If you are considering doing business in Colombia or are looking for talent from Latin American countries, engaging a professional employers’ organization in Colombia can be very advantageous.s
The nation offers numerous compelling reasons for engaging in business and utilizing a professional employer organization in Colombia:
- Growing Economy: Colombia’s economy has been consistently growing over the years. In 2021, despite the challenges posed by the COVID-19 pandemic, Colombia’s GDP grew by 7.7% in the third quarter compared to the same period in 2020.
- Investment-Friendly Environment: Colombia has implemented various measures to attract foreign investment. It has signed free trade agreements with multiple countries, including the United States, Canada, and the European Union. Incorporating a company into the region may be easier with the implemented free trade agreements and help from a knowledgeable professional employer organization in Colombia. Additionally, Colombia ranked 67th out of 190 countries in the World Bank’s Ease of Doing Business Index 2020.
- Skilled Workforce: Colombia boasts a well-educated and skilled workforce. The country has over 600 universities and technical institutions, producing a pool of talented professionals. Colombia is recognized for its strong engineering programs and has a growing number of graduates in technology-related fields (source: Colombian Ministry of Education). Hiring through a professional employer organization in Colombia can help your company hire from this highly skilled talent pool.
- Infrastructure Development: Colombia has made significant investments in infrastructure. The country has an extensive road network, including over 3,200 kilometers of highways, facilitating transportation and connectivity (source: Colombian Ministry of Transport). Furthermore, Colombia has made advancements in its telecommunications sector, with widespread access to mobile and internet services.
- Tourism Potential: Colombia’s tourism industry has seen remarkable growth in recent years. In 2019, the country received over 4.5 million international visitors, a 2.6% increase from the previous year (source: Colombian Ministry of Commerce, Industry, and Tourism). The diverse natural landscapes, cultural heritage sites, and vibrant cities attract tourists from around the world, providing opportunities for businesses in the tourism sector.
- Improved Security: Colombia has made significant progress in terms of security and stability. The country has experienced a substantial decline in violence and a decrease in crime rates over the past decade. According to the Global Peace Index 2021, Colombia ranked 147th out of 163 countries, showcasing improved peacefulness.
These factors, supported by reliable sources, demonstrate why Colombia is an attractive location for business opportunities, investment, skilled workforce, infrastructure development, tourism, and a safer operating environment. To take advantage of these opportunities, it is beneficial to work with a reliable professional employer organization in Colombia.
What is a Professional Employer Organization in Colombia (PEO Firm)?
A professional employer organization in Colombia is often referred to as a PEO or as an employer of record (EOR), while providers will sometimes advertise themselves as a PEO payroll company, owing to the management of salaries being one of the most sought after services they offer.
Colombia is an ideal destination for seeking talent in many sectors, with the country boasting a large and highly-educated services industry. Throughout the country and the biggest cities, Colombia boasts a growing pool of IT and other skilled technicians. This has made outsourcing in Bogota a popular option, while Medellin has been named as one of Latin America’s new “Silicon Valleys” due to its burgeoning innovation sector. Using a PEO firm in Colombia can help you find exceptional talent throughout the country.
However, even though Colombia is known to be business and investment friendly, meaning the likes of company formation is more straightforward than in some other parts of Latin America, entering the market and doing business in the country still comes with hurdles for newcomers. Among those are the cultural and linguistic barriers, as well as compliance concerns related to dealing with a new regulatory regime.
For that reason, hiring via a professional employer organization in Colombia can be particularly attractive, because the PEO firm will be staffed by experienced professionals, able to identify and avoid common regulatory pitfalls, as well as provide access to an established recruitment network with a strong track record of hiring the best talent.
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Why hire through a PEO firm in Colombia?
When you hire through a PEO firm in Colombia, not only do you tap into the local knowledge and contacts that the PEO firm has, while also removing a major administrative and compliance issue, but you also avoid the need to go through company formation and subsequent liquidation.
