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Starting a Business In Colombia

Payroll In Colombia

Colombia is a favorable destination for foreign investment due to its stable legal environment, well-regulated foreign exchange, compelling incentives, geostrategic location, plentiful resources, and sustainable initiatives.

Companies intending to establish a business in Colombia can benefit from its well-regulated foreign exchange, stable legal environment, and sustainable initiatives. They must adhere to the local rules and regulations stated by the Colombian government. Moreover, they should understand income tax, social security, and corporate tax laws for seamless company operations. To entice, hire, and retain the best talent in Colombia, you should understand how to efficiently administer the onboarding process, incorporating the Colombia payroll process. Payroll processing refers to the net pay of the employees, which the employer pays after calculating taxes and other deductions.

You require an extensive understanding of payroll tax in Colombia and labor requirements to ensure accurate and accommodating payroll. The below guide discusses all characteristics you must know about payroll in Colombia.

How Is Payroll Calculated in Colombia?

Payroll denotes the total compensation payable by the employer to the employees in exchange for their services for a definite period. The HR or accounting department takes care of the payroll policies in an organization. Colombia’s payroll policies and procedures cover aspects like pay, disbursing payments, and tracking the employees’ working hours.

To ensure accurate payroll calculation, companies should regularly maintain record-keeping. Besides, you should withdraw social security contributions and other deductions adhering to payroll rules and regulations in Colombia. 

Important Elements of Salary Structure in Colombia

The below section describes the elements that constitute the salary structure in Colombia:

Cost to Company (CTC)

The CTC denotes an annual amount payable by a company when hiring an employee. It covers aspects like the employee’s net remuneration, gross remuneration, supplementary benefits, payroll deductions in Colombia, etc.

Gross salary

Gross salary is the amount after adding all benefits, including components such as social security contributions, health insurance, etc. 

Net salary

Net salary designates the amount remaining after the employer has counted all deductions from the gross salary. The corresponding amount is added to the employee’s bank accounts.

Basic salary

After counting all additions and deductions from the annual package, it signifies the amount employees receive. This element focuses on the employee’s job designation and the employer’s sector activities.

Allowances

It incorporates the employment expenses payable by employers to their employees. All employees are eligible for allowances, irrespective of the employer and the industry. The allowance amount promises a decent work-life balance for the employees.

How to Set Up a Payroll in Colombia

You can follow the below steps to set up payroll in Colombia can follow the below steps:

  • Step 1: Collect all the necessary employee information, including their personal information (name, date of birth, postal address, etc.), passport, bank statements, and proof of health insurance coverage.
  • Step 2: Have a legal entity established to process payroll in Colombia. The most common forms of entity in the country are Limited Liability Companies (LTDA), Corporations (SA), Simplified Stock Companies (SAS), and Business Banking in Colombia.
  • Step 3: Register your business in Colombia with the Commercial Court. This step also approves your business name’s validity.
  • Step 4: Register at the Chamber of Commerce to get a business ID number.
  • Step 5: Register for the national tax number, company name, labor and tax registration, severance fund, Family Compensation Fund, and The Labor Risks Administrator.
  • Step 6: Register for VAT. You should register for pension and health insurance through the Tax Authority.
  • Step 7: For social security registration, you must register your company and employees with the Colpensiones or a private fund. You should affiliate yourself with the pension system and submit a form by Article 3 of Decree 2390 of 2010 that self-assesses and pays payroll and social security contributions. The form must be electronically submitted to the Colombian Family Institute (Instituto Colombiano de Bienestar Familiar, or ICBF), the Governmental Learning Service (Servicio Nacional de Aprendizaje, or SENA), and the Family Compensation Fund (Caja de Compensación Familiar).
  • Step 8: Open a Colombian bank account with a local bank to disburse payroll-related payments to employees and the authorities. You will need the court and registration information, including statistical number, proof of health insurance registry, etc., before your business bank account gets approval.
  • Step 9: Determine the employee payroll amount.
  • Step 10: Authorize the payroll structure and payroll cycle for your company.

A Step-by-step Process of Payroll Processing in Colombia

Three stages are involved in the processing of payroll in Colombia. They are discussed below.         

1. Pre-payroll stage

  • You should establish a business profile, file payroll tax in Colombia, set up an office, and open a corporate account.
  • Design company policies to ascertain that the company runs flawlessly. These policies cover all facets, from your business profile to salary components. Employees can conveniently understand the company culture based on all-inclusive company policies.
  • This stage also involves creating a flawless payment structure and payment schedule (including the 13th month’s salary) to confirm that employees receive their salaries promptly.
  • Collect employee information like employees’ job designation, date of joining, department, and how they would receive their wages.

2. Payroll stage

  • This Colombia payroll compliance checklist stage considers each employee’s salary calculation and payment disbursement.
  • In this stage, the employer must calculate each employee’s working hours, gross earnings, taxes, withholdings, and the necessary deductions. Furthermore, the employer should pay the net sum to the employee via their preferred payment methods.

3. Post-payroll stage

  • This stage of the Colombia payroll compliance checklist covers releasing the net salary to the employees and transferring deductions to the government after disbursing salaries.
  • Each employee should submit a written employment contract mentioning the working hours, salary, and the nature of the work.
  • The employer should validate the accuracy of the monthly payroll calculation depending on each employee’s employment duration (hours or days served) for a particular month.
  • After completing the payroll calculation, the employer can submit bank advice to a corporate bank for salary distributions. They must set up a system to release direct deposits.
  • You must also withdraw and remit the deductions to the relevant government agency. The deductions include employer and employee contributions. Due dates may differ as per the agency.
  • After releasing the payments, maintain the payment history record, and track the overall expenditure of payroll funds.

Payroll Contributions

Based on the salary, employees and employers should contribute to social security in Colombia to conform to the Colombia payroll requirements.

Employer contribution

12%

Pension Fund

8.5%

Medical Plan

0.52% – 6.96%

Labor Risks

4%

Family Compensation Funds

3%

Family Welfare (ICBF)

2%

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

21.02% – 27.46%

Total Employment Cost

Employee contribution

Employee payroll contributions cover the following elements.

Employee payroll contributions

4.00%-5.00%

Pension Fund (Maximum contribution each month equals 25 minimum monthly salaries (SMMLV)).

4.00%

Medical Plan

8.00-9.00%

Total employee cost

Employee Income Tax

Annual tax base

Tax rates

0-1,090 Tax Units

0%

1,090-1,700 Tax Unit

19%

1,700- 4,100 Tax Units

28%

4,100- 8,670 Tax Units

33%

8,670- 18,970 Tax Units

35%

18,970- 31,000 Tax Units

37%

Over 31,000 Tax Units

39%

Note: 1 Tax Unit= 36,308 COP

Payroll Cycle

Generally, the payroll cycle is monthly in Colombia. The payments are released on the last working day. But, certain industries pay bi-weekly, i.e. on the 15th and the last working day.

Colombia Payroll Options for Companies

According to their requirements and budget, employers can choose one among the various options to process payroll in Colombia. The below section discusses different HR payroll Colombia options.

  • Internal payroll: Larger companies with a lasting commitment to Colombia can execute their internal payroll. They own the local payroll for all employees, whether local or foreign. They must complete incorporation, register the business and hire the necessary workforce. This option in the Colombia payroll guide requires an experienced HR to manage payroll in Colombia and fulfill all withholding, tax, and payroll requirements.
  • Remote payroll: This HR payroll Colombia option of the Colombia payroll guide denotes that the combination of remote payroll and your payroll company can streamline the payroll process in the country. The remote payroll will compensate the employees at your subsidiary. You must know Colombia’s Labour Code.
  • A Colombia payroll processing company: Remember to research the market if you aim to use this option. It focuses on using an experienced and trustworthy payroll processing company familiar with setting up payroll and payroll rules and regulations in Colombia.
  • Colombia payroll outsourcing: It boasts an easy, cost-effective, and flexible approach to governing payroll in Colombia. Companies can team up with a global PEO service provider which handles all the elements of the Colombia payroll process and confirms that the related processes adhere to Colombia payroll requirements. Besides, it discards all the challenges linked to payroll processing in Colombia and keeps your focus on the company’s development.

Entitlement and Termination Terms

Entitlement terms in Colombia

The below section discusses the benefits that Colombian employees are entitled to.

Paid time off

  • In Colombia, employees who have completed at least one year of employment are entitled to a minimum of 15 days of paid leave yearly.

Sick leave

  • Employees are compensated for the initial two days of sick leave. The compensation is offered at two-thirds of their standard pay rate.
  • The social security system handles the sick leave payment from the third day.
  • The employee must present medical permission from a Colombian social security entity to receive their sick leave compensation.

Maternity leave

  • Female employees in Colombia are entitled to 18 weeks of paid maternity leave at 100% of the standard salary rate.

Paternity Leave

  • The employees get paternity leave of 8 business days at 100% of the standard salary rate. 

Public holidays

  • Notwithstanding the industry and sector, all employees in Colombia are entitled to public holidays. 
  • 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

Termination terms in Colombia

  • The termination process in Colombia follows the Labor Law requirements unless an employer can present adequate cause for dismissal without notice.
  • The termination notice should be written and submitted to the appropriate governmental authorities.
  • The notice period ranges from 8 to 90 days.
  • The employer should pay leavers on their last day on the job.
  • No notice period is needed for obra/labor and undefined contracts.

Colombia Payroll Processing Company

Colombia’s payroll rules usually work by adhering to its rules. It may be laborious for foreign investors to establish payroll in Colombia. Before organizing payroll, businesses must fulfill compliance with Colombia labor and local employment laws. You can collaborate with a global PEO company like Multiplier to obtain the optimum benefits of payroll rules and regulations in Colombia.

How Can Multiplier Help with Global Payroll?

Colombia’s payroll management supervises different aspects like payroll cycle, payroll processing, employers’ & employees’ contributions, entitlement and termination terms, and more. You can utilize the service from an international PEO platform like Multiplier to ease the Colombia payroll process.

Multiplier is an EOR solutions platform that deals with payroll calculation, payroll processing, payroll management, payroll contributions, employee recruitment, and other associated tasks. We provide one click payroll for global teams with payments in local currency.

Frequently Asked Questions

In Colombia, the standard working hours are 8 hours per day or 48 hours per week.

In Colombia, the overtime work limit is 10 hours a week. All the overtime hours are compensated and governed by the employment contract/collective agreements.

In Colombia, the minimum wage paid to employees is COP1,300,606.00.

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