Expanding a business to Colombia with an Employer of Record (EOR) can be a very attractive option for growing companies wanting to enter the market with a small-scale investment. In particular, startups and other small companies (SMEs) benefit from the emerging economy in Colombia and hiring staff through a third-party organization can support a small-scale expansion.
Colombia has one of the fastest-growing economies in Latin America. Foreign companies that are doing business in this country are likely to face challenges when acting in compliance with the local laws, especially if these companies must contend with a language barrier.
Particularly, when companies are considering to expand by hiring staff abroad, they must understand and adhere to local regulations and bureaucratic processes for employment. In this case, Employers of Record can be redeeming support for foreign companies by overtaking administrative work.
Understand the role of an Employer of Record in Colombia and how these organizations can facilitate your business expansion.
What is an Employer of Record in Colombia?
An Employer of Record (EOR) is defined as an organization which works as a third party alongside other companies to hire staff on their behalf. When a company works with an EOR, the EOR becomes legally responsible for human resource-related activities, such as recruitment and hiring, payroll, insurance, visa procedures, and others.
An EOR can often also be referred to as a Professional Employer Organization (PEO), and may commonly advertise itself as offering PEO services in Colombia.
What are the benefits of an EOR?
One of the main advantages of hiring an EOR is reduced bureaucracy. In order to conduct hiring in Colombia, local employment requirements need to be met. The main aspects of the employment regulations in Colombia are:
- Colombian labor regulations
- the labour type of contracts (fix term, indefinite term, contracted jobs)
- social benefits and social security system
- salary compensation and percentages of payments contributions from employer and employee
- termination of the employment relationship.
As a consequence, outsourcing some tasks of human resources to a professional EOR saves the company lots of time. An EOR manages payrolls for international employees and takes responsibility for compliance issues concerning domestic and international regulations.
EORs reduce barriers for companies to expand, such as enabling easier recruitment and hiring processes, market access, and operational growth.
Last but not least, there is no local incorporation required in order to work with an EOR in Colombia and hire staff to work in the country. This facilitates easier company expansion and market entry. Working with an Employer of Record in Colombia allows you to test a new market, build local brand awareness, and connect with potential clients, distributors and partners before fully incorporating your company in the country. Likewise, if operations do not go as planned, hiring staff abroad through an EOR allows for an easier market exit.
How do I find the right Employer of Record in Colombia?
Finding the right agency can be another stress factor for companies expanding to Colombia. In order to make sure that you are engaging with the right EOR in Colombia for your company, there are 10 aspects to consider:
- Is the EOR operating in Colombia?
- Do they have a depth of knowledge of the Colombian workforce in the geographic areas you are interested in?
- Are they multilingual? Can they approach the Spanish-speaking market and also connect with your senior executives?
- Does their contract protect commercial interests?
- How does the EOR deliver your requested service(s)?
- Who is your contact person? Which qualifications and skills do they have?
- What are some of their success stories and other experiences working in Colombia?
- Are they offering only sidelines or core services?
- Which regulations do you have to take into account when you want to terminate the contract?
- Are charges, fees and requirements explicit and clear?
Work in Colombia: types of employement contract
There are three (3) main types of employment contract through which most people work in Colombia:
Fixed-term employment contract
A fixed term contract can last up to three (3) years and can be extended for as long as needed. If a contract has been agreed to last less than one (1) year, it can be renewed for the same period. After that, the renewal must be for a term of at least one (1) year.
If the employer does not want to renew a work contract, they must provide at least one (1) month’s notice in a written document. If not, it will be automatically renewed.
At the beginning of a contract, there is a trial period. It cannot last for more than two (2) months, and its duration must be specified in the contract. If a contract is for less than one (1) year, the trial period cannot last more than one fifth of the total duration of the contract.
Depending on the nature of the work you need them for, this is likely to be the type of contact used by your employer of record in Colombia.
Indefinite-term employment contract
The duration of these contracts is not specified, either because of the nature of the job or due to agreement between the employer and employee.
The trial period cannot last more than two months, and it must be written and specified in the contract.
Contract for a set task
The duration of the contract is agreed according to the time needed to complete the defined task. The specified period must be written and the task clearly detailed.
Where you are seeking staff for a specific project, this may be the type of contract used by your EOR in Colombia.
Colombia employment law: vacations, leave, and other absences
Some of the vacations and leave allowances that your employer of record in Colombia will oversee include the following:
General leave allowance
Employees are entitled to 15 consecutive business days of annual leave with full pay after one year of service. Employees are required to take at least six (6) annual leave days per year. Vacation days may be accumulated for a period of two (2) years based on agreement between parties.
