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Starting a Business In Colombia

Benefits & Compensation in Colombia

Employee benefits indicate the perks employers provide to recruit and retain a skilled workforce. These benefits are provided in addition to the employee’s salaries and facilitate employee productivity. Furthermore, these benefits and compensation offered to employees are either monetary or non-monetary based on the employees’ requirements and the company’s financial resources.

A cost-effective benefits and compensation package in Colombia assists you in strengthening workplace morale, developing a reputation as a loyal employer, and engaging more skillful applicants to capture the existing job positions in your company.

The employees in Colombia attain mandatory benefits as determined in their employment contracts. These benefits involve statutory minimum wage, working hour limits, overtime compensation, annual leave, paid leave, paternity leave, maternity leave, sickness benefits, severance funds, pension insurance, retirement benefit, and more. 

Employers should extensively research the market before selecting employee benefits in Colombia. This guide streamlines the setup process of compensation and benefits policy in Colombia and helps keep the employees motivated to let them work more efficiently.

Compensation Laws in Colombia

Different compensation laws in Colombia manage employee benefits in the country. They are discussed below:

  1. Colombian labor law assures equal opportunities for foreign and national workers and allows companies to recruit qualified workers.
  2. Colombian labor code Section 127 specifies that employees are entitled to get compensation for the work they do during the mandatory resting day.
  3. Colombian labor code Section 128 takes care of the monetary benefits provided by employers. These include bonuses, profit sharing, occasional rewards, and perks of joint ownership companies or cooperatives. 

How to Design an Employee Benefits Program for Employees in Colombia?

Focusing on a few considerations before designing a compensation package in Colombia is vital. They are discussed below.

Step 1: State your business objectives and financial plan

Before formulating the compensation policy, you must state the objectives you expect from the compensation structure in Colombia.

Evaluate employment contracts or collective bargaining agreements to certify employment relationships and employee benefits rights. You should also evaluate your company’s financial plan to invest in employee benefits. Before outlining the benefits policy in Colombia, consider the company’s potential, commercial environment, and commercial sector functions.

Step 2: Infer employee requirements

The process of learning the employees’ requirements and expectations includes conducting interviews and sending questionnaires with them. Consequently, the employees can share their opinions. Perform exhaustive research to learn the prevailing industry standards and the benefits your competitors offer to their employees to engage skilled employees. 

You can design a comprehensive compensation and benefits policy in Colombia based on the corresponding research outcomes and internal survey. This internal survey highlights the areas that need improvements and suggests essential changes to be incorporated into the compensation and benefits policy in Colombia. You can dismiss certain redundant benefits and restrict company expenses at this stage. 

Step 3: Compose your benefits plan

After learning the employees’ requirements and expectations, you should conduct a gap analysis to assess the prevailing scenario of the benefits plan. You must compose a flexible benefits plan that sustains the volatile nature of business. Moreover, the flexible benefits structure allows employees to pick essential benefits easily. It also guides the employer in acquiring the maximum benefits from it.

Include employee contributions, organizational financial plans, and outsourcing requirements when composing a benefits plan for worker’s compensation in Colombia.

Step 4: Explicate the benefits to the stakeholders and receive feedback

Convey the benefits plan’s advantages to all the stakeholders and employees. They will give feedback, and consequently, you can implement a profitable plan for the workforce and the entire organization.

If you encounter any constructive feedback, assimilate them into the compensation policy. If a redundant benefit is detected, you can revise the employee benefits in Colombia.

Step 5: Regularly assess the plan

Companies in Colombia aspire to offer optimum benefits to their employees to enhance their competitive advantage in the market. Hence, you should regularly inspect the compensation structure in Colombia. It also assists you in discerning the benefits of the plan’s efficiency and sustainability.

You must check for errors before implementing the employee compensation policy in Colombia. Ensure to meticulously inspect all the benefit plan’s components and employ them subsequently.

Types of Guaranteed Benefits in Colombia

Employers provide various types of employee benefits in Colombia to their employees. Many of these benefits are mandatory and are discussed below:

Minimum wage

  • The minimum monthly wage in Colombia is COP 1,300,606.00.

Working hours and overtime

  • In Colombia, the standard working hours are 8 hours daily and 48 hours weekly  (up to 10 hours).
  • The work that surpasses the standard working hours is compensated as overtime.
  • The employees who work between 22:00 and 06:00 are paid 35.00% higher than the corresponding daytime salary.
  • The table below indicates the employees’ compensation for their overtime working hours.

