Accessing global talent is a transformative strategy for companies navigating the complex landscape of today's tech industry. However, venturing into international hiring comes with its unique set of challenges, particularly when it comes to understanding and complying with the local labor and payroll regulations of the host country.
In this blog post, we will explore the labor and payroll laws of Colombia, which is BetterWay Devs' primary destination for hiring tech talent. Our goal is to provide an overview of the labor legal system in Colombia to help you understand its complexity. Additionally, we will offer alternatives to assist you in making informed decisions when hiring in this market.
Hiring employees vs. Hiring contractors
Before exploring labor regulations, it's crucial to understand the different hiring alternatives and their implications.
Hiring employees and contractors are distinct staffing methods, each with unique consequences. An employee is hired under a formal labor contract, where the employer typically sets work hours, locations, and tasks. The employer is also responsible for providing certain benefits, withholding taxes, and complying with labor laws.
Contrarily, hiring a contractor usually involves a business-to-business relationship. Contractors are independent, determining how, when, and where they complete their work. They manage their taxes and don't receive standard employment benefits. So, while contractors provide more flexibility, they also offer less control. Conversely, employees give the employer more control but require more responsibility.
It is a common practice for companies in the USA to hire software developers as contractors, especially when they do not have a local entity in the target country. Many companies prefer this approach to gain access to specialized talent while maintaining flexibility and control. By engaging contractors and establishing the appropriate agreements, companies can make sure that contractors receive benefits similar to those of an employee. However, it is crucial to educate yourself and seek guidance from specialized partners during this process to effectively navigate the complexities of hiring contractors.
Let's start exploring the simplest strategy to hire software developers in Colombia:
Hiring an independent contractor in Colombia involves several steps:
1. Recruiting: Finding the right fit for your company is the first step to hiring a contractor.
The recruitment process for Software Developers in Colombia can be managed either in-house or with the assistance of specialized recruiters. Local agencies, in particular, have a better understanding of the culture and effective sourcing channels, which can save time and resources. If you are seeking a trusted partner for recruiting assistance, consider BetterWay Devs.
Here are some general recommendations for recruiting Software Developers in Colombia:
- To create a positive work environment and promote your employee brand, emphasize opportunities for growth and offer a competitive salary package to attract top talent. South American developers are drawn to companies that offer interesting technical challenges and the chance to experiment, learn, and collaborate to build solutions. They also value a balance between work and family time, so the ability to enjoy local holidays is seen as an asset. Additionally, providing opportunities for continued growth through studying or obtaining certifications is highly valued.
- To secure the best candidates, it is important to move quickly and efficiently through the hiring process. The demand for software developers is high, so hiring as quickly as possible is crucial. Keep in mind that candidates are typically applying to multiple processes simultaneously, and they may still be employed. Simplifying the process will help expand your reach.
- Ensure that recruiters have a deep understanding of the technical requirements of the role they are hiring for. This will help them identify the right candidates who are a good fit for the team.
- To evaluate a candidate's technical skills and determine their suitability for a role, consider using coding tests or assessments. However, be mindful of the complexity of the tests. Consider the time availability of candidates and the fact that very complex tests may discourage senior and highly skilled developers. In such cases, a lighter technical test and interviews can help identify the best candidates.
- Assess soft skills, such as communication, teamwork, and problem-solving abilities, in addition to technical skills.
- Provide a positive experience for candidates throughout the hiring process to attract top talent and build a strong employer brand.
2. Develop a service agreement detailing the work terms and conditions. Although a written contract isn't legally mandatory, a formal agreement sets clear expectations for both parties.
3. To effectively work with independent contractors, it is important to understand the legal requirements and obligations of both parties involved in this transaction. US-based companies have the option to hire contractors in Colombia, provided they find a method for managing international payments effectively.
As previously noted, this alternative is a viable option for highly specialized positions like software developers, simplifying the hiring process internationally. If you're interested in hiring contractors and prefer to maintain control while receiving expert assistance from a local company, BetterWay Devs offers an alternative. Our approach enhances contractor support with a benefits package and voluntary compliance with employee payroll contributions. This ensures your contractors have the same benefits as employees, without the complications of a labor contract. Learn more about our services here.
Keep in mind that in countries like Colombia, healthcare and private insurance companies offer special packages with coverage that can enhance the benefits for contractors beyond the services of the public healthcare system. These packages can be provided as benefits for your employees to make your offer more attractive. For instance, companies like Sura provide life insurance coverage for diseases by offering incapacity payments, hospitalization, and other life and disease coverage. The monthly contributions can be as low as $30, depending on the contractor's income.
When it comes to additional health care insurance, Sura and Sanitas offer various alternatives to prepaid medicine. These include the Essentials Plan, which offers home doctor consultations and access to specialists at affordable rates, starting from a monthly payment of $30. They also provide the Full Coverage plan, which grants access to specialists and different treatments at no cost, for a monthly payment of $100. Companies can include these packages to enhance the benefits for their contractors, providing extended medical coverage and incapacity payments.