Female employees will be entitled to paid maternity leave of 18 weeks. The week before the childbirth will be mandatory leave for the mother. For premature births, the duration of maternity leave will be 18 weeks plus the difference between the gestational date and the birth date. For multiple births, the duration will be 20 weeks.
Fathers are allowed eight (8) working days of paid paternity leave, provided they have contributed to the Social Security System, which will reimburse the paternity leave pay to the employer.
Employees are entitled to five (5) working days of paid bereavement leave on the death of a spouse, partner, relative to the second degree of kinship, first degree of affinity or first degree of civil relationship (grandparent, parent, child, sibling, spouse, in-laws, partner), regardless of the type of employment.
Regarding kinship through adoption, relatives to the first degree are included, that is the adoptive parent to the adoptive child and vice versa. Therefore, on the death of an adopting parent or an adopted child, only parents and children are entitled to bereavement leave, but not the other relatives.
The employer’s company assumes costs related to bereavement leave.
Employees are entitled to personal leave to vote.
Military service leave
The employment contract is deemed suspended if an employee is called up for military service. The employer must allow the employee to resume the same job within 30 days of the service being completed.
Trade union leave
Employees are entitled to personal leave to serve on a trade union committee. Employees are also entitled to leave for other trade union purposes if they give adequate notice to the employer and the absence does not adversely affect the business.
Colombia employment law: statutory contributions
Every employee whose work contract is governed by Colombian labour regulations (with the exception of some foreign employees who may become voluntarily affiliated to the pensions system) must be affiliated to the integral social security system. Your employer of record in Colombia will guarantee that contributions are properly made to:
- The general pensions system
- The health and social security system
- The general system of professional risks
The basis for contributions is determined by the monthly salary earned by the employee, which may not be, for ordinary salaried employees, less than the minimum legal monthly salary (COP 908,526 in 2021) and may not exceed 25 minimum legal monthly salaries (COP 22,713,000 in 2021 — approximately $6,040).
For employees who earn an integral salary, the basis for pension contributions will be the lower of 25 minimum legal monthly salaries or 70% of such integral salary.
In the two regimes (public and private), the contribution amounts are currently 28.5% of the monthly salary.
Out of this percentage, 75% (approximately 20.5% of the monthly salary) must be borne by the employer and 25% (approximately 8% of the monthly salary) must be borne by the employee.
As such, for the mandatory health system, the employee should contribute 4% and the employer 8.5%. Note that starting from 2014, for employees with salaries below ten minimum monthly wages (COP 9,085,260 — approximately $2,417), the mandatory contribution to the health system on behalf of the employer does not apply.
Not that the 8.5% contribution applies only to salaries above ten minimum monthly wages.
In regards reitrement benefits in Colombia, mandatory contributions to the pension system mean the employer should contribute 12% and the employee 4% of their salary.
Note that employees who earn more than four minimum legal monthly salaries (COP 3,634,000 — approximately $967) must contribute an additional 1%, which will be destined to the pension solidarity fund, created by law to cover the risks of workers with scarce resources. Also, employees who earn more than 16 minimum monthly salaries (COP 14,536,000 — approximately $3,866) must contribute an additional percentage (between 0.2% and 1%), depending on the amount of salary received.
For professional risks (Aportes a Riesgos Profesionales), the employer must pay a contribution ranging from 0.522% to 6.96% of the monthly salary, which is an insurance that covers risks of labour-related illnesses or accidents, permanent disability, death, and incapacity also derived from the employee’s activity.
In addition, for employees with salaries higher than ten minimum monthly wages, employers must pay a 9% payroll tax on salary items only, the basis of which is 100% for ordinary salaried employees and 70% for integral salaried employees.
Biz Latin Hub can be your employer of record in Colombia
Expanding your business requires significant effort and taking calculated risks. In order to reduce both, hiring an Employer of Record in Colombia could be the best choice for your company to start doing business in the country.
Finding a qualified and reliable EOR is crucial. Our team of bilingual local lawyers and expert accountants provides you with full hiring, recruitment, and payroll services.
We are equipped to support you with tailor-made solutions specified to your business needs. Biz Latin Hub has been operating since 2014. Our office in Bogotá is our first office is remaining our main headquarter. Being our largest office, we have over 5 years of experiences supporting foreign business in Colombia. Additionally, we have offices in more than 14 countries mainly spread in whole Latin America and the rest of the world.
Contact us today to find out more information and receive personalized guidance.
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