Straddling the border between Central and South America, Colombia is one of the most biodiverse countries in the world. From the country’s high altitude sprawling capital Bogotá to the Caribbean island San Andres, Colombia offers some of the best natural resources in the world. The country is known for its robust education system, which makes it an appealing place to build out a local employment hub.
Running payroll in Colombia means managing onboarding, termination, severance, payments, benefits like private health insurance, pension plans, 13th-month pay, payroll deductions, compliance, and taxes for full-time employees and contractors. Companies can partner with a PEO or EOR to run payroll abroad.
Here’s a look at everything you need to know about establishing payroll in Colombia, including important information regarding minimum wage and payroll taxes.
Employees must be paid in the country’s official currency, the Colombia peso. Employees can receive online pay stubs instead of paper ones. However, employers must keep payroll records for 20 years.
Many companies choose to set up an entity, simplified joint-stock companies (S.A.S) or partner with EOR services like Via to ensure that they are following the correct laws for administering payroll in Colombia.
This is important to ensure you’re following the law and remaining compliant. Colombia is known for its complex bureaucracy, especially at the local level. That’s why using an EOR service like Via helps alleviate some of the stresses of paying employees in the country. With Via, you have the support of in-country experts.
When setting up a business in Colombia, you will want to work closely with local lawyers and accountants to ensure that you’re following payroll processes.
This process takes 2-3 weeks and can mostly be completed online. You will need to complete the following steps:
Register with the Chamber of Commerce to get a business ID Number
Set up an in-country bank account
Register for Family Compensation Fund, employee public health coverage and pension plans, The Labor Risks Administrator, and the severance fund
Get your employees personal information, such as passport, proof of health insurance coverage, and bank statements
Have Employees complete tax registration requirements including:
Written employment contract
Register with social security
Register for public health service coverage
Register for severance fund
Establish workers insurance
Paying a 13th-month salary is mandatory in Colombia. Half of the payment must be made by June 15, the other half by December 20th.
Severance pay is mandatory in Colombia and depends on the employee's length of employment with the company.
If an employee makes less than 10x the federal minimum wage, the employee is entitled to 30 days of pay for the first year of employment and 20 days for each additional year of employment. If the employee’s pay is more than 10x the federal minimum wage, they are entitled to 20 days of severance pay for their first year of employment, plus 15 days for every other year of employment with the company.
Taxable income is expressed in units of COP 35,607 or 1 UVT (unidad de valor tributario). Both employers and employees contribute to social security, which includes pension, healthcare, and the general labor risks system. In total, social security tax for employer and employee equals 28.5%. The employer pays 20.8% and the employee pays 8% of their monthly salary.
The minimum wage in Colombia is $1,000,000 COP per month.
The pay cycle is Colombia is normally monthly with payments made on the last working day of the month. In certain fields, the pay can be run bi-weekly with pay dates on the 15th and the last working day of the month.
The fiscal year in Colombia is 1 January-31 of December.
The corporate income tax rate in Colombia is 35%. Residents and individual companies are taxed on worldwide assets, while non-resident companies and individuals are only taxed on their Colombian source of income.
VAT is the value-added tax that is similar to sales tax in the United States. VAT rates are 19% and 5%. The Colombian government recently established 3 VAT-free days in Colombia. These days are March 11th, June 17th and December 3rd. On these days, consumers do not pay VAT taxes when purchasing goods at stores.
Employer payroll contributions are as follows:
12% for pension
8% for employee medical plan
0.52-6.96% for labor risks
4% for Family Compensation Fund
3% for Family Welfare (ICBF)
2% for National Apprenticeship Service
Combined, these percentages equal the 20.5% that employers must pay for social security contributions.
Employers must also deduct 8% of their employees salary for social security: 4% for pension and 4% for medical plan.
Combined, the employee and employer deductions equal the 28.5% social security taxes employees and employers are required to pay in Colombia
The Colombian government approved an important reform to the tax system in 2006 with a 'tax unit' (Unidad de Valor Tributario or TVU), so the number may be adjusted every year.
Tax Units (1 Tax Unit= $36,308 COP)
0%: 0-1,090 Tax Units
19%: 1,090-1,700 Tax Unit
28%: 1,700- 4,100 Tax Units
33%: 4,100- 8,670 Tax Units
35%: 8,670- 18,970 Tax Units
37%: 18,970- 31,000 Tax Units
39%: 31,000 Tax Units +
Standard working hours in Colombia are 8 hours per day with a 40 hour work week. The standard week is Monday-Friday, however, it can be extended to Saturday for a work week of 48 hours.
The maximum number of hours per day is 8 hour per days and 48 hours per week. All work beyond the standard working hours must be agreed and regulated by the employment contract. Employees that work between 10am and 6pm are paid at 35% more than the regular daytime salary.
Daytime overtime is paid at 125% of the regular pay rate and 175% for night overtime hours
Sundays, extra daytimes, and holiday work is paid at 175% of the regular pay
Paid holiday must be a minimum of 15 days per year after 1 year of employment. There are 18 public holidays employees are entitled to have off in Colombia.
Employees are entitled to 2 days of sick leave paid by their employer at 2/3 their regular salary. After the 3rd day, employees are paid out by the Colombian social security system with proper documentation from a medical doctor for up to 180 days.
Employees are entitled to 18 weeks of maternity leave paid in full by their employer. The employer is reimbursed for this leave by the social security system.
New fathers are entitled to 8 days of paid paternity leave following the birth of a child. The employer pays out the leave in full and is reimbursed by the social security system.
Income taxes in Colombia are deducted based on the employees monthly pay and can easily be calculated using a Colombian deduction calculator. You can use a payroll deduction calculator to quickly estimate an employee’s net salary after taxes.
As companies establish a business presence in Colombia, determining whether to operate payroll in-house or partner with a third-party service is an important business decision.
Larger corporations tend to have more resources to build out a local HR team and set up payroll in-house, while SMB’s are more likely to outsource payroll to third-party PEO or EOR service.
If you establish payroll in-house or enter into a co-employment model like a PEO, your business is responsible for the legal ramifications of any tax mistakes. If you choose to partner with an EOR service like Via, they take on full responsibility for maintaining payroll in compliance so you can focus on running your business.
Companies of all sizes want to hire employees in Colombia, but don’t know how to navigate the country’s local labor laws. Via makes hiring Colombian talent and building your global team seamless. With our easy-to-use platform, Via helps you manage local HR processes for direct employment such as benefits, payroll, background checks, and more. Our team of local labor lawyers and on-the-ground experts ensure that your company remains compliant while expanding abroad. As your employer-of-record/entity in Colombia, Via assumes responsibility for employment liability, so that you can focus on what matters: recruiting and managing your team.
With Via’s transparent pricing, you can pay full-time employees or contractors in Colombia with no hidden set-up fees, no foreign exchange or transaction fees, and no minimums–start with 1 employee and scale up at your own pace.
To pay an employee in Colombia, you must follow all of the necessary laws and regulations for both social security and deductions. Further, you must establish a legal entity or subsidiary within the country, or you can use an EOR service like Via.
Taxes are paid in Colombia by using income tax and ensuring all of the necessary deductions are made. A simple way to calculate tax deductions in Colombia is by using a deduction calculator.
A typical work week in Colombia is normally around 42 hours and the hours are distributed over no more than 6 days, with a necessary rest day that usually takes place on Sunday.
The Colombian minimum wage is 1,000,000.00 per month, with a transport allowance of 117,172.00 per month, for a total minimum wage of 1,117,172.00 per month.