Employee vs. Contractor: How to Classify Workers in Colombia (Quiz included) [2024]
Over the last few years, Colombia has become a global hotspot for expats and digital nomads. But if you're going to hire workers in this highly sought-after country, it's up to you to make sure you're classifying them correctly.
Misclassification harms both you and your workers—it cheats them out of employee benefits they're entitled to under Colombian law, like minimum wage, annual leave, severance pay, and other entitlements. And it leaves you exposed to government fines, back taxes, and other penalties.
Before you hire workers in Colombia, learn how to classify them correctly and stay compliant with Colombian labor and employment laws. Let's get started.
Classifying workers in Colombia
Like many other countries, Colombia categorizes employees and contractors differently. It's crucial to know the differences so you can classify your own workers correctly, as this can be the difference between running your global team without a hitch, and facing harsh legal consequences (more on those further down).
What is an employee in Colombia?
An employee in Colombia, just like many other countries, is an individual who performs work under an employment agreement. The agreement may be oral or written, full-time or part-time, temporary or permanent. The person must carry out the work personally, under the management or direction of another person, usually a business or company, in exchange for a salary.
In Colombia, labor relations are governed by the Substantive Labor Code (Código Sustantivo del Trabajo), which stipulates certain protections and rights for employees. For instance, the maximum working hours are 48 hours per week, and there's a minimum wage that employers must abide by. Workers are also entitled to certain benefits such as paid annual vacations, notice periods, and severance payments, among others.
It’s also important to note that there is a strong social security system in Colombia, to which both employers and employees contribute. Social security contributions cover health insurance, pension fund contributions, and risks at work.
What is a contractor in Colombia?
A contractor (also called “independent contractor”) in Colombia is a person or legal entity that provides services or goods to another entity under terms specified in an independent contractor agreement. They may be self-employed, a sole proprietorship, or run their own business.
Unlike employees, contractors are not covered by most labor laws in Colombia that regulate things such as working days, minimum wage, or benefits. Instead, they negotiate their own payment terms and schedules, working conditions, and deliverables with the hiring entity, all of which are stipulated in their agreement (which can be an oral agreement or a written contract).
In most cases, independent contractors are responsible for their own business expenses. They must also handle their own social security, payroll taxes, and income tax.
Worker classification overview: Employees vs contractors in Colombia
Contractors
Employees
High level of worker control.
In general, contractors have more agency over when, where, and how they complete their work.
More direction from the employer. Employees are subject to subordination and more oversight from their employer, who might require them to work specific hours or from a specific location.
Equipment and tools are typically provided by the worker.
Equipment and tools are typically owned by the company.
Not entitled to benefits. Contractors must pay their own taxes and provide their own benefits, if they want them. They aren't entitled to the same benefits as employees under Colombian law.
Entitled to benefits. Employees are entitled to certain employment benefits and protections, including minimum wage, sick leave, maternity leave, paternity leave, and public holiday. They may also receive supplementary benefits, like private healthcare.
Not subject to disciplinary action. Contractors aren't subject to disciplinary action for poor performance or misconduct. Instead, they can be terminated at any time without notice or just cause.
Can be subject to disciplinary action. Employees can be disciplined by their employers. More than that, in Colombia, employees are entitled to notice periods and severance payments when terminated, unless there's cause.
Non-exclusive services. Contractors can’t be limited to providing their services to a single company. They are allowed to work for multiple businesses at the same time.
Exclusive services. Employees can be contractually bound to work for just one company.
How to classify workers in Colombia
If you'd rather classify your Colombian workers yourself, note that Colombian labor courts and other authorities use a variety of factors—as well as looking at both the work agreement and the relationship in practice—to determine whether misclassification has occurred.
It's also important to note that, in Colombia, some factors commonly used to classify workers in other countries carry less weight. Below, we'll look at the factors that are generally considered most important and less important when determining worker classification in Colombia.
Important factors for determining employment relationships in Colombia
- Degree of worker control. In Colombia, employers aren't allowed to interfere with the execution of a contractor's tasks. Instead, contractors should have free agency over when, where, and how they complete their work.
- Method of payment. Contractors in Colombia shouldn't receive weekly or monthly salary payments—this could raise red flags that they're misclassified employees. Instead, payment should only be made after they submit invoices for work they've completed.
Less important factors for determining employment relationships in Colombia
- Duration of relationship. In some countries, an indefinite relationship between an employer and a contractor raises misclassification concerns. This is less true in Colombia, where there are no statutory limits on how long a contractor can render services to an employer.
- Nature of work performed. Contractors in Colombia can provide any service that is legal to perform under Colombian law.
- Reimbursement of expenses. While Colombian contractors should generally provide their own equipment and supplies, a clause in their contractor agreement establishing reimbursement for expenses isn't necessarily a sign of misclassification like it could be in other countries.
Do you need a written agreement establishing whether a worker is an employee or a contractor?
In Colombia, it's not required to have a written work agreement, except in certain cases:
- If they'll have a probation period
- If it's a fixed-term contract
- If they're receiving an integral salary (salary that includes benefits as part of their monthly wages)
- If they're receiving non-salary payments
However, it's still best practice to have a written agreement to protect both parties, in case a dispute arises. If you use an employer of record (EOR) service, it can automatically generate locally compliant employment contracts and independent contractor agreements (in Spanish!) for your Colombian employees and contractors.
Penalties for misclassifying workers in Colombia
As global employment has become more common, many businesses look to hire international contractors to save money by avoiding payroll taxes. However, in Colombia, amid a shortage in nationwide social security funding, the Pension and Social Securities Unit (Unidad De Gestión Pensional y Parafiscal or “UGPP”) has become more aggressive in investigating foreign companies who hire Colombian contractors to ensure they aren't misclassifying their workers.
Social security in Colombia funds the Family Compensation Fund, Family Welfare, Labor Risk, pensions, national healthcare, and more. Foreign companies that are found to have misclassified Colombian workers will have to pay their back contribution to these funds for every year of service they missed. They may also be subject to late fees and other penalties.
In addition to inquiries from the UGPP, foreign companies that misclassify Colombian workers can face lawsuits from their employees. Depending on the outcome, they may be required to pay back wages, benefits, legal and administrative fees, and other damages.
Disclaimer: Rippling and its affiliates do not provide tax, accounting, or legal advice. This material has been prepared for informational purposes only, and is not intended to provide or be relied on for tax, accounting, or legal advice. You should consult your own tax, accounting, and legal advisors before engaging in any related activities or transactions.
