Employer of record in Colombia

Expanding your business into Colombia, the third-largest economy in South America? Compared to many other nations, Colombia offers a competitive labor market. The minimum wage is significantly lower than in countries like the US or most of Western Europe.

This guide simplifies hiring, managing, and paying employees in this vibrant market. Learn how to navigate local labor laws, onboard top talent, and streamline payroll and compliance. 

Papaya's employer of record (EOR) services help global companies hire talent in Colombia without having an established local entity. We handle HR, payroll, and legal compliance. This means you get to focus on your core operations and growing a thriving business. 

» Hire top talent in Columbia through EOR services

Colombia at a Glance

Key considerations for hiring in Colombia

• Labor market: Some industries may lack skilled labor, leading to high turnover rates. Use Colombian job boards such as elempleo or Computrabajo, recruiting agencies, and professional networks to find suitable candidates.
• Employment contracts: Understand the types of employment contracts in Colombia, including fixed-term, indefinite, and independent contractor agreements. This aids in proper employee classification and streamlines the hiring process.
• Workplace culture: Familiarize yourself with Colombian workplace culture, communication styles, and business etiquette. Respect employee rights, including fair treatment, privacy, and freedom of association.
• Unions and collective bargaining: If applicable, be aware of unions and collective bargaining agreements to ensure fair recruitment practices and avoid discrimination.
• Legal compliance: Consult with local HR professionals, legal experts, or labor consultants familiar with Colombian labor laws to ensure compliance and mitigate risk. Designate a point of contact in your company to handle employee communications and other business services.
• Payroll systems: Establish payroll systems to accurately calculate and process employee wages, taxes, deductions, and Social Security contributions. Keep accurate and up-to-date payroll files and employee information, as employers are typically required to keep records on file for three to seven years.

Colombian employer of record vs. legal entity

Before recruiting employees in Columbia, you must decide between an EOR and setting up a legal entity locally.

Employer of record

An EOR is a third-party organization that serves as the legal employer for a company's workforce in Colombia. By using an EOR, you can:

• Delegate hiring, onboarding, and termination processes

• Outsource payroll, tax withholding, and benefits administration

• Ensure compliance with Colombian labor laws and regulations

• Mitigate employment-related liabilities and risks

The client company retains operational control over the employees' day-to-day work, while the EOR handles employment-related administrative and legal responsibilities.

Pros

• Fast and easy setup
• Reduced administrative burden
• Automatically handles payroll and taxes

Cons

• Less control over the employment relationship
• Additional fees 

» Discover more: explore everything about an employer of record

Legal entity in Colombia 

A legal entity refers to a business structure recognized by Colombian law as having its own legal rights and obligations separate from its owners or members. Common legal entities in Colombia include:

• Sociedades Anónimas (SA): Joint-stock companies

• Sociedades de Responsabilidad Limitada (SRL): Limited liability companies

• Sociedades por Acciones Simplificadas (SAS): Simplified stock corporations

Establishing a legal entity involves registering the business with the appropriate Colombian authorities, like the Chamber of Commerce, and complying with relevant regulations.

Pros

• More control over employee management and company culture
• Potential cost savings in the long run
• Ability to build a direct presence in the Colombian market

Cons

• Time-consuming and complex incorporation process
• Increased responsibility for administrative tasks

» Concerned about legalities in Columbia? Let Papaya handle local compliance. 

Work visas

Work visas act as work permits in Colombia and are essential for foreign nationals to be legally employed in the country. Employers must initiate the application process through the Colombian Ministry of Foreign Affairs to sponsor foreign workers and ensure they have the proper authorization to work. This protects both the employee and the company by complying with Colombian immigration regulations.

• Work visa (Visa TP-4): The most common work permit allows foreigners to work for a specific employer for up to three years, with the possibility of renewal. The employer must sponsor the worker and initiate the application process.
• Temporary work permit (Permiso Temporal de Trabajo): Issued for short-term assignments lasting up to one year, such as technical assistance, urgent work, or work related to investment or business startup.
• MERCOSUR work permit: Available for nationals of Argentina, Brazil, Paraguay, Uruguay, and associate members like Colombia. It allows the holder to work without needing an employer sponsor.
• Intra-company transfer visa: For employees of multinational companies transferred to a branch, subsidiary, or affiliate in Colombia, provided they have been employed by the company for at least one year before the transfer.
• Independent profession or investment visa: Suitable for foreign nationals working as independent professionals or investors in Colombia, requiring proof of substantial investment or professional qualifications.
• Technical assistance visa: For foreigners providing technical assistance or training services to Colombian companies or organizations.