That is a particularly attractive prospect for anyone seeking to hire an individual or small number of senior staff to manage operations, direct regional sales, or undertake other executive duties. It is also ideal for anyone who is seeking support on a short-term or limited-scale basis — for example hiring a team of software developers to deliver a particular project.
One of the big advantages of working with a professional employer organization in Colombia is the immense network that is already established for recruitment and immense knowledge of the best educational institutions and local companies that ideal candidates may have experience with.
Moreover, when the time comes for you to close operations in Colombia, your market exit will be completed in only the time it takes for staff hired via a PEO firm to serve their statutory notice period.
A professional employer organization will also take care of a range of employee-related concerns, including drawing up contracts in accordance with the law, honoring all statutory leave allowances, paying salaries and bonuses correctly, and complying with all tax-related matters.
That will not only guarantee that you avoid legal inconveniences and financial penalties for non-compliance but will also help you establish and maintain good standing with local authorities. That will be of particular value should you decide to deepen your commitment to the market by forming a company and expanding operations.
Legal Framework governing Employer of Records (EOR) in Colombia?
The legal framework governing EORs in Colombia is governed by the Labor Code, which outlines the employer-employee relationship and the obligations of employers. Additionally, the Colombian government has established regulations that EORs must comply with, including tax and social security requirements.
Advantages of hiring through an EOR in Colombia?
- No requirement to incorporate a local entity: Hiring through an EOR in Colombia allows foreign companies to operate without the need to establish a local entity. This is particularly beneficial for companies looking to test the market before committing to a full-scale expansion.
- Flexibility: EORs in Colombia offer a high level of flexibility in terms of employment arrangements. They can handle short-term or project-based contracts, part-time, and provide support for employees across multiple jurisdictions.
- Ability to hire in multiple jurisdictions: Hiring through an EOR in Colombia allows companies to access a wider pool of talent across the country. The EOR can handle the complexities of employment law across different regions, making it easier for companies to expand their operations.
- Faster Time-to-Market: Hiring through an EOR in Colombia can help companies accelerate their time-to-market. With an EOR, companies can quickly hire employees and begin operations without the delays associated with establishing a local entity.
- Reduced Administrative Burden: EORs in Colombia handle all aspects of HR administration, including payroll, benefits, taxes, and compliance. This can significantly reduce the administrative burden on the company, freeing up time and resources to focus on core business operations.
- Local Expertise: EORs in Colombia have a deep understanding of the local employment market, labor laws, and cultural norms. This expertise can be invaluable for companies looking to navigate the complexities of doing business in Colombia.
Risks of hiring through an EOR in Colombia
- Permanent Establishment Risk: When a foreign company hires employees through an EOR in Colombia, they run the risk of creating a permanent establishment in the country. This can trigger additional tax liabilities and compliance requirements.
- Increased Cost: Hiring through an EOR in Colombia can be more expensive than establishing a local entity. EORs charge a fee for their services, and the cost can add up over time.
- Difficulty to build a company culture: Hiring through an EOR in Colombia can make it challenging for companies to establish a strong company culture. The EOR is responsible for HR-related matters, which can create a disconnect between the company and its employees.
- Lack of ownership and control of employees: Hiring through an EOR in Colombia means th. at the EOR is the legal employer of the employees. This can limit the company’s ability to exercise control over its workforce.
- Limited Control over HR Functions: Hiring through an EOR in Colombia means that the EOR is responsible for all HR-related functions. This can limit the company’s ability to customize its HR policies and procedures, which can be a challenge for companies with unique needs or cultures.
- Lack of Direct Relationship with Employees: Hiring through an EOR in Colombia means that the EOR is the legal employer of the employees. This can create a disconnect between the company and its employees, as the company does not have a direct relationship with them.
- Compliance Risks: EORs in Colombia must comply with a range of legal and regulatory requirements. If the EOR fails to comply with these requirements, the company may be held liable for any noncompliance issues.