Overtime working hours

Compensation

During daytime

125% of employees’ regular salary rate

During nighttime

175% of employees’ regular salary rate

Sunday/holidays

175% of employees’ regular salary rate

Paid leaves

  • Employees with at least one year of employment in Colombia are entitled to at least 15 days of paid leave per year. 

Public holidays

  • All employees in Colombia are entitled to public holidays, notwithstanding the industry and sector. 
  • They get 18 public holidays per year. 
  • These holidays are listed below:

1 Jan

New Year’s Day

9 Jan

Three Kings Day

20 Mar

St. Joseph’s Day

  6 Apr        

Holy Thursday

  7 Apr        

Good Friday

1 May

Labor Day

22 May

Ascension Day

12 Jun

Corpus Christi

19 Jun

Sacred Heart

3 Jul

San Pedro y San Pablo

20 Jul

Independence Day

7 Aug

Battle of Boyaca

21 Aug

Assumption Day

16 Oct

Columbus Day Celebration 

6 Nov

All Saints’ Day

13 Nov

Independence of Cartagena

8 Dec

Immaculate Conception

25 Dec

Christmas

Sick leaves

  • The employer compensates the employees for the initial two days of sick leave. The compensation amount is two-thirds of their regular salary rate.
  • The social security system is responsible for the sick leave payment from the third day.
  • The employee should present medical permission from a Colombian social security entity to acquire their sick leave compensation.

Maternity leaves

  • Female employees in Colombia are entitled to 18 weeks of paid maternity leave.
  • It is compensated at 100% of its regular salary rate.

Paternity leaves

  • The employees are entitled to paid paternity leave of 8 business days. 
  • The compensation is 100% of the regular salary rate.

Severance pay

  • In Colombia, severance pay is mandatory if valid and decided by the employee’s duration of service and earnings. 
  • The following table mentions the severance pay that employees get depending on their earnings.

Severance payment entitlement

Employee’s earning

30 days (for the first year of employment) + 20 days (for each successive year of employment)

Less than 10x of the minimum monthly wage

20 days (for the first year of employment) + 15 days (for each successive year of employment)

More than 10x of the minimum monthly wage

Social security benefits

  • Many employee benefits are paid by the Institute de Seguros Sociales. Typically, employers directly fund around 30% of every employee’s base remuneration to social security contributions via payroll deductions. 
  • These taxes include basic health insurance, work risk insurance, maternity leave, and other social benefits. 
  • The employers’ tax payable depends on the employee’s income range.

Retirement

  • The employees are entitled to retirement benefits via one of the below General Pension System regimes:
  • Average pension regime (regimen de prima media – RPM)
  • Individual savings regime (régimen de ahorro individual con solidaridad – RAIS)

Disability pension

  • The disability pension depends on the insured’s age when they faced the disability. 
  • The employers would offer a disability pension if the employee suffered 50% or more permanent disability due to general disease, occupational disease, or work-related accident.
  • The disability pension to which employees are entitled is shown in the table below.

Degree of Disability

Disability pension amount

50% – 60%

45% of the standard monthly wage and 1.5% of the basic monthly wage for every 50 weeks of contributions beyond 500 weeks (75% of the maximum monthly wage).

More than 65%

54% of the standard monthly wage and 2% of the standard monthly wage for every 50 weeks of contributions beyond 800 weeks (75% of the maximum monthly wage).

Healthcare insurance

  • The private medical plans or the public sector provides healthcare insurance in Colombia.
  • The public healthcare system comprises  the Contributive System (CS) and the Subsidized System (SS).
  • Empresa Promotora de Salud (EPS) provides for the insurance element of the healthcare system.

Mandatory pension insurance

  • Employers pay 12% and employees 4% of their monthly wage (the maximum monthly contribution equals 25 minimum monthly salaries (SMMLV)).

Survivors benefits

  • Survivors obtain 45% of the employee’s monthly wage.
  • The compensation increases by 2% for every 50 additional weeks over the initial 500 weeks.
  • It is offered up to 75% of the employee’s standard monthly wage.

Voting leave

  • Employees are entitled to half-day paid time off to vote in the government and state elections.
  • Employees are entitled to a full day of paid time off for jury duty

Other leave

  • Employees are entitled to five days of bereavement leave in Colombia.
  • Employees get five days of paid leave in the event of their marriage. 

