Colombia Payroll and Benefits Guide

What global businesses need to know about payroll in Colombia

Did you know that Colombia is the fourth-largest economy in Latin America, behind only Brazil, Mexico, and Argentina? And that thanks to a government-backed campaign, it makes $750 million dollars a year in cultural exports, encompassing everything from toys and jewelry to the music of Shakira? 

Colombia is a vibrant country of over 52 million people, and a nation with a hugely varied economy, whether it’s growing coffee beans, mining precious stones, making clothing, or offering an increasing number of services. Its position on the coasts of both the Atlantic and Pacific Oceans makes it a key staging post for maritime trade and cargo, too.

There’s lots to get excited about when expanding into Colombia – but it’s important to treat payroll and employment considerations with the care and respect they deserve. This guide covers all the basics.

Getting Started

Most companies in Colombia set up as simplified joint-stock companies (S.A.S.); there is no minimum start-up capital requirement as long as at least some capital is present. All companies, however, should recruit the services of a lawyer and an accountant to help ensure the set-up of the company is fully legal and compliant.

The good news is that Colombia is working hard to strip out much of the red tape and bureaucracy that has hindered the business set-up process in the past. As part of this effort, many of the functions can now be completed online.

The first step of setting up a business in Colombia is to register at the Chamber of Commerce: approval should only take around 24 hours. Then a tax ID number (NIT) can be applied for, from which the mandatory in-country corporate bank account can be opened.

After this, registrations for the Family Compensation Fund, employee health and pension coverage, and the Labor Risk fund should be explored, along with any industry-specific permits and licenses that may be required.

Employment Considerations

Collective bargaining is allowed in Colombia, though the practice is likely to vary considerably from industry to industry. Recently there has been a real push within certain parts of the country to encourage more open dialogue between workers and employers in an effort to strengthen the economy. Employee contracts must be in writing, and probation periods are allowed for up to two months for standard full-time jobs. 

The standard working week in Colombia is currently being reformed gradually. It was reduced from 48 hours to 47 on July 15 2023; it will reduce further to 46 hours on July 15 2024; then to 44 and then 42 hours on July 15 in each of the following two years. The measure is intended to improve Colombians’ work-life balance, and so hourly rates of pay, or overall salaries, should not be reduced to reflect the lower number of hours being worked.

Overtime pay is defined by employment contract or collective bargaining, and is limited to two hours per day and 12 hours per week. Overtime should be paid at 125% of the employee’s normal rate. Any work conducted between 9pm and 6am as part of a normal working arrangement must be paid at 135% of the normal daytime rate. Any overtime during the night-time period, for any worker, should be paid at 175%. Employees in managerial positions are exempt from these working time limitations. 

Unusually, employment contracts can be terminated by either party for any reason at any time, although there are a number of exceptions, such as those who are pregnant, on health-related leave, or are less than three years from retirement. If the termination is for poor performance (rather than misconduct), 15 days’ written notice is required. Probation periods are two months for permanent employees, or the first 20% of the term for those on fixed-term contracts.

Compensation and Severance

The national minimum wage in Colombia has consistently risen every year of late. On January 1 2024, the rate was bumped up by 12% to 1.3 million pesos per month (approx. £260; $330; €305), which is more than double what it was just ten years previously. Keep an eye out for further increases in the years to come.

Wages generally include an allowance for transport to and from work; this is rolled into the minimum wage figure. Any workers earning less than double the minimum wage are legally entitled to allowances to transport, and for any clothing and footwear they need for work.

The payment of a 13th-month ‘Aguinaldo’ bonus is mandatory in Colombia. An extra month’s salary is paid in two halves, one in the first half of June, and the other no later than December 20. Other bonuses may be awarded and vary depending on industries and employment contracts.

Severance pay varies, depending on the amount the employee was earning. If their monthly pay was less than ten times the national minimum monthly rate, then they receive 30 days’ salary for their first year of service, and an extra 20 days’ salary for every year of service thereafter. For employees earning more, these entitlements are reduced to 20 days’ salary and 15 days’ salary respectively.

Tax and Social Security

Like many other countries, income tax in Colombia is levied at progressively higher rates and is withheld by employers at source. The first 46,229,080 pesos per year (approx. £9300; $11,800; €10,900) is exempt, above which the first of six rates kicks in at 19%. The highest rate of 39% is applied to all earnings over and above 1,314,772,000 pesos per year (approx. £265,000; $335,000; €310,000). The corporate tax rate is 35% and the VAT rate is 19%.

There are a variety of different social security schemes and payroll taxes to which both employers and employees must contribute. These include:

  • Pension: 12% employer, 4% employee
  • Health: 8.5% employer, 4% employee
  • Solidarity pension fund: 1-2% employee (if employee earns more than four times minimum wage)
  • Professional risks: 0.52-6.96% employer (variable according to the level of risk in different occupations)
  • Family Compensation Fund: 4% employer
  • Family Welfare: 3% employer
  • National Apprenticeship: 2% employer

Holidays and Leave

There are 18 public holidays in Colombia each year, and employees are entitled to take these days off. Paid leave entitlement is 15 days for all employees with at least one year of service – this is normally taken as one large block.

Maternity leave entitlement is 18 weeks at full pay, and although employers are responsible for making these payments, they can then claim the money back from social security. Paternity leave is two weeks, and the payments work in the same way. 

Sick leave should be certified by a registered social security entity in order for sick pay to be authorized. Employers cover full pay for the first two days. After this, the rate is two-thirds of normal pay up to 180 days in total, and employers can claim the money back from social security.

There are also leave entitlements of five days for a marriage, or the death of an immediate family member. 

In Summary

Colombia can be a great place to do business – but it isn’t the simplest. A complex tax structure, political instability, and some cultural specifics mean that having expertise in the ins and outs of Colombian payroll is absolutely essential. A lawyer and accountant for the set-up process is a great starting point, but in the longer term, we would also recommend partnering with a global payroll expert who can give you access to vital know-how and compliance advice.

This article is for informational purposes only and not intended to convey or constitute legal or any other advice. It is not a substitute for advice from a qualified professional.

Scroll to Top