- Limitation of contracting for a maximum of 12 months: The 12-month limitation may make it challenging for EORs to attract and retain top talent, as employees may be hesitant to accept short-term employment contracts. This could lead to a shortage of skilled workers and increased competition for talent, which could drive up labor costs for EORs.
Compliance matters that a PEO firm in Colombia takes care of:
A professional employer organization in Colombia will take care of the following regulatory and compliance concerns related to having employees in the country:
Your PEO firm in Colombia will also inform you in the most timely manner possible when changes to these are due to occur;
- Working hours: Colombia has a standard working week of 48 hours long, generally made up of six days lasting eight hours each.
- Overtime: Employees mustn’t work more than two hours of overtime per day. Your professional employer organization in Colombia will make sure compliance is a top priority, including overtime restrictions and wage duties.
- Paid vacations: After 12 months of employment, an employee is entitled to 15 consecutive days of paid leave, of which they must take at least six days during the following 12 months.
- Bonuses: Colombia, like many Latin American countries, has a ‘13th salary’ bonus that employees are entitled to — consisting of a full month’s salary, usually paid in two installments in the middle of the year and at the end of the year. A reliable professional employer organization in Colombia will fully understand these matters and have them handled timely.
- Parenthood leave: Mothers are entitled to 18 weeks of maternity leave, which can be extended to 20 weeks, and by law must start at least a week before the due date of the birth, while fathers are allowed eight days of paternity leave.
- Voting leave: In Colombia, employees are entitled to half a day of personal leave to vote in local and national elections, should they fall on a work day.
- Trade union leaves: Employees are entitled to personal leave in order to serve on a trade union committee.
- Minimum wage: As of January 2022, the minimum wage in Colombia was set at 1 million Colombian pesos per month (approximately US $263). If minimum wage fluctuates, a quality professional employer organization will be able to adapt the company to meet compliance standards.
The Future of EORs in Colombia
Employer of Record (EOR) services have been gaining popularity in Colombia, as more and more foreign companies seek to enter the market. This trend is expected to continue in the coming years, driven by several key factors.
Firstly, Colombia’s economy has been growing at a strong pace, fueled by industries such as oil and gas, mining, and agriculture. As the country’s economy continues to expand, more foreign companies are likely to seek opportunities in the market, and EORs can help facilitate this growth by providing a fast and efficient way to hire and manage employees.
Another key factor driving the future of EORs in Colombia is the increasing demand for flexibility in staffing. With the rise of the gig economy and remote work, many companies are looking for more flexible employment solutions. EORs can help meet this demand by providing a range of employment options, from full-time positions to part-time or project-based roles.
In addition, there is a growing focus on compliance with local labor laws and regulations, which are becoming increasingly complex. EORs can help ensure compliance with these regulations, reducing the risk of legal or financial penalties for companies operating in Colombia.
Advances in HR technology are also contributing to the growth of EORs in Colombia. As HR technologies continue to evolve, EORs are becoming even more efficient and cost-effective. This, in turn, is making EORs a more attractive option for companies looking to streamline their HR functions and reduce costs.
Finally, with the growing demand for EOR services in Colombia, competition among EOR providers is likely to increase. This could lead to a wider range of services and pricing options, as well as increased pressure on EORs to provide high-quality, reliable services.
In conclusion, the future of EORs in Colombia looks bright, as more and more companies seek out flexible and efficient ways to manage their workforce. By partnering with a reputable EOR provider, companies can access the local knowledge and expertise they need to navigate the country’s complex employment landscape and focus on their core business objectives.
How to use a payroll calculator
If you are keen to get an idea of the possible costs involved in payroll outsourcing in Colombia, using a payroll calculator is one way to get a very good estimate.
Because while a payroll calculator won’t be completely accurate, it will give you the opportunity to search according to the salary, the number of employees, the country you want to enter, and the currency you wish to work in. As such, you will be able to understand your likely costs across a range of salaries, while also being able to compare other countries as potential alternative destinations.
