How to pay international contractors in Colombia

In Colombia, workers with university degrees increased by 14% from 2009 to 2019, seeking better job opportunities and higher wages. But an economic slowdown in Colombia that began in 2014 caused many of them to look outside their country's borders for more lucrative work. For global employers, this has made Colombia an attractive place to hire employees and contractors who are well-educated and highly skilled.

But as global employment becomes more and more the norm, it's important for international companies to understand the complex nuances of international labor laws. Before you hire a contractor in Colombia, you need to ensure you know enough to comply with Colombian law—to classify them correctly, pay the right taxes, offer the right benefits, and anything else local employment laws require.

So before you sign the paperwork with your first Colombian contractor, read this step-by-step guide. Below, we'll cover some of the basics of how to hire and pay independent contractors in Colombia.

Step #1: Classify your workers in Colombia

One of the most important steps is classifying your Colombian workers—and making sure you do so correctly according to the law. While many companies see hiring contractors rather than employees as a way to avoid payroll taxes, the Colombian Pension and Social Securities Unit (Unidad De Gestión Pensional y Parafiscal or UGPP) has become more aggressive in investigating foreign businesses in an effort to make up a national social security shortfall.

In Colombia, the social security system funds the Family Compensation Fund, Family Welfare, Labor Risk, pensions, national healthcare, and more. Businesses found misclassifying their workers will be ordered to pay back all of their social security contributions and may be subject to late fees and other penalties.

Misclassifying employees as contractors can come with other penalties, including lawsuits from employees, who can take their employers to court for back wages, benefits, legal and administrative fees, and other damages.In Colombia, employment relationships are defined by the Substantive Labor Code (Código Sustantivo del Trabajo), which defines the rights and protections of employees. Independent contractors can be individuals or legal entities who are self-employed. Some of the differences are described in the table below:

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Step #2: Determine the best way to pay your contractors in Colombia

As global employment and remote work have become more common, so have ways to pay workers across international borders. You now have many options for paying Colombian contractors. Here are just a few of your choices:

Step #3: Use global payroll software to process payments for Colombian contractors 

As detailed in Step #2, there are several options for paying contractors in Colombia. But the fastest and simplest way is paying international contractors through global payroll software like Rippling.

Rippling allows you to pay both your employees and contractors around the world, in a single pay run. Check out this preview of Rippling's global payroll system:

Step #4: Ensure your Colombian contractor has the right tax information 

As an employer, you aren't required to withhold or pay any payroll or income taxes for your contractors in Colombia. They're responsible for registering themselves, filing the correct forms, filing their tax returns, and paying their taxes by the filing deadlines each year.

Here's what that process looks like:

Sound complicated? One of the benefits of processing contractor payments through a global payroll processor is offloading the paperwork—let Rippling handle the calculations, filing, and international tax compliance for you.

Frequently asked questions about running payroll for contractors in Colombia

Do you need to withhold taxes when paying contractors in Colombia?

No. Foreign companies don't have to withhold income or payroll taxes when paying contractors in Colombia. Contractors are responsible for paying all of their own taxes.

Does the Colombian minimum wage apply to independent contractors in Colombia?

No, minimum wage laws don't apply to independent contractors in Colombia.

Do Colombian contractors get benefits?

It depends. Independent contractors are still entitled to benefits provided through the social security system, like health insurance. And unlike employees who you hire indefinitely, contractors hired on a fixed-term contract are entitled to notice periods and severance pay if they're terminated without cause before the end of the contract term.

But it's a different story when it comes to employee benefits guaranteed under Colombia's labor laws. Contractors aren't entitled to these benefits, which include sick leave, annual leave, and parental leave. Contractors also aren't entitled to the common supplemental benefits that many employers offer in Colombia, like private health insurance or transportation benefits.

Can you pay contractors in Colombia in your home currency?

It’s usually best to pay international contractors in their local currency (Colombian pesos, for contractors in Colombia). However, many international contractors prefer to be paid in other currencies, such as USD. Be sure to have a written contract in place that stipulates which currency they’re going to be paid in.

Can you manually pay contractors in Colombia?

Yes, and many small businesses do in an attempt to cut costs. However, manually paying contractors, especially internationally, comes with risks:

Rippling makes payroll automatic and seamless, syncing your business' HR data with payroll so you don't have to do any manual entry. It also helps your employees and contractors all over the world get paid quickly—and compliantly.

How do you turn a contractor into an employee in Colombia?

Sometimes you need a full-time employee, despite the financial benefits of hiring contractors. But hiring employees requires even more knowledge of local labor laws—from drafting a legally compliant employment contract to calculating the right payroll deductions. 

Rippling can help you effortlessly manage contractors, and easily transition them to full-time employees when needed. Send and store employment agreements and other paperwork, handle benefits administration, run payroll, and more—Rippling does it all, so you stay compliant from onboarding to offboarding.