How to run international payroll for employees in Colombia (2024)
From the white, sandy beaches of Cartagena, to the bustling metropolis of Bogota—Colombia is gaining the world's attention as a great place to hire a global workforce. But before you hire employees in Colombia, you need to know how to pay them.
Running payroll in a foreign country for the first time can be complex. If you get it right, you can hit the ground running with your new employees. But if you get it wrong, you risk breaking international employment laws—and potentially facing fines, legal action, and other harsh penalties.
Below, you'll find all you need to know to run international payroll for employees in Colombia.
Step #1: Decide whether or not to create your own entity in Colombia or use an Employer of Record (EOR)
In order to hire and pay employees in Colombia, you'll need a business presence in the country. You can do this either by establishing your own legal entity, or by using an "Employer of Record" (EOR) service.
An EOR is a third party that acts as an employer on your behalf. You hire and pay employees through the EOR, and they assume responsibility for calculating and withholding taxes and complying with local labor laws (more on that below).
When, why, and how do companies use an EOR?
An EOR can be an attractive choice when a company first expands its operations to Colombia—or any other country—or makes its first international hire.
Companies can use EORs to run payroll, administer employee benefits, and navigate international compliance. Meanwhile, setting up your own legal entity can take months, and requires a significant administrative load. An EOR shoulders some of the time and resources, helping smaller companies expand internationally for the first time or get their operations off the ground more quickly.
When, why, and how do companies create their own entity?
For many companies, it makes sense to establish a legal entity if they plan on significantly scaling their operations in a new country. Creating your own legal entity becomes more cost-effective as your increase your headcount. But, your company assumes full responsibility for hiring employees and running payroll.
Rippling’s EOR is built on top of our native payroll rails, which means that when the time comes, you can move from our EOR to Global Payroll through your own entities—in minutes.
Here's how to set up your own legal entity in Colombia:
- Draft and sign a power of attorney for your authorized legal representative—someone who can be physically present in Colombia on your behalf at all times.
- Choose your company name.
- Choose the legal structure of your business.
- Write your company bylaws.
- Register with the chamber of commerce.
- Obtain tax identification (NIT).
- Open a Colombian corporate bank account using your NIT.
With Rippling, you can hire and pay Colombian employees with either method:
- Rippling offers a native global payroll system, which allows you to pay employees who work in Colombia—and around the world—in a single pay run.
- We also have our own native EOR service, which allows you to hire and pay employees in Colombia even if you haven’t set up an entity there.
Step #2: Pick a global payroll software solution
When you pay employees internationally, you have two choices of payroll solutions: global payroll processors and global payroll aggregators. You can learn about both in our guide.
- Global payroll processors, process payroll, transmit funds, and calculate and file taxes in every country through their own software. They allow you to pay international employees just as easily as you pay local ones—and you can pay your entire workforce together in a single pay run.
- Global payroll aggregators, like Deel and Papaya Global, aggregate third-party payroll providers in other countries and manually transmit your payroll files to them.
Step #3: Determine your workers’ employment status
In Colombia, like in many countries, the law categorizes employees and independent contractors differently. Before you onboard your workers (and certainly before running payroll) it's crucial to determine how your workers should be classified under Colombian law.
Misclassification carries big risks—you could be found liable for back wages, payroll taxes, income taxes, social security contributions, legal fees, and other damages if you misclassify employees as contractors.
In Colombia, the most important factors for determining whether a worker is an employee or a contractor are:
- Degree of control. Employers aren't allowed to interfere with the execution of an independent contractor's tasks. Contractors should have free agency over when, where, and how they complete their work. Employees, on the other hand, are subordinate to their employers and may have specific working hours, locations, and other conditions.
- Method of payment. Contractors in Colombia shouldn't receive regular weekly, bi-weekly, or monthly salary payments. Instead, they should be paid only after they've submitted an invoice for work they've completed. An employee's salary, on the other hand, should be paid in regular installments. Employees are also entitled to 13th-month salary payments and mandatory benefits like annual leave, sick leave, parental leave, overtime pay, and other entitlements.
Step #4: Capture your new hires’ Colombian payroll information
The next step is to enter your Colombian employees into the payroll system that you chose. For that, you'll need to collect some onboarding information from them.
Here’s the information you need:
- Name
- Date of birth
- Postal address
- Passport
- Bank statements
- Proof of health insurance coverage
You'll also need to register your company and all your Colombian employees with the Colombian social security system by electronically submitting a form per Article 3 of Decree 2390 of 2010 to the Colombian Family Institute (Instituto Colombiano de Bienestar Familiar, or ICBF), the Governmental Learning Service (Servicio Nacional de Aprendizaje, or SENA), and the Family Compensation Fund (Caja de Compensación Familiar).
Step #5: Run payroll
You have an entity (either your own or via an EOR), you’ve set up your global payroll system, and you’ve ensured your employees are correctly classified under Colombian law.
Time to run payroll! Here’s a preview of how Rippling’s global payroll system works:
Note that in Colombia, all employees must be paid in Colombian pesos (COP). Even though many employees would like to be paid in a different currency, it's illegal to run payroll transactions in USD, euros, or any other currency.
Step #6: Calculate and withhold the correct deductions for your Colombian employees
In Colombia, both employers and employees contribute to payroll taxes and social security, but it's up to the employer to withhold these deductions from each employee's income. Tax withheld from each paycheck is called retención en la fuente, and it goes toward the employee's income tax liability.
The amount of tax withheld from each employee depends on their income bracket. Colombia uses a progressive tax rate that ranges from 0-39%.
In addition to tax deductions, employers must make a monthly pension fund contribution on behalf of each Colombian employee.
Frequently asked questions about running payroll in Colombia
What are the employer costs for full-time employees in Colombia?
Employers are responsible for deducting certain taxes and social security contributions from their Colombian employees' paychecks. Find the details below:
Contribution type
Contribution amount
Pension insurance
12.00%
Medical plan
8.50%
Labor Risks
0.52% – 6.96%
Family Compensation Funds
4.00%
Family Welfare (ICBF)
3.00%
National Apprenticeship Service (SENA) (applied only on integral salary)
2.00%
What is the average salary for employees in Colombia?
The average monthly salary across industries in Colombia in 2024 is COP 4,710,000, or about USD$6.88 per hour.
However, it's important to note that pay rates in Colombia can vary widely depending on industry, education, and experience. Sectors like technology, healthcare, and finance tend to be higher paying than service and hospitality, for example.
Average monthly entry-level salaries vs manager-level salaries in Colombia's major industries
Industry
Average entry level salary (COP)
Average manager level salary (COP)
IT
2,440,000
7,680,000
Healthcare
1,470,000
20,900,000
Finance and banking
1,610,000
10,500,000
Food and beverage
2,870,000
8,910,000
Hospitality and tourism
1,370,000
10,100,000
What are the minimum wages in Colombia?
As of 2024, the monthly minimum wage in Colombia is 1,300,606 pesos.
What benefits are required in Colombia?
Mandatory benefits in Colombia include:
- Overtime pay. Employees cannot work more than 12 hours of overtime in a single working week.
- Paid time off. All employees are entitled to 15 paid vacation days for each year of service after their first year in a job.
- Parental leave, including both maternity leave and paternity leave.
- Sick leave. Employers cover the first two days, and then unlimited leave is covered by social security as long as the employee has a medical report from a doctor with prescribed rest days.
- Public holidays. These include:
- New Year's Day
- Epiphany Holiday
- St Joseph's Day
- Maundy Thursday
- Good Friday
- Labor Day
- Ascension Day Holiday
- Corpus Christi Holiday
- Sacred Heart Day
- Feast of St Peter and St Paul
- Independence Day
- Battle of Boyacá Day
- Assumption Day Holiday
- Columbus Day Holiday
- All Saints' Day Holiday
- Independence of Cartagena Holiday
- Immaculate Conception
- Christmas Day
- Severance pay, unless there was just cause for termination.
Employees can also choose payment in lieu of mandatory benefits, also called integral salary in Colombia.
What information is needed from employees to run payroll in Colombia?
In Colombia, it isn't necessary to have a written employment contract except in certain circumstances:
- If they'll have a probation period
- If it's a fixed-term contract
- If they're receiving an integral salary instead of a salary and mandatory benefits
- If they're receiving any other non-salary payments
Still, it's a good idea to have a written employment agreement (translated into Spanish) in case of any dispute with your Colombian employee. In addition to the employment agreement, you'll need the following personal information for payroll records:
- Name
- Date of birth
- Postal address
- Passport
- Bank statements
- Proof of health insurance coverage
How much does it cost to run payroll in Colombia?
This depends on your payroll software. Usually, payroll software charges per employee or per pay run. Pricing can also vary according to:
- Payroll frequency
- How many employees you have on your payroll
- How often you add and remove payees
- Any additional services you need
Can I manually run payroll for workers in Colombia?
You can always choose to run payroll manually, and many small business owners see this as a way to cut costs. However, there are risks to doing so:
- Compliance issues: Running payroll manually in Colombia, without using global payroll software, means risking human error and manual omissions. Rippling handles your compliance work for you—enforcing Colombian minimum wages and overtime rules, which can save you from heavy fines.
- Security: Processing payroll manually can pose security risks, especially if you are using spreadsheets or paper records. This increases the risk of sensitive employee information being lost, stolen, or misused.
Rippling syncs all your business’ HR data with payroll so you never have to use a calculator or manually enter data, like hours and payroll deductions. Rippling also handles your tax and compliance work.
What are payroll taxes in Colombia?
Payroll taxes in Colombia include contributions to pensions, healthcare, labor risks, Family Compensation Funds, Family Welfare (ICBF), and National Apprenticeship Service (SENA) (applied only on integral salary)—see our employer cost tables above.
Rippling can automatically sync tax deductions to payroll, and handle your tax and compliance work for you.
What are the late tax filing penalties in Colombia?
Late filing in Colombia generates a 5% penalty on the tax due for every month or fraction of a month of delay, up to 100% of the tax due. If no tax is due, the penalty is 0.5% of gross income obtained in the tax period for each month or fraction of a month that filing is late.
How do you pay contractors in Colombia?
- First, make sure they're classified correctly (you can use Rippling’s free Worker Classification Analyzer).
- Agree on payment terms with the contractor—an hourly or project rate and the method of payment.
- Collect their payroll information, including their name, birthday, address, bank account information, and proof of insurance coverage.
- Use your payroll software to pay them in COP. With Rippling, you can pay both contractors and employees in Colombian pesos, in a single pay run, without waiting on transfers or conversion.
Rippling and its affiliates do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any related activities or transactions.
