General points about labor contracts in Colombia, for foreign branch offices

Hi, everyone:

With this post, I'm going to explain other insights on topics relevant for a foreign company that wants to incorporate in Colombia a branch office, particularly, in Labor Law, with their most relevant implications for Social Security, Commercial and Tax Law.

1.     Preliminary considerations

For the purposes of this document, we assume the following:

1)      As a business entity, our hypothetical client, of French origin, is set up as a joint-stock corporation (societé anonyme, S.A.), which is equivalent to the sociedad anónima in the Republic of Colombia, modality by which the shareholders have a limited liability to the extent of their share contribution.

2)     The (hypothetical) company's corporate purpose covers engineering and project management consultancy services in the building construction, infrastructure, and environment sectors; including into this scope of business activities project management, civil engineering constructions and supplying (manufacturing, imports, exports) of highly specialized equipment.

3)      The foreign company doesn’t have the need or intention of getting into joint ventures of partnerships with Colombian individuals or legal entities. Its Board of Directors have the power to incorporate branches outside the French territory. If a branch in Colombia is the choice for your company’s incorporation, the capital of the branch will be 100% of his own.

4)      The initial capital proposed for incorporation in Colombia is US $13.000,oo, and it could be increased if required for legal o business purposes. 

5)      The public contract of our hypothetical company’s interest is intended to sign with our Corporación Autónoma Regional (CAR) – Regional Autonomous Corporation of Cundinamarca – CAR Cundinamarca, being the object of the contract: consultancy services on a) Project management for the detailed design; b) construction of public works; c) supply and installation of equipment; d) start-up operation and assisted operations of optimization and expansion of the Residual Waters Treatment Plant of El Salitre (again, this is a hypothetical example. Nevertheless, I like to bring the name of a "real" project, in order to offer a more realistic context).

6)      According to reference terms from the public entity; there is a maximum of 10% score, in the 100% reserved for valuation of each proposal, related to the participation of Colombian workers in key personnel.

7)      Apart from the consideration above mentioned, there must be French key personnel who should be working in Colombia, some of them working on a regular basis, and others traveling to and from our country on business trips (missions).

8)      For the purposes of the intended contract, key personnel must be, at least, the following posts: a) Project manager; b) Construction manager; c) Design manager; d) Mechanical design supervisor; e) Civil works and architecture supervisor; f) Environmental supervisor.

9)      Other posts (not classified as key personnel), should be: a) consultants; b) chief of control lots; c) costs and scheduling supervisor; d) quality assurance supervisor; e) other managerial posts (that can be performed by one individual, if desired): management of the information system, the environmental and social system, and the risks/hazards system of the referred project.

10)   As explained in the previous post, the choice that we recommend for the hypothetical client’s incorporation in Colombia is the opening of a foreign company branch (sucursal de sociedad extranjera), which is legally an extension of the head office and thus considered the same legal person for several purposes under Colombian law.

11)   The recommended term of duration of the foreign company branch should be a minimum of five (5) years, as explained also in the previous document (company law).

12)   For the operation of the branch, is mandatory to hire a fiscal auditor (revisor fiscal), as a freelancer (as explained in the previous document), and there is the possibility to hire other personnel (accountancy, legal consultancy, etc.) with outsourcing providers, if convenient.

2. General points about labor contracts in Colombia

2.1.                    Labor contract. Definition and key elements

The Colombian Substantive Labor Code (Código Sustantivo del Trabajo, C.S.T.) defines a labor contract as a contract whereby an individual, commits himself to render a personal service for another person, whether it is an individual or a juridical person, under the continued dependence or subordination of the latter, for remuneration, and such one rendering the services is called the worker and such one who receives and pays for the service is called the employer, and the remuneration, regardless of its form, is called the salary or wage (Art. 22).

Thus, the labor contract requires the presence of the following three (3) key elements: a) a personal activity performed by the worker; b) the continued subordination or dependence of the worker with respect to the employer; this empowers the latter to demand from the worker compliance with orders related to the manner, time and quantity of work and to impose regulations connected therewith, and c) a wage as a compensation for the services. When the aforesaid elements are present, a labor contract is understood to exist, notwithstanding the name given thereto or whatever conditions or characteristics thereof (Art. 23, C.S.T.).

This explanation is very important because in order to configure a labor contract, the dependence or subordination of the worker must be continued, in such the way mentioned above.

Jurisprudence and doctrine distinguish between the labor relation (relación personal de trabajo) and the labor contract (contrato de trabajo), is the second a species of the first kind. Hence, the labor contract is not the only way to hire the services of workers, being freelancing (trabajador independiente, trabajador por cuenta propia, prestador independiente de servicios) another possibility for some workers, only if the level of subordination or dependence isn’t continued, in the sense of Article 23 C.S.T.

To put it in another way, a freelancer must perform its work with enough level of independence, despite logical the intervention of the contractor in some matters of common interest (defining the object and scope of the consultancy, etc.).

Anyway, in Colombia there is an employment contract when the personal provision of a service, payment and subordination concur. In this vein, in the presence of these three (3) elements, an employment contract exists regardless of the name that is given or what the parties have agreed. This is under the principle of the primacy of reality over forms (primacía de la realidad, contrato realidad) enshrined in Article 23 of the Substantive Labor Code and Article 53 of the Constitution.

Thus, the contract should not necessarily be in writing as it exists and generates all of its rights in favor of the employee, regardless of whether the parties have agreed otherwise.

In Colombia, the relationship does not necessarily need a written contract, because if a person proves the provision of a service, their subordination, and payment, then the law considers that an employment contract exists. Consequently, in a process in which the recognition of an employment contract is sought, the applicant shall demonstrate the occurrence of the three previously mentioned elements.

Under Colombian law, individuals can provide the following categories of services:

·         Services under an employment agreement: an employment agreement is a contract under which a person agrees to render their personal services to an employer (an individual or a company). It is characterized by the employee's subordination to the employer, and their receipt of periodical payments in exchange for the provision of services.

·         Services provided by Temporary Employment Agencies Services (TEAS): the Temporary Employment Agencies (empresas de servicios temporales, EST) are companies that provide personnel on a temporary basis to companies to assist in the company's development. Even though the user company benefits from the services provided through “mission employees”, those employees are not dependent on the company using the services and have no relationship of subordination with the company. The provider is truly independent and autonomous in the performance of their services.

·         Outsourced services: companies can receive personal services from employees by means of outsourcing. Where this is the case, the outsourcing company and the company to which