Understanding Payroll in Colombia: What Global Companies Need to Know About Colombia’s Payroll
Jul 3, 2018 | Topic: Country Payroll
Bordering both the Pacific Ocean and the Caribbean Sea, Colombia has some of the most picturesque coastlines in the world. While the country is known for its coffee and emeralds, it boasts a world of treasures waiting to be discovered by businesses looking to expand. Colombia has a GDP of $282 billion and a population of around 46 million people, but unfortunately its economy is not famous for its stability. However, the leaders of the country have grand plans for bringing more wealth and opportunity to the people.
From registration specifics to payroll regulations, Colombia’s business rules can be confusing for those who are unfamiliar with the culture—due in part to historical practices that have yet to be changed. Multinationals who choose to operate in Colombia will undoubtedly find opportunity, but they may need more help to navigate the country's rules around global payroll and taxes than they realize.
Businesses must start with the Chamber of Commerce, where they'll present the corporation constitution to the notary and receive a business ID number and an official certificate of business. This certificate is not permanent, meaning owners will need to have it renewed on a regular basis. Businesses should have a lawyer and accountant available to help determine the legal setup of the company. An in-country bank account is required, and many banks won't even consider a business if they don't have an accountant on staff. Plenty of bureaucracy in the country means very little can be completed online, so it may take a while to get business requirements in order (times vary based on business type and other circumstances). The best way to overcome this struggle is to hire a lawyer who has a large network of people who can help speed up the process.
Employment Law & Employment Rights
The standard work week in Colombia is 48 hours. Most offices will take a one-hour lunch break, although some cities choose to take a two-hour break during the week and work a half day on Sunday. Overtime is generally paid at time and a half or more. Employee contracts must be in writing, and probation periods are allowed for up to two months for standard full-time jobs. Collective bargaining is allowed in Colombia, though the practice is likely to vary considerably from industry to industry. Recently there has been a real push within certain parts of the country to encourage more open dialogue between workers and employers in an effort to strengthen the economy.
Compensation & Severance
Monthly minimum wage in Colombia was raised in 2018 to 781,242 pesos (approximately US$265). Employers are required to pay workers a service bonus equal to one month’s wages twice each year, in June and December. Employers may also grant bonuses based on employee performance. The rates of these bonuses are typically stated in the employment contract and may vary across industries. Severance pay in Colombia is based on years of service, with usually 30 days of wages paid for the first year worked and 20 days’ worth of wages paid for every subsequent year at the company. Those who make larger salaries will receive slightly less severance pay.
Tax Requirements & Withholding
The corporate tax rate in Colombia is 33%. Income is taxed at the source according to a progressive scale of 10% to 33% of gross wages. Employers pay a number of different payroll taxes, which can make an international payroll process difficult to establish. Both employers and employees pay tax for health plans, pensions, social security programs, and vacation times. Certain tax rates will vary based on the nature of the job, for example, in consideration of occupational hazards or potential health risks. Colombia's local tax systems also vary based on location, so employers are highly encouraged to research the levies and rates of specific areas before choosing their location.
Time Off & Unpaid Leave
Colombia celebrates 18 national holidays each year, and anyone working on an official holiday will receive overtime compensation. Employees are also entitled to 15 days of annual vacation, as well as sick time with an official notice from a doctor. Employees typically receive two-thirds of their salary in the case of sick time from their employer before the General Health Social Security System takes over payments (up to half a year). New mothers receive 14 weeks of time off at full salary, paid by Social Security, with additional time granted for premature or multiple births. Mothers will typically take two weeks off before the birth and the remaining time afterward. New fathers are entitled to up to eight days of paid paternity leave.
Finding a Partner
While Colombia is experiencing positive changes at the moment, there are legitimate reasons for corporations to tread carefully when setting up business in the country. Between the thick bureaucracy and the complicated tax structure, it can be difficult to anticipate the potential hiccups. Partnering with professionals who not only understand the legal nuts and bolts of the country, but also the cultural implications can make all the difference. Having the right international payroll solution can go a long way to managing your finances so you can focus on building your business.