EOR payroll and taxes in Colombia

» Need help calculating local pay? Learn more about Colombia’s workforce payments. 

Minimum wage

In 2024, Colombia’s minimum wage is COP 1,300,000 monthly (about USD 334.77), a 12% rise from 2023. It applies to all private and public sector employees, excluding firms with less than two workers.

The wage covers hourly, daily, or piece-rate workers, ensuring their pay isn’t less than the monthly minimum. Employers must also provide a COP 162,000 monthly transportation subsidy.

Note, specific worker categories like domestic and agricultural may have different minimum wage rates.

EOR employment contracts and agreements in Columbia 

While written employment contracts are generally recommended, they’re not legally required in Colombia, except for specific situations such as:

• Fixed-term contracts

• Probationary periods

• Integral salary arrangements

• When the employee receives non-salary payments

In the absence of a written agreement, the employee is assumed to be on an indefinite-term contract. Nevertheless, it is considered best practice to have a written employment contract to clearly outline the responsibilities and obligations of both the employer and employee.

Here’s what should be included:

• Job title and description

• Compensation

• Work schedule

• Benefits

• Probation

• Confidentiality and competition

• Termination

• Legal framework

• Employee duties

• Contract term

» Here's everything you need to know about a Colombian payslip

Mandatory employee benefits

In Colombia, employers can choose to pay an integral salary, which includes mandatory benefits, instead of providing them separately. This arrangement must be agreed upon in writing and does not apply to paid leave.

• Social security: Includes health, pension, and risk insurance. Employers contribute a salary portion.
• Severance pay: Employers deposit a year’s salary per service year into a severance fund for each employee, paid out at contract termination.
• Interest on severance pay: Employers pay 12% annual interest on the severance pay.
• Service bonus: Employees receive a service bonus equal to 15 days’ salary, paid biannually.
• Vacation leave: Employees get 15 paid vacation days per service year.
• Transportation allowance: Provided for employees earning up to double the minimum wage.
• Work clothes and equipment: Provided free of charge if job-required.
• Family compensation fund: Employers contribute 4% of the employee’s salary for benefits like education, housing, and recreation.
• SENA and ICBF contributions: Employers contribute 2% of payroll to SENA for job training and 3% to ICBF for child and family welfare programs.

Non-disclosure agreements 

In Colombia, non-disclosure agreements (NDAs) with employees can be enforceable, but there are certain limitations and requirements that must be met. 

Key points for enforceable NDAs in Colombia:

• Must protect legitimate business interests

• Should be clear, specific, and reasonable in duration

• Requires valid consideration and compliance with labor laws

• Should not unreasonably restrict employee's future livelihood

• Bilingual NDAs (Spanish and English) is advisable

Trade secrets are protected by Colombian laws, including Decision 486 of 2000 of the Andean Community of Nations, Law 256 of 1996 on unfair competition, and the Criminal Code. To qualify as a trade secret, information must be secret, have business value, and be subject to reasonable efforts to maintain secrecy.

Despite legal protections, companies should still have employees sign NDAs to safeguard sensitive information. Colombian labor laws don't explicitly address trade secrets, so including strict confidentiality provisions in employment contracts and educating employees about handling trade secrets is crucial.

Enforcing international NDAs in Colombia can be complex, potentially involving litigation or arbitration. However, Colombia's participation in treaties like the New York Convention (1958) facilitates the enforcement of foreign arbitral awards, making arbitration an effective dispute resolution mechanism for international NDAs.

Paid and sick leave

• Vacation leave: 15 working days per year after one year of service; 20 working days per year after 10 years with the same employer
• Maternity leave: 18 weeks (126 days) of paid leave for pregnant employees
• Paternity leave: 8 working days of paid leave for new fathers
• Nursing breaks: Paid breaks for new mothers until the child is 6 months old
• Sick leave: There’s no fixed number of paid sick days. Employers pay the regular salary during a temporary illness or injury, certified by a doctor. The duration depends on the severity and recovery time. The social security system may provide additional paid leave for extended illnesses or disabilities.

