Payroll Practices in Colombia

An increasing number of companies are continuing to see Latin America as an attractive location to host foreign production and investments. As all global companies know, there are both pros and cons to creating business operations in multiple countries and staying compliant with different labor legislations can be a tricky standard to uphold. Colombia is a country that may be attractive for generating new business operations, but with complex and extensive payroll systems and requirements in this country, it is vital for global business operations to understand the local laws and mandates.

The Labour Code in Colombia includes a thorough overview of employment conditions, employment contracts, salaries, contributions to social security, holiday and vacation legislation and proper payment for overtime hours. It is important to note that all labor contracts in Colombia must be written by an attorney and must have a detailed and clear description of the employment terms for the individual receiving the contract.

Once a business is registered to operate in Colombia, the tax ID number that is issued is the most vital piece of information used to enroll employees into different programs that affect their social security (such as health insurance, pensions, unemployment funds, and welfare). It is also imperative that global companies follow the local minimum wage and overtime regulations. Colombia has a number of policies in place for different types of work to receive different minimum rates of pay. In order to remain compliant, it is imperative that global companies focus on these nuances.

Legal bonuses, unemployment allowance, vacation days and sick leave are all other factors that must be accounted for when employing anyone in the country of Colombia. These regulations are both precise and strict. Legal bonuses must be paid out in June and December, totaling the employee monthly salary. Salaried employees also receive unemployment allowance where the employer must deposit regulated funds into a specified unemployment fund that was specifically chosen by the employee (not chosen by the employer). The standards for vacation days are 15 days annually, however most companies establish additional regulations in order to provide more days off to their employees. Moreover, maternity, paternity and bereavement leaves are all paid for 18 weeks, 8 days and 5 days respectively.

Finally, it is important to realize that employees who are terminated without cause are eligible and entitled to receive a severance pay. The amount of this payment is calculated based on the employee salary and how many years of consecutive employment they have with the company.

Overall, these legislations have been created in an attempt to protect the rights of workers. Colombia, while considered an upper middle-income economy country, and one of Latin America’s largest economies, the country as a whole is still struggling with high rates of poverty and extreme income inequality. The regulations put in place by the Labour Code in Colombia have been a stepping stone to reduce the current observed levels of poverty and income inequality in the country.

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