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:
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.
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”).
Drafting Confidentiality Agreements (“Acuerdos de Confidencialidad”), Intellectual Property Assignment Agreements (“Contratos de Cesión de Derechos Patrimoniales del Inventor”) and other legal documentation.
Analyzing and drafting appropriate legal documentation in connection with company benefit plans.
Analyzing internal company policies applicable to employees, independent contractors, agents and other affiliates.
Analyzing applicable regulatory obligations impacting company employees including, but not limited to:
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
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.
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.
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.
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
(“Contrato de Trabajo a Término Fijo”) (Art. 46 of the Labor Code and Article 28 of Law 789 of 2002):
(“Contrato de Trabajo a Término Indefinido”) (Art. 47 of the Labor Code)