Hiring freelancers in Colombia: Recent changes you need to know about to avoid legal problems

Hiring personnel in Colombia can be expensive and tedious: social contributions, lawsuits and other complications may ensue. Ongresso Accounting guides you towards the whole process.

Hiring personnel in Colombia can be expensive and tedious: social contributions for the employer are high (approx. 40% of net salary); employees need to be managed; Colombian labour courts tend to judge in favor of the employee etc.

This is why many companies prefer to hire freelancers with a so-called service contract (‘contrato por prestación de servicios’).

The advantage: no legal working relationship is established, which makes terminating such a collaboration much easier; this flexibility helps companies adjust hiring according to the workload on very short notice; the freelancer is responsible to pay his/her social security contributions therefore saving the contracting party time and money.

Until now, the obligation of the contracting party is limited to verifying that the freelancer had paid his/her social security contributions before paying for the services rendered. This can be done by requesting the freelancer’s monthly payment confirmation.

But Decree 1273 of 23 July 2018 will bring 2 important changes:

  1. Social security contributions must be paid by the end of each month (used to be at the beginning). Therefore, the contracting party needs to verify the payment of the previous month before paying any invoice issued by a freelancer.
  2. Starting June 1, 2019, social security payments for self-employed workers will have to be withheld by the contracting party when paying for their services. In other words: the responsibility to pay a freelancer’s social security is being shifted from the freelancer to the contracting party (basically same as in the case of direct employees where the employer pays their social security directly to the public entities in charge).

Result: companies will face more work, more responsibilities and more risks in their dealings with freelancers. Example: If a company doesn’t withhold the correct amount for social security before paying a freelancer’s invoice, it’ll be accountable to pay the full amount to the respective entities and could face legal consequences for evasion.

How do you calculate the correct withholding amount? On the basis of 40% of a freelancer’s invoice, deduct 12.5% for health insurance, 16% for pension and a percentage for workers compensation (depending on the risk class of the invoiced activities). Contribution payments will be made through the same electronic payment portals used for employees.

Luckily, it is still a few months until the deadline for implementation. This will give you enough time to prepare for this change.

If you have any questions regarding this or other labor-related topics, don’t hesitate to contact us.

As part of the Ongresso Accounting Service we support you in correctly applying this legislation and ensure your compliance. Please let us know if you have any questions, we’re happy to help!