Current travel restrictions and business climate are incentivizing companies to consider alternative ways to manage employee payroll in Colombia. Company incorporation and establishing a representative branch or office may previously have been the preferred method to enter the Colombian market.
Now, as foreign companies work to secure their cash flow and are unable to travel to the country, engaging with local providers to support their overseas staff is an increasingly viable option to continue business.
Find out how multinationals can outsource their needs for payroll in Colombia through local payroll providers.
Current challenges to HR and payroll activities in Colombia
While the COVID-19 pandemic remains a significant issue for governments in Latin America, measures to counter its spread have halted domestic and international travel to countries such as Colombia. Institutional support continues to operate at a lower capacity in order to support efforts to reduce risk of transmission.
Colombian President Iván Duque declared the country’s state of emergency to remain in place until 31 August. It is uncertain if further announcements will be made to extend this timeframe and other regulatory measures, as has happened a number of times already in the country.
Foreign companies operating in Colombia may face challenges when undertaking a number of regulatory procedures, including company formation and compliance, visa processing, and hiring staff. The latter is particularly an issue for executives overseas, as management of human resource activities and payroll in Colombia are difficult to navigate without being able to travel to the country.
Managing employee payroll in Colombia requires familiarization with the work environment and regulatory requirements. Though challenging for those unable to travel, businesses can seek the support of third parties to manage employees and payroll in Colombia.
Outsourced payroll services in Colombia
Foreign companies dealing with hiring and payroll challenges in Colombia during periods of heightened restrictions on movement can work with a local payroll provider in the country to continue operations and support their staff.
Local payroll managers and professional employer organizations (PEOs) can support foreign companies by undertaking recruiting, hiring and payroll activities in Colombia on the company’s behalf through co-employment agreements and service contracts.
Specifically, a payroll manager in Colombia will support all employees’ payroll needs and regulatory compliance requirements by carrying out the necessary payments and contributions to and for a company’s employees directly.
Companies can sign a service contract with a trusted provider to calculate and manage their payroll in Colombia, avoiding complications with having to understand and comply with payroll requirements, and entrusting the provider with the responsibility to engage with government agencies as appropriate.
What are the main payroll taxes in Colombia?
Payroll taxes in Colombia include pension, healthcare, salary withholding taxes and additional retirement fund.
Though subject to temporary measures taken by the government during the current state of emergency, the required pension contribution in Colombia is typically 16%. 75% of this contribution is paid by the employer, and 2% by the employee.
For the months of April and May, the pension contribution was reduced to 3% to relieve cashflow concerns for businesses and employees.
Employers must contribute 12.5% of an employee’s salary to the relevant healthcare security fund. 8.5% of this is paid by the employer, and 4% by the employee.
Withholding tax rates for staff vary between 19-39% for Colombian citizens and foreign nationals.
The additional retirement fund, known as Fondo de solidaridad in Colombia, is taxed at a rate between 1-2% depending on the total salary of the employee.
Use our PEO calculator to calculate employee cost in Colombia
A common pain point for companies when hiring in Colombia and other countries in Latin America is understanding how to calculate the cost of employees they want to hire locally.
Biz Latin Hub has developed the Payroll Calculator tool to support companies hiring staff in Colombia and other Latin American markets understand their salary and contribution requirements.
Labor laws in Colombia are a complex yet essential framework companies must comply with when hiring and managing employees.
We are making it easier for our clients and other expanding companies to understand what their employment obligations are when managing their payroll in Colombia. Use our calculator to support your employee and payroll management in the region.
Note: Colombian employment law outlines 2 types of salary for employees. These are known as Ordinary and Integral salary.
In the Ordinary salary, the employee’s salary contributions are paid separately to their salary. With an Integral salary, the required benefits are included in the monthly wage.
Engage with experienced payroll managers in Colombia to support your employees
While current regulations make it difficult for companies to operate across borders, hiring staff and managing payroll in Colombia can be outsourced to a trusted local provider to ease employers’ administrative burdens.
At Biz Latin Hub, our experienced team of local and expatriate professionals support clients with a full suite of multilingual market entry and back-office services in Colombia. This includes providing key payroll management support to companies hiring employees in the country.
Our payroll managers in Colombia provide assurance through delivering timely and high-quality services to foreign companies with staff in the country. We strive to deliver excellence and customize our services to suit the diverse needs of our clients.
Contact us today to find out how we can support your needs in Colombia and receive a personalized quote.
Learn more about our team and expert authors.