What are the potential implications of the new labor law reform in Colombia and its economy?

Starting the on the 15th of July in 2023, a major change is being implemented for working Colombians and businesses throughout the country. The process of reducing hours in the standard workweek without a pay decrease is being enacted on this day. As of now, the new labor law reform in Colombia will cut down hours worked, weekly, by one hour. A reduction of the workweek in Colombia will be the first step in obtaining a 42-hour workweek by 2026, according to the new labor law reform in Colombia. The current expectation of hours worked per week in Colombia is 48.

The change is expected to impact businesses in several ways, including legal and practical reforms. The Law 2101 of 2021, which altered Article 161 of the Work Employment Code, is one of the most notable laws that asks for a reduction in the maximum number of hours that Colombian employees are expected to work each week. The distribution of work hours over 5 to 6 days can still be negotiated by employers and employees as long as at least one day off per week is maintained. But, it will be important for companies in the region to stay up-to-date with changes in laws and regulations regarding the labor law reform in Colombia. Businesses may have to adapt significantly in order to ensure compliance with the new labor reform.

An Employer of Record, also known as a EOR, can help your company remain compliant and up-to-date with the labor law reform in Colombia. Read our article below, for an example of how it may be beneficial for your company in Colombia during significant changes to labor laws.

SEE ALSO: The Pros and Cons of Hiring through an Employer of Record in Costa Rica

What does a labor law reform in Colombia look like?

As what was mentioned above, there will be significant changes because of the labor law reform I n Colombia. Working Colombians and companies throughout the country should be aware of the following adjustments:

• The 48-hour work week will be gradually decreased, effective in mid-2023.
• The amount of time Colombians spend working will decrease by one hour yearly, with no adverse effects on pay, benefits, or the worth of the daily working hour.
• The initial goal of the initiative is to cut the workweek’s total hours worked to 42 by 2026.
• The first two years (2023 and 2024) will see a reduction of one hour, followed by a reduction of two hours in 2025 and 2026.

These changes will affect both employees and employers. If you operate a business in Colombia, you may be obligated to comply with requirements such as renegotiating conditions with your current staff, updating and/or revising your employment contracts to reflect these new demands, and modernizing your payroll procedures. For employees, employers will no longer be required to provide the “Día de Familia” and Recreational Days Off benefits if the maximum number of work hours reaches 42. But, new reflections in the labor law for this reduction of the workweek in Colombia, will prevent employers from cutting pay and additional benefits for employees during vacation and holidays.

What are the potential implications on the economy?

Given that the economy is experiencing a crisis, many members of Congress think it is not possible to shorten the working day in Colombia. What negative effects this labor law reform in Colombia might have on the nation’s business community is likewise unknown, as of now. Furthermore, they contend that it accomplishes little to stop informal employment in the nation and might potentially make it worse. 

It is reasonable to assume that shortening the workday might result in reduced production because fewer people would be working. Additionally, if a business needed a worker for more hours, it would mean having to pay for additional hours that would already be deemed overtime. This would have an adverse financial impact on the firm.

Many analysts note that this shift is not recommended for the productive sector and that it is an unfavorable time because we are aware of the challenges that businesses are facing. The majority are attempting to activate and restore production at its pre-pandemic rate. They contend that this action may have an impact on the likelihood of recovery by implementing the labor law reform in Colombia, which could lead to less productive working time, or by forcing the hiring of more workers, which would raise production costs.

On the other hand, Colombia had failed to abide by the ILO’s recommendations since 1962 and the world community’s call for a reduction in the maximum working day as a means of relieving the worker of their labor-related obligations. However, despite the fact that Law 2101 of 2021 lowers the maximum working day from 48 to 42 hours per week, Colombia’s employment law will remain higher than the average working day of OECD members, which is 37 hours per week, and it won’t get to the ILO’s recommended standard of 40 hours per week, which is the work week found in more productive nations.

What sectors and/or industries are to be affected the most by the labor law reform in Colombia?

The industrial sector has expressed the most unfavorable views of the new law. According to the National Association of Entrepreneurs (ANDI), cutting back on working hours does not necessarily indicate that a company will have more time for its productive activities, necessitating the hiring of additional staff. The industries most impacted by needing to recruit more people or pay more overtime are those that rely on production by cutting back on working hours.

What is the government’s reasoning for the Labor Law Reform in Colombia?

The government intends to improve workers’ ability to merge their job and personal lives. To improve the mental health and productivity of the workforce, a reduction of the workweek in Colombia has been supported and implemented by the government. The goal is for more time to be spent with family and friends, among other things. The law is also designed to give workers more free time so they can pursue further education and skill development. It is anticipated that this will lessen employee absenteeism, help with job reactivation, and raise awareness of the relationship between employers. More businesses are frequently adopting flexible practices, such working on Fridays until noon and creating more flexible work schedules, as well.

Will the Labor Law Reform in Colombia have an adverse reaction the economy and industrial production employers?

There has been limited analysis of the potential benefits and drawbacks of this new law because it has just recently been put into effect. However, ANDI’s judgment, which implies that businesses will have to spend much more to cover an increase in employees or to make up for additional overtime hours, could become a reality. The industrial sector would be particularly affected by the shorter workday because there would be less product manufacturing, which would drive up the price of those products. To maintain production levels, it would be necessary to hire additional workers. The cost of paying overtime to employees will increase if the business is unwilling or unable to hire extra employees.

Biz Latin Hub can help you with employment

At Biz Latin Hub, we provide integrated market entry and back-office services throughout Latin America and the Caribbean, with offices in Bogota and Cartagena, as well as over a dozen other major cities in the region. We also have trusted partners in many other markets.

Our unrivalled reach means we are ideally placed to support multi-jurisdiction market entries and cross-border operations.

As well as knowledge about hiring in Colombia, our portfolio of services includes hiring & PEO accounting & taxation, company formation, bank account opening, and corporate legal services.

Contact us today to learn more about how we can assist you in finding top talent or doing business in Latin America and the Caribbean.

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