You can find the BLH payroll calculator at the bottom of our Hiring & PEO Services page. The calculator will allow you to make good estimations of the costs involved in hiring in Latin America and the Caribbean based on country, currency, and salary, with the calculator factoring in local statutory deductions.
To use the BLH payroll calculator, you will need to undertake the following steps:
Step 1: Select the country
Choose the country where you are doing business, or planning to launch. This feature will be useful when it comes to comparing potential alternative markets.
Step 2: Select the currency you wish to deal in
You can choose between US dollars (USD), British Sterling (GBP) and Euros, as well as the local currency for the country you are looking at, based on that which is most convenient to you. Note that for Ecuador, El Salvador, and Panama, the local currency is also USD, as they have dollarized economies.
Step 3: Indicate an employees monthly income
Here you can indicate the expected salary you will be paying an employee, in the currency of your choice.
Step 4: Calculate your estimated costs
Based on all of the information you have provided, you will receive results indicating your estimated costs, including a breakdown for estimated statutory benefits you will be liable for.
Step 5: Compare your costs to other options
With a good estimate at hand of how much your staff in Colombia would be, if you are flexible about your expansion into Latin America and the Caribbean, you can use the BLH payroll calculator to compare those costs to other jurisdictions.
Common FAQs when hiring through an Employer of Record (EOR) in Colombia
Based on our experience these are the common questions and doubts of our clients.
You can hire an employee by incorporating your own legal entity in Colombia, and then using your own entity to hire employees or you can hire through an Employer of Record (EOR), which is a third party organization that allows you to hire employees in Colombia by acting as the legal employer. Meaning you do not need a Colombian legal entity to hire local employees.
A standard Colombian employment contract should be written in Spanish (and can also be in English) and contain the following information:
-ID and address of the employer and employee
-City and date
-The location where the service will be provided.
-Type of tasks to be carried out
-Remuneration and bonifications/commissions (if applicable)
-Method payment frequency
-Duration of the contract.
-Additional benefits (if applicable)
The mandatory employment benefits in Colombia are the following:
-Working tools necessary to carry out the work (if applicable)
-Payment of social security contributions (health, pension, and labor risks).
-Social benefits (service premium, severance pay, and interest on severance pay).
-Paid time off (vacation and Sunday rest).
-Disabilities (common or labor origin).
-Transportation allowance (if applicable)
-Overtime and surcharges (if applicable)
For more information on mandatory employment benefits read about Employment laws in Colombia
The total cost for an employer to hire an employee can vary based on the salary structure, whereby in Colombia exists two types of salary structure, which include ordinary salary (“Salario ordinario”) and integral Salary (“Salario integral”). Whereby the total cost to the employer for mandatory employment benefits via an ordinary salary is between 40% and 55% and via an integral salary is between 20% and 35% and is additional to the employee’s gross salary.
Please use our Payroll Calculator to calculate employment cost.
Biz Latin Hub can be your PEO firm in Colombia
At Biz Latin Hub, we provide integrated market entry and back-office services throughout Latin America and the Caribbean, with offices in 17 key cities around the region, including Brazil’s economic hub Sao Paulo.
Our portfolio includes accounting & taxation, company formation, due diligence, hiring & PEO, and corporate legal services, while our unrivaled regional presence means we are ideally placed to support multi-jurisdiction market entries and cross-border operations. If you need a PEO firm in Colombia, we are ready to help.
Contact us today to find out more about how we can assist you.
If you found this article on hiring through a professional employer organization in Colombia of interest, you may want to check out the rest of our coverage of this South American country. Or read about our team and expert authors.
The information provided here within should not be construed as formal guidance or advice. Please consult a professional for your specific situation. Information provided is for informative purposes only and may not capture all pertinent laws, standards, and best practices. The regulatory landscape is continually evolving; information mentioned may be outdated and/or could undergo changes. The interpretations presented are not official. Some sections are based on the interpretations or views of relevant authorities, but we cannot ensure that these perspectives will be supported in all professional settings.