Employee Benefits for Expatriates

Foreign employees in Colombia can acquire the same benefits as local employees. The expats can acquire benefits like health care insurance, family allowance, child home care allowance, dental care, meal allowance, travel allowances, and unemployment benefits for their employment in Colombia.

The expats recurrently move abroad to fulfill their short-term projects. Hence, businesses implement a straightforward, economical alternative to recruiting and compensating expats via local subsidiaries. In Colombia, the industries dealing with education, digital B2B services, and app technology seek proficient expats with English fluency. This is especially apparent in major cities like Bogota and Medellin.

How are Employee Benefits Taxed in Colombia?

In Colombia, employees must  pay income tax at a 0-39% rate (depending on the annual tax base). Tax residents should pay for their worldwide income. On the other hand, non-residents only pay for their income gained from Colombia. Moreover, self-employed individuals must pay contributions for general sickness, pension, and disability.

The employees are also responsible for withholding taxes from the supplemental benefits on a Pay As You Earn (PAYE) basis. The majority of supplementary benefits, like monetary offerings, bonuses, and other perks, are taxable.

All employees and employers in Colombia must make the following contributions from their monthly salary:

Type of Contribution

Employee Contribution

Employer Contribution

Pension fund

4.00%-5.00%

12.00%

Medical plan

4.00%

8.50%

Family compensation funds

4.00%

Labor risks

0.52% – 6.96%

Family Welfare (ICBF)

3.00%

National Apprenticeship Service (SENA) (calculated on integral salary)

2.00%

Restrictions for Colombia Benefits and Compensation

The majority of benefits provided to employees in Colombia are taxable. Therefore, you must be acquainted with the benefits’ monetary value to accurately calculate the tax amount payable by the employer. Moreover, an employer should verify that all tax payments are disbursed timely and conveyed to the relevant authorities.

Ensure that your business is incorporated in Colombia and legally functions in the country before preparing an employee benefits plans. Furthermore, companies must pay the minimum remunerations to the employees depending on their sectors. The benefits and compensation package in Colombia must conform to all the labor laws designed by the government.

An employee in Colombia can enter another employment relationship during their employment unless the employment contract provides otherwise. Restrictions imposed on an employee’s future employment are unacceptable.

The shareholders and directors must not be engaged in financial fraud. Their age, citizenship, and work experience are inappropriate for the representatives of Colombia.

Supplemental Benefits for Employees in Colombia

The section below discusses some additional benefits provided to employees in Colombia.

13th salary:

  • Paying a 13th-month salary is mandatory in Colombia. 
  • The employer should pay the first half of the payment by the first 15 days of June and the remaining half by the first 20 days of December.

Other supplemental benefits:

  • Supplementary health insurance: Several companies in Colombia provide private health insurance besides mandatory social security benefits. This insurance offers access to a broad network of doctors and better infrastructure.
  • Supplemental pension: Many big companies offer retirement plans to their employees via a licensed insurance company. Generally, the employer and the employee contribute to the supplementary pension insurance contributions.
  • Supplementary life insurance: Several companies compensate for their employee’s voluntary life insurance to protect them in situations of disability, illness, or sudden death.
  • Educational support: For some specific work sectors, the companies may cover the employees’ postgraduate expenses by up to 50%.
  • Trade union leave: Those employees working in specific trades like mining and oil are eligible for specialized pay to accomplish certain activities that are relevant to their domain.

How Multiplier Can Help with Benefits Management in Colombia

Establishing a business and hiring a skilled workforce should obey the local laws and regulations before formulating employment contracts and authorizing employee benefits. You can simplify this process by contacting a worldwide PEO platform like Multiplier.

Multiplier guarantees compliance with Colombia’s labor rules. Also, we assist you with hiring talented employees. Our proficient staff can help you effectively handle the workforce without setting up a subsidiary in the country. Thus, you can restrict your employment expenditures and explore new markets.

Frequently Asked Questions

The standard VAT rate is 19% in Colombia.

The general allowances provided to employees in Colombia include mobile phone allowance, meal vouchers/allowance, internet allowance, and fitness/wellness allowance.

The supplementary benefits provided to employees in Colombia include supplemental health insurance, life insurance, company cars, and small bonuses (in the form of a debit card).

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