Public holidays

Colombia celebrates 18 national holidays each year. These include 12 Catholic holidays, 6 civic holidays, plus Palm and Easter Sunday.

Employers are required by law to provide employees with a day off for all national holidays. However, the law does not explicitly state whether it is mandatory for employees to be paid for these holidays. In many cases, employment contracts provide employees with payment for days off due to a national holiday.

Using an EOR to onboard new employees in Colombia

Before the first day:

• Finalize employment contracts and prepare legal paperwork

• Complete necessary background checks and verifications

• Arrange for the necessary equipment, workspace, and access privileges

• Assign a mentor to guide the new employee during the initial phase

• Obtain the employee's identification documents and social security information

The first day:

• Introduce the new employee to their team members and supervisors

• Provide an overview of the company's history, mission, values, and culture

• Collect and verify the necessary documents

• Explain the company's policies, procedures, and code of conduct

• Provide an introduction to the company's technology infrastructure

The first week:

• Provide detailed information about compensation and benefits

• Explain the payroll process and payment schedule

• Provide access to relevant training materials

• Explain the company's data security protocols and policies

• Encourage participation in team-building activities and social events

Beyond the first week:

• Schedule regular check-ins with the new employee

• Provide ongoing training and development opportunities

• Encourage open communication and feedback about the onboarding process

• Foster a supportive and inclusive work environment

How EORs protect your company’s IP in Colombia

Colombia has IP laws aligned with international treaties like the Berne Convention and TRIPS. However, enforcement mechanisms and legal nuances differ. Colombia protects your privacy and security through trademarks, patents, trade secrets, and industrial designs.

Companies can take the following steps to protect their IP: 

1. Intellectual property agreements (NDAs, non-compete clauses, etc.)

2. Employee training and awareness programs on IP protection

3. Access controls and data security measures

4. Physical security measures for company facilities

5. Monitoring and enforcement of IP policies

6. Compliance with Colombian IP laws and regulations

7. Exit procedures to ensure the return of company assets and confidential information

How EORs comply with local labor laws in Colombia

Implement the right benefits and contributions

Register with the appropriate authorities and ensure timely contribution to their employees' health insurance, pension, and professional risks insurance.

Foreign companies must provide benefits such as severance pay (Cesantías), interest on severance pay, service bonus (Prima de Servicios), and transportation allowance, per Colombian labor law.

Respect employees rights

Colombian labor laws recognize the rights of workers to form unions and engage in collective bargaining. Companies should be aware of and comply with any applicable collective bargaining agreements in their industry.

When it comes to non-discrimination, employers must ensure equal treatment and opportunities for all employees, regardless of personal characteristics, as prohibited by the Colombian Constitution and labor laws.

Companies must also comply with government regulations and provide a safe working environment for their employees.

Put the right policies in place

Employers must follow specific procedures, including notice periods and severance payments when terminating employment contracts (see below for more).

Comply with limits on regular working hours and pay overtime for tasks performed beyond these timeframes, keeping accurate records of employees' hours worked.

Terminating employees in Colombia

Understanding "just cause" and severance

In Colombia, employment is not typically “at-will”, meaning employers must establish a “just cause” to minimize obligations for severance pay. “Just cause” can be due to employee misconduct, economic restructuring, or organizational changes.

Even when there’s a “just cause”, employers usually have to pay severance, known as “Cesantías”. The amount of this severance pay depends on several factors.

Termination procedures

• Provide a formal written termination letter in Spanish, outlining the reason(s) for termination, effective date, severance pay calculation, and accrued benefits 

• Document any misconduct or performance issues used to justify the termination

• Some terminations might require justification to the Ministry of Labor

Specific termination considerations for foreign companies:

• Termination documents must be provided in Spanish

• Approach terminations with empathy and respect, considering cultural sensitivities

• Coordinate with immigration specialists if the employee has a work permit

Additional considerations:

• Specific rules apply for large-scale layoffs (Collective dismissals)

• Termination cannot be based on discriminatory factors such as race, religion, gender, pregnancy, or disability

Use an EOR to start hiring in Colombia today

Navigating Colombia's complex labor laws, regulations, and cultural nuances requires careful preparation and expertise to avoid legal issues and reputational damage. 

Partnering with an international employment platform like Papaya Global can help you streamline payroll, recruitment, and compliance processes in over 160 countries.  

» Ready for results? Turn your payroll analytics into powerful data insights. 

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