Hiring Employees in Colombia

We ensure your business is protected when you hire local employees.

The process of hiring employees in Colombia can often seem complex and convoluted, even by multinational companies that have previously managed businesses elsewhere. If you have made the decision to hire employees in Colombia it is important that you understand the legal and regulatory implications this may have on your business.

Our Employment Practice Group can assist your company in all aspects of the hiring process including, but not limited to:

Employment Agreements:

Drafting employment offer letters, Employment Agreements (“Contratos Laborales”) and Independent Contractor Agreements (“Contratos de Prestación de Servicios) pursuant to local law and consistent with our client’s instructions.

Key Corporate Documents:

Drafting key corporate documentation including, but not limited to, company Bylaws/ Operating Agreements (“estatutos”), Shareholder Agreements (“Acuerdos de Accionistas”), Buy-Sell Agreements, Partnership Agreements (“Contratos de Promesa de Sociedad”) and initial board resolutions (“actas de junta directiva”).

Additional Agreements:

Drafting Confidentiality Agreements (“Acuerdos de Confidencialidad”), Intellectual Property Assignment Agreements (“Contratos de Cesión de Derechos Patrimoniales del Inventor”) and other legal documentation.

Benefits:

Analyzing and drafting appropriate legal documentation in connection with company benefit plans.

Company Employee Policies (“políticas internas de la compañía”):

Analyzing internal company policies applicable to employees, independent contractors, agents and other affiliates.

Regulatory Analysis:

Analyzing applicable regulatory obligations impacting company employees including, but not limited to:

drug and alcohol testing policies;
compliance with wage and hour regulations;
discipline and discharge protocols;
employee misconduct policies;
treatment of employees with disabilities;
privacy protection regulations; and
health and safety regulations.

Risk Management Documentation:

Drafting company employee policies (“políticas internas de la compañía”), Employee Handbooks (“Reglamento Interno de Trabajo”) and other legal documentation intended to decrease overall liability for your company.

Employees vs Independent Contractors in Colombia: Key Considerations

Contractor

Who is a Contractor: A contractor is someone who (i) may provide services to you/your company on a per project basis; (ii) has no set hours; (iii) is not required to provide services from a specific location; (iv) may provide services utilizing their own equipment, tools, etc…; and (v) is not being directed/managed by you/someone in your company in connection with the provision of their services.

Contractor Obligations: If you hire a contractor they are obligated to pay their own social security and tax obligations while you/your company are only obligated to pay their service fee less any applicable withholdings.

Example: A web designer who is hired to design a website.

Employee

Who is an Employee: An employee is someone who (i) may be expected to work from a specific location; (ii) is required to work specific business hours; and (iii) is directed/managed by you/someone in your company.

Employee Obligations: If you hire an employee, you/your company will be required to pay all standard social security and tax obligations including severance assistance, interest on severance assistance, bonuses, etc… In general, hiring an employee means paying 1.4 to 1.6 times the stated salary when you take into account all the additional expenses, fees, taxes and other obligations.

Example: A secretary that manages client intake calls at your office.

Making a Decision

Dilemma: Given the expense involved in hiring employees many foreign manager/employers seriously consider entering into independent contractor agreements with individuals who will clearly be treated as employees.

Risks and Implications: While treating employees as independent contractors may be the right decision for some employers it is, in general, not a good idea to do so. Colombian law provides many legal protections to anyone working in Colombia, even to individuals who work directly with a foreign company. It is actually fairly common for a contractor to submit a complaint before the local Ministry of Labor requesting payment of unpaid salary and social security obligations. Combined with late fees and other penalties a contractor that can prove that they were treated as employees could be owed significantly more than what you/your company actually saved by entering into an independent contractor agreement in the first place.

Employment Liability

Note that any determination by an administrative law judge that you/your company owe an individual back pay and other obligations can seriously affect your business. Failure to pay will generate a debt that cannot be easily cancelled. There is even a way for ex-employees to attempt to pierce the corporate veil and sue shareholders of your company personally, shattering the limited liability protections you normally enjoy under Colombian law. Ultimately, unless shareholders of the company decide not to return to Colombia, this debt will complicate their credit, ownership of any local assets and even their visa status.

Types of employment agreements in Colombia

Fixed-Term Employment Agreements

(“Contrato de Trabajo a Término Fijo”) (Art. 46 of the Labor Code and Article 28 of Law 789 of 2002):

Types:
- Employment Agreements for One Year/ in Excess of One Year
- Select Terms;
  - must be in writing
  - prior notification is required for termination; and
  - if employer terminates without cause/without prior notice employer must pay out all salary and social security obligations through end of employment term.
Employment Agreements for Less Than One Year
- Select Terms:
  - must be in writing;
  - can only be extended up to three (3) times, for equal or shorter periods, after which the renewal term cannot be less than one (1) year;
  - prior notification is required for termination; and
  - if employer terminates without cause/without prior notice employer must pay out all salary and social security obligations through end of employment term.
Considerations:
- Employer should keep in mind the end of the employment term in order to provide proper notice for termination and avoid penalties.
- Termination without cause often involves a cost-benefit analysis given that employer will be required to pay out the rest of the employment agreement obligations.

Indefinite Term Agreements

(“Contrato de Trabajo a Término Indefinido”) (Art. 47 of the Labor Code)

Considerations:
- Indefinite Term Agreements do not specify an end date for the provision of services.
- Can be finalized in writing or verbally.
- If employer terminates without cause employer must pay out all salary and social security obligations based on the number of years employer provided services (value of pay-out will be calculated based on 30 days-worth of compensation for the first year and 20 days-worth for each subsequent year).
- Termination without cause often involves a cost-benefit analysis given that employer will be required to pay out the rest of the employment agreement obligations.

Work/Labor Agreements (“Contratos de Obra o Labor Determinada”)

Considerations:
- Work/Labor Agreements are appropriate for specific projects that have a clear beginning and a clear end.
  As soon as project is completed
- Work/Labor Agreement terminates.