As mentioned, hiring contractors is the simplest method to hire software developers in Colombia. With the BetterWay Devs model, you can also enjoy additional control and extended benefits for your collaborators, including prepaid medicine and life insurance.
Alternatively, hiring employees is still an alternative for companies willing to navigate the intricacies of the labor system.
Hiring employees in Colombia
To hire an employee in Colombia, you can follow these steps:
1. Recruit candidates: Interview potential candidates to find a good match for your business.
2. Understand the contract requirements: If you plan to hire an employee in Colombia, you need to have a legal entity in the country. It is advisable to have a detailed written contract, preferably in Spanish. This contract should specify important employment terms, such as termination requirements, statutory benefits, compensation, and more.
Having a legal entity in Colombia will subject you to taxes and other regulations. It is recommended to follow this route only if you have a large operation in Colombia with at least 30 employees. Otherwise, you can use an EOR (Employer of Record) partner and pay a fee for payroll administration to simplify the process.
3. Comply with payroll and tax laws: As mentioned in the previous section, Employers in Colombia must comply with payroll and tax laws. This involves registering with the tax authorities and obtaining a Tax Identification Number (NIT). Moreover, employers are required to withhold taxes from employee salaries and remit them to the tax authorities.
4. Ensure compliance with labor laws: In Colombia, employers must comply with labor laws that include a 42-hour workweek, 15 days of annual paid vacation, worker health and safety protections, minimum wage and bonus regulations, maternity leave, and mandatory employer-provided benefits. It is important to note that the workweek has recently been reduced from 48 hours to 42 hours, and all companies are expected to gradually implement this change by 2025.
In general, there are more labor regulations in Colombia, making it a complex system to navigate. To ensure compliance and avoid fines and other penalties, it is highly advisable to seek the assistance of an expert who can provide guidance and expertise in understanding and adhering to the regulations.
5 .Consider hiring an EOR: If you don't have a legal entity in Colombia and don't want to establish one, consider hiring an Employer of Record (EOR). An EOR can assist you in hiring employees in Colombia without creating a legal entity. Schedule a consultation call to help you find the best alternative for your business.
Payroll and other contributions in Colombia
In Colombia, employers are required to make contributions to several entities, and payments are classified into three categories:
Social Security Contributions: This applies to both employers and employees and in the case of Health, it is mandatory for employers paying salaries over USD 2,900. These contributions are intended to cover health expenses, provide pension benefits, and offer coverage for diseases and accidents related to work activities.
- General Health Social Security System: 8.5%-For salaries over $2,900
- General Labor Risk System: Rate between 0.348% and 8.7%
- Pension Fund Administrator (AFP): 12%
In addition, Employees are required to make the following social security contributions as a percentage of their salary:
General pension system: 4%
General health social security system: 4%
General labor risks system: ranging from 0.348% to 8.7%
Parafiscal Contributions: These contributions are paid as a percentage of the salary, depending on the salary amount.
- Family Compensation Fund (Caja de Compensación Familiar): 4%
- National Learning Service (SENA): 2% (for salaries over USD 2,900)
- Colombian Institute for Family Welfare (ICBF): 3% (for salaries over USD 2,900)
Mandatory Benefits Contribution: Employers are required to contribute monthly to accrue benefits such as yearly extra salary (Prima), PTO, Severance, and Interest to Severance. Severance pay will be one month's salary for each year of service or a proportional amount. This contribution must be deposited in the severance fund on February 14 of the following year or paid directly to the employee when the contract ends.
- Extra salary accruals: 8.33% of the salary.
- Severance pay monthly contribution: 8.33%.
- Interest on severance pay: 1%.
- PTO Accruals: 4.17%.
Payroll Cycle: The payroll cycle in Colombia is generally biweekly and monthly, but remote employees are used to a monthly payroll cycle.
Benefits: In Colombia, mandatory employee benefits include pension, survivor benefits, short-term disability, long-term disability, healthcare, and paid time off (15 days PTO), as well as maternity and paternity leave. Supplementary employee benefits may include health insurance, life insurance, and small bonuses. Additional perks may include food vouchers, medical checkups, and birthday holidays.
In conclusion, understanding and complying with the labor and payroll laws in Colombia is essential for companies looking to hire employees or contractors in the country. By familiarizing themselves with the contract requirements, payroll and tax laws, and labor laws, companies can ensure legal compliance and create a positive working environment for their employees. Considering options like hiring an Employer of Record (EOR) or a staffing partner to legally hire contractors can also provide valuable assistance in navigating the complexities of hiring in Colombia.
By prioritizing compliance and seeking expert guidance, companies can confidently expand their operations in Colombia and access the talent they need. If you want to start this process with the help of an experienced IT staffing agency in Colombia, schedule a consultation here.
To have a better understanding of Hiring in South America, including countries, benefits, regulations, among others, read the Essential Guide to Hiring Software Developers in South America
BetterWay Devs Inbound Marketing Manager