclassified, employers may face severe financial penalties and consequences.
Here’s a guide that outlines the differences between independent contractors and employees in Colombia.
Independent Contractors in Colombia
Colombian independent contractors have flexibility in their work; unlike employees, they do not operate under the direct subordination of their employer. Independent contractors are in business for themselves and provide their service to another legal entity.
Contracts
Written contracts are not required when entering into a working relationship with an independent contractor in Colombia. These relationships can exist without formal documentation, however, many Colombian independent contractors choose to sign an agreement. If a contract is established, it is a service agreement, whereas employees work under an employment agreement.
Subordination
The Colombian government does not require independent contractors to work a certain amount of hours. If independent contractors set work hours or have a set break throughout the day, the working relationship appears to be more along the lines of employer-employee.
The hiring party does not have any control or any say over the independent contractors’ work; they cannot intervene with the contractors’ work and other tasks they may have. As long as the contractor completes their projects and their work is satisfactory, they are free to work with other clients and on other projects. The ideal working relationship to have with a contractor is a flexible and autonomous one.
Salary
Independent contractors are not entitled to a minimum wage or fixed salary. If independent contractors are paid a fixed salary, it blurs the lines of the working relationship and may appear to be employer-employee. Remuneration and compensation are decided and agreed upon by both parties. Rather than be on the organization’s payroll, independent contractors must submit an invoice to be paid.
Benefits
According to The Colombian Labor Code, Independent contractors are not entitled to any benefits or statutory protections.
Link: Do Independent Contractors Get Paid Vacation?
Taxes
Independent contractors in Colombia are required to file taxes at the end of every year. This means that with every payment the independent contractor receives, they must set money aside in order to pay their tax contribution. Each year, independent contractors need to submit an annual income statement to the Registro Unico Tributario (RUT) and any other additional receipts from foreign companies. They’re also required to contribute to the General Social Security System on a monthly basis.
Foreign companies that hire independent contractors in Colombia do not need to report payments to the Direcćion de Impuestos y Aduanas Nacionales de Colombia (National Directorate of Taxes and Customs). However, if they have a branch in Colombia, they are considered a permanent establishment, and reporting payments is required.
Termination and Severance
Independent contractors are not entitled to receive severance payments and the contract can be terminated at any point unless otherwise stated in the written agreement.
Employees in Colombia
An employment relationship in Colombia is established when there is a personal service, subordination from the employee toward the employer, and payment for the service are provided.
Contracts
When entering an employer-employee relationship, contracts must be in Spanish, and if necessary, can be bilingual. There must be a written agreement signed by both parties and need to include the name, start date, length, job description, termination conditions, and the type of contract. Colombia has three main types of employee contracts: indefinite, fixed term, and duration of work.
- Indefinite Contract: This is an open-ended contract, and it only ends when it’s terminated by either party involved. Indefinite contracts in Colombia do not need to be put into writing.
- Fixed Term Contract: These types of contracts only last a limited amount of time. However, upon hiring, each party can decide the duration of the contract, but ultimately, cannot go longer than three years. Once a fixed-term contract ends, it can be renewed indefinitely. Unlike indefinite contracts, fixed-term contracts need to be put into writing. If either party in the agreement doesn’t submit a termination request 30 days before the contract ends, it is automatically extended.
- Contract for Duration of Work: Certain contracts are only limited to the duration of a project. Unlike fixed-term or indefinite contracts, these contracts are terminated as soon as the specified tasks in the contract have been properly executed.
Subordination
The standard working week for Colombian employees is 48 hours per week — eight hours a day, six days a week. Employees are entitled to one day off per week, which is typically Sunday, but the allotted day off can be adjusted as long as it’s stated in the employment contract.
Salary, Overtime and Bonuses
There are two types of salaries in Colombia: an ordinary salary and an integrated salary. The ordinary salary is higher than the minimum wage — which, as of January 2023, is COP 1,300,606.00 — and the salary and social security contributions are paid separately. The integrated salary, however, is a fixed monthly salary that’s approximately 10 times higher than the minimum wage. In an integrated salary, everything is included: bonuses, additional payments, and benefits.
If an employee was to work overtime, they are entitled to receive at least 125% of their pay for daytime work. If they work overtime on a holiday or overnight, they are entitled to be paid a rate of 150%. Colombian employees are not to work more than two hours of overtime a day.
Colombian employees, with the exception of those on an integrated salary, are entitled to a 13th month bonus, commonly referred to as Prima de Servicios. This bonus is paid out in two installments, usually in June and September.
Benefits
Colombian employees are entitled to benefits, like vacation, maternity leave, paternity leave, and sick leave. For paid time off, employees are entitled to 15 days of paid leave each year; in addition to that, Colombia observes 18 public holidays in which employees are not required to work. Female employees are entitled to maternity leave; they’re able to take 18 weeks fully paid. Maternity leave can start two weeks before their due date. Fathers are allowed to take 2 weeks of paternity leave; however, the mother can transfer the last six weeks of their maternity leave to the father if they wish to do so. Maternity and paternity leave are paid through the employer who is later reimbursed by social security.
If an employee is unable to work due to illness or injury, the employer is required to pay them for their usual wages in the first two days of absence. If the employee is absent for longer than three days, sick pay is then covered by social security at a rate of 66.67%. These payments cannot exceed 180 days.
Additional leaves employees are entitled to include trade union leave, bereavement leave for up to five days, and voting leave.
Taxes
Colombian employers pay up to 38.2% for social security contributions. This consists of 8.5% for health insurance, 12% for pension, 4% to 9% for payroll tax, and up to 8.7% for professional risk coverage. For integrated salaries, social security contributions are based on 70% of the employee's income.
Termination and Severance
If an employee is dismissed without cause, or if the employee voluntarily ends employment, severance pay is required. The exact amount of severance is dependent on the seniority of the employee and their salary.
Colombia has no unemployment insurance. For employees who do not receive an integrated salary and are terminated, employers are required to pay them a Cesantias, which is an annual amount that’s equal to a monthly salary. In addition to their monthly salary, a Cesantias is paid out to the employee with a 12% interest rate.
Link: Advantages to Hiring Global Contractors
The Risk of Misclassification
When it comes to hiring an independent contractor or an employee, there are both advantages and disadvantages. However, it is important to clearly establish the working relationship upon hiring. If the working relationship becomes blurred, such as an independent contractor working set hours, or if the independent contractor is on the company’s payroll, there is the risk of misclassification. In the instance that misclassification occurs, the organization may face severe financial penalties.
Choose Borderless
When organizations are hiring talent from Colombia, it’s important to consider the key differences between independent contractors and employees. Rather than risk misclassification for new employees, let Borderless help. Borderless is a platform and Employer of Record that helps employers compliantly hire employees and independent contractors all across the globe.
To make hiring Colombian talent seamless, book a demo today.
Disclaimer
Borderless does not provide legal services or legal advice to anyone. This includes customers, contractors, employees, partners, and the general public. We are not lawyers or paralegals. Please read our full disclaimer here.
