Using an employer of record in Colombia

Hiring and paying employees in Colombia can be complex due to the country’s evolving labor and employment laws. From payroll and social security to employment contracts and mandatory benefits, compliance is essential, but also time-consuming. 

That’s where an Employer of Record (EOR) like Payoneer Workforce Management comes in. A Colombia EOR assists with employment responsibilities like onboarding, payroll, and compliance support, allowing you to scale quickly without setting up a legal entity.

Need support to simplify hiring in Colombia? Payoneer Workforce Management can help. 

Keep reading to learn how an Employer of Record in Colombia can help your business.

How to hire employees in Colombia

To hire employees in Colombia, companies generally have three options. You can set up a local legal entity, hire contractors, or engage an employer of record. 

Each path has its benefits and challenges.

1. Establishing a local entity: This gives companies full operational control but involves high setup costs and ongoing obligations. Businesses must register with the Chamber of Commerce, obtain a tax ID, enroll in Colombia’s social security system, and appoint legal representation. It requires managing payroll, taxes, and benefits locally, too.
2. Hiring independent contractors: Suitable for short-term or project-based work, this option offers flexibility. However, Colombia’s labor laws do not clearly define contractors versus employees. Misclassification risks can result in penalties, including retroactive tax and benefits payments.
3. Working with an employer of record: Hiring with an employer of record service provider in Colombia allows businesses to legally access talent without setting up a local entity. The EOR assists with managing payroll, taxes, benefits, and labor law requirements.

Partnering with an employer of record in Colombia

A Columbia employer of record employs local talent on your behalf and assists with handling payroll, tax filings, benefits, and employment contracts. 

This lets you expand teams quickly without setting up a local entity. It also simplifies the hiring process and may help reduce legal and financial challenges when entering new markets.

Payoneer Workforce Management offers employer of record services in Colombia, helping businesses access a global workforce efficiently while focusing on growth.

How to onboard employees in Colombia

Onboarding employees in Colombia involves several key steps to ensure a smooth and legally sound start. 

The typical onboarding process includes:

• Registering the employee with Colombia’s social security, pension, and labor risk systems
• Adding the employee to the payroll system and confirming pay schedules
• Collecting and submitting tax and banking documentation
• Setting up access to email, HR systems, and productivity tools
• Coordinating device delivery and setup if equipment is provided
• Introducing employees to their team and company culture
• Providing orientation on company policies, local labor laws, and employee entitlements, such as leave and working hours

By letting an employer of record in Colombia offer compliance support, you can focus on welcoming local employees into the team.

Pay employees in Colombia

Paying employees in Colombia involves navigating payroll timelines, statutory benefits, and a range of tax obligations. The fiscal year in Colombia runs from January 1st to December 31st. 

Employers typically pay salaries on a monthly cycle, with most employees receiving payment on the last working day of each month.

Employers must meet the legal minimum wage, which is reviewed annually by the Colombian government. The minimum wage is COP 1,623,500 per month.

The service bonus is a key statutory requirement equivalent to 30 days’ wages per year. This is paid in installments; one by June 30th and the remainder within the first 20 days of December. Employees are entitled to this benefit either in full or in proportion to the time worked.

Employers are also responsible for withholding and remitting several contributions:

• Income tax: Calculated using progressive rates based on the Tax Value Unit (TU), which is adjusted annually
• Social security contributions: Includes health insurance, pension, and labor risk insurance
• Pension contributions: Typically shared between the employer and employee

Handling Colombian payroll accurately requires familiarity with local tax laws and employment benefits. 

Partnering with an employer of record service provider in Colombia simplifies payroll, tax remittance, and statutory benefit administration.

Employment laws in Colombia

Colombian labor law is governed by the Código Sustantivo del Trabajo, which outlines the legal framework for working conditions, employee protections, and employer obligations. 

All employers operating in the country must adhere to these laws when managing full-time staff.

Key employment regulations include:

• Working hours: The standard workweek is 44 hours, which can be distributed over 5 or 6 days per week, provided employees receive at least 1 full day of rest. This is currently transitioning to 42 hours/week by July 2026.
• Exceptions: Certain roles, such as managerial or administrative positions, may be exempt from maximum hour limits.
• Rest days: Employees are entitled to at least 24 consecutive hours of paid rest each week, usually on Sundays.
• Overtime: Overtime is capped at 2 hours per day and 12 hours per week. Daytime overtime is paid at 25% above the base rate. Night overtime is paid at 75% above the base rate.
• Night work: Night work, defined as hours worked between 9 pm and 6 am, carries a 35% wage premium.
• Probation: The maximum probation period is 2 months. For fixed-term contracts under 1 year, it may not exceed ⅕ of the contract length.
• Responsibilities: Companies must provide collective life insurance coverage for all permanent employees.

Minimum wage in Colombia

Employers must meet the legal minimum wage, which is reviewed annually. Colombia set the national minimum wage at COP 1,623,500 per month.

The Colombian government may review and adjust the minimum wage annually to account for inflation and living costs. For businesses hiring in Colombia, staying up-to-date with these changes is essential. 

Using an employer of record in Colombia may offer guidance to navigate wage requirements and mitigate local compliance risks.

