Payroll in Colombia | Payroll Process and Taxes in Colombia | Employee Benefits in Colombia

Colombia is one of the most dynamic countries in the world, with seashores on both sides (Pacific & Atlantic Ocean) of the American continent, and the second-largest country in South America with a population of around 51 million. In recent years, there has been major financial growth in Colombia leading to several multinational corporations setting up their operations in this South American country. The official currency of Colombia is the Colombian Pesos (COP).

Colombia's government is promoting foreign investment in the country as it is now becoming one of the best investment markets in Latin America. The country has political stability as well as an appealing emerging economy and a place for employers to find a competitive workforce. For payroll processing in Colombia, the employers must be observant and in compliance with the payroll laws of Colombia.

Payroll Cycle & Working Hours in Colombia

The payroll cycle in Colombia is monthly or bi-weekly. As per payroll laws in Colombia, the maximum number of hours a person can work per week is 48, usually from Monday to Friday or Monday to Saturday. If an employee is required to work at night post 10.00 PM, the pay must be 35% higher than the amount equal to the daytime salary.

Social Security Contributions For Payroll Tax in Colombia

There is a mandatory social security system for payroll tax in Colombia, to which both employers and employees must contribute as per payroll laws in Colombia. In Colombia, employers must register with various entities that are part of the social security system. The social security system in Colombia is managed by the Colombian Social Security Institute (CSS) and it is a multi-pillar system. It includes:

Pension contributions: These contributions go towards funding the country's pension system, which provides retirement benefits to eligible individuals. To fund the compulsory pension system in Colombia, the employer should contribute 12% and the employee should pay 4% of the base monthly salary.
Employees who earn more than 4 months of basic legal salaries, i.e approx COP 4 million, must contribute an additional 1% to the pension fund, which was established by payroll laws in Colombia to cover the risks of employees with limited resources. Whereas, the employees with earnings of more than 16 basic monthly salaries i.e. COP 16 million, must also contribute an extra percentage ( 0.2% to 1%) to the pension fund.

Health contributions: Colombia's healthcare system is based on a universal health insurance plan (EPS) that is used to run the public healthcare system. The EPS plan is available at a low, affordable cost to all residents. Colombia's Ministry of Health and Social Protection is in charge of regulating the General Health Social Security System (SGSS), which provides public health services to the population. In Colombia, the employee should pay 4% as a health insurance contribution while the employer should contribute 8.5% of the employee’s monthly salary.

Disability and Death contributions: It gives monetary assistance to the employees and their families in case the employee becomes disabled or dies while working. The employer must contribute approx.. 0.522% to 6.96% of the monthly salary regarding several professional risks, to protect employees against uncertainties of work-related illnesses or accidents, long-term disability, or death occurring during the employee's activity.

Employer Payroll Contribution in Colombia

Furthermore, employers must pay an additional 9% payroll tax on salary items as social security contributions only for employees earning more than 10 minimum monthly wages. This contribution applies to specific employee-related earnings.

Employer Contribution in special cases in Colombia (2022)

Employee Payroll Contribution in Colombia (2022)

Employee Income Tax in Colombia

Individuals are considered Colombian tax residents if they spend more than 183 days in the country during any given 365-day period. The tax year in Colombia is the calendar year i.e. from 1st Jan to 31st Dec. The Tax filing session in Colombia typically begins in August. There is a progressive income tax rate (0% to 39%) being followed for Colombian taxpayers under payroll in Colombia.

Colombian tax residents must pay taxes on their global earnings. Non-tax residents are only taxed on income earned for payroll processing in Colombia.

The Colombian government approved a tax reform in December 2006. This reform included the tax value unit (TVU) to measure the various thresholds that were originally set in absolute numbers and were adjusted annually by decree. Each taxing unit is worth 36,308 Colombian pesos (COP) in fiscal year (FY) 2021 and 38,004 COP in fiscal year (FY) 2022.

Income Tax Slab in Colombia for 2022.

Employee Benefits in Colombia

Employee benefits in Colombia are a combination of mandatory and optional benefits that employers provide to their employees. Mandatory benefits are those that are required by law, while optional benefits are those that employers offer at their own discretion.

Mandatory Benefits

Pension: Employers are required to contribute 12% of an employee's salary to a pension fund. Employees also contribute 4% of their salary.
Healthcare: Employers are required to provide health insurance to their employees. This insurance typically covers basic medical care, hospitalization, and prescription drugs.
Paid Time Off: Employees are entitled to 15 days of paid vacation leave per year after one year of employment. Employees also receive 18 paid public holidays per year.
Maternity and Paternity Leave: Employees are entitled to 14 weeks of paid maternity leave and one week of paid paternity leave.
Severance Pay: Employees who are terminated without cause are entitled to severance pay. The amount of severance pay depends on the length of the employee's service.

Optional Benefits

Private Health Insurance: Some employers offer private health insurance to their employees in addition to the mandatory public health insurance.
Life Insurance: Some employers offer life insurance to their employees.
Company Cars: Some employers provide company cars to their employees.
Bonuses: Some employers offer bonuses to their employees, such as performance bonuses and holiday bonuses.
Employee Perks: Some employers offer employee perks, such as gym memberships, discounts on products and services, and childcare assistance.

The specific benefits that an employer offers will vary depending on the size of the company, the industry, and the company's culture. However, all employers in Colombia are required to provide the mandatory benefits listed above.

Additional Information

Benefits are typically not taxable to employees.
Employers are not required to pay social security contributions for employees who earn less than the minimum wage.
Employers are required to make contributions to the Sistema de Protección Social (SPS), which provides social security benefits to employees who are unemployed, disabled, or retired.