Engagement with independent contractors in Colombia can be an attractive option as well, offering you a quicker and more flexible market entry. Hiring contractors can also potentially reduce tax liability, as employers are not responsible for payment of benefits.
Nevertheless, hiring foreign independent contractors doesn’t come without risk. Since they are independent by definition, the employer’s insight and control over the contractor’s activities and performance is limited. Misclassifying a contractor can also put you at risk of legal trouble if a disgruntled contractor claims they were treated as an employee and that they are deserving of back pay for benefits, and if applicable, severance pay that was not paid.
Under Colombian law, the following criteria are necessary for establishing a relationship with an independent contractor:
1. No direct subordination
The employer is allowed to examine the work done by the independent contractor, but cannot interfere in the execution of the individual tasks. Establishing a written agreement about the scope of services can help to avoid complications regarding work fulfilment. Companies may not demand any work or product related specifications outside the scope of the contract.
2. No fixed workplace or fixed hours
Colombia does not forbid a certain level of control over the working time of an independent contractor, but if you define fixed working hours or a set lunch time, your contract appears more like a normal employer-employee relationship. Make sure to keep the day-to-day work relationship flexible by guaranteeing an autonomous working environment for the contractor.
3. No fixed salary
Since there is no fixed payment for an independent contractor, payments should be based on invoices submitted by the contractor. Both parties must also pay the taxes that apply to independent contractor relationships in Colombia.
Other things to keep in mind include the duration and nature of the work performed as well as expense reimbursements. The paper trail doesn’t tell the whole story either, and it is important to make sure non-recorded activities follow the established criteria for contractors.
Each situation must be assessed separately to understand whether the relationship is truly independent. Every country has its own criteria, and it is necessary to have an understanding of local regulations.