Employment contracts in Colombia

Colombian labor law permits both verbal and written agreements. However, written contracts are widely used to minimize ambiguity and enforce expectations as per Article 37 of the Código Sustantivo del Trabajo (labor code). 

A compliant agreement should capture:

• Identification details and legal addresses of the employer and employee
• The place and date of the contract’s execution
• The location where the work will be performed
• A description of the job duties and role
• The agreed salary, payment frequency, form of payment, and any non-monetary perks like accommodation or meals
• The type of contract (fixed term or indefinite) and termination conditions

Providing a structured, locally compliant employment contract is essential to managing employment expectations and reducing legal risk. A Colombia EOR may offer support with drafting employment contracts. 

Leave policy in Colombia

Employers in Colombia must follow specific leave entitlements outlined in the national labor code. 

Public holidays

There are 18 mandatory paid public holidays. When holidays fall on a Sunday, they are generally observed the following Monday. Employees who work on Sundays or public holidays are entitled to a day rate of 75% above their base.

Vacation leave

After 1 year of service, employees receive 15 consecutive working days of paid vacation. At least 6 days must be taken yearly, and the rest can be accumulated for up to 2 years. Up to ½ of the leave can be paid out in cash if agreed upon in writing.

Sick leave

Employees in Colombia are entitled to up to 180 days of paid sick leave for non-occupational illness or injury. The employer pays 100% of salary for the first two days, after which the social security system (EPS) covers 66.67% from day 3 to day 90 and 50% from day 91 to day 180. If the disability continues beyond 180 days, a Medical Board evaluation is required, and EPS may extend coverage up to 360 days under specific conditions.

Parental leave

Pregnant employees receive 18 weeks of fully paid maternity leave, beginning at least 2 weeks before the expected delivery date. Non-birthing parents are entitled to 2 weeks of fully paid paternity leave.

Understanding and managing these policies is essential for full-time employment compliance. A Colombia Employer of Record may help simplify this by assisting with managing leave calculations, entitlements, and documentation.

Background check in Colombia

In Colombia, background checks are commonly conducted during the hiring process, especially for roles involving financial responsibility, security access, or sensitive data. While not legally required in most cases, they are a standard part of due diligence. Employers typically perform checks after making a conditional offer but before the employment contract is signed.

Employers often review the following:

• Criminal records
• Employment history
• Educational qualifications
• Credit history (for roles involving financial tasks)

Medical tests or drug screenings may be requested in specific industries, but they must be relevant to the job role. Some checks, such as pregnancy tests or genetic screenings, are considered discriminatory and are not permitted.

Employment termination in Colombia

In Colombia, both the employer and employee can terminate an employment contract, either with just cause or without, though just cause must meet the conditions outlined in the national labor law. In these cases, no severance pay is owed.

The notice period is 30 days for fixed-term contracts; however, for indefinite contracts, a notice is not required.

If an employer ends a contract without a valid legal reason, severance compensation must be paid:

• Fixed-term or task-based contracts: The employee is entitled to the remaining salary due for the contract term. If the contract is job-based, at least 15 days’ wages must be paid.
• Open-ended contracts where the employees earn less than 10 times the minimum monthly wage: They receive 30 days of wages for up to 1 year of service, plus 20 additional days for each year beyond the first, calculated proportionally. 
• Open-ended contracts where the employees earn 10 times the minimum monthly wage or more: They receive 20 days of wages for the first year, plus 15 additional days for each extra year, also calculated proportionally.

An Employer of Record can help manage terminations according to Colombian labor law.

Company registration in Colombia

Registering a company in Colombia is a complex and time-consuming process. 

It involves several steps, including registering with the Chamber of Commerce, obtaining a tax identification number, enrolling in the social security system, and appointing legal representatives. 

This process can take several months and requires ongoing management of legal and administrative obligations.

For businesses looking to hire quickly without setting up a local entity, partnering with an employer of record offers a simpler and faster alternative. 

An EOR in Colombia may assist with legal and payroll responsibilities, allowing companies to focus on their operations.

PEO in Colombia

A Professional Employer Organization (PEO) can support HR and payroll functions, but requires you to have a legal entity in-country. 

An employer of record in Colombia, on the other hand, does not require this and instead serves as the legal employer for the local team, making it the better choice for companies new to the Colombian market.

Payoneer Workforce Management’s employer of record services in Colombia

Payoneer Workforce Management helps growing companies onboard, pay, and manage employees in Colombia without setting up a local entity. 

As your EOR in Colombia, we offer assistance with employment contracts, benefits administration, taxes, and payroll, while you retain control over daily operations.

Book a demo to learn more about Payoneer Workforce Management.

FAQs 

1) What is an employer of record in Colombia?

A Colombia employer of record is a third-party organization that legally employs your workers on your behalf and manages payroll, taxes, and employment contracts, so you can hire without a local entity.

2) Does an EOR help with Colombian tax filings?

. A Colombia EOR can offer support with processing employee pay, handling required deductions, and submitting taxes and social contributions according to Colombian regulations.

3) What are the mandatory benefits for Colombian employees?

Mandatory benefits include paid vacation, public holidays, social security contributions, pension, health coverage, maternity and paternity leave, and a mid-year and year-end bonus. An employer of record service provider in Colombia ensures that these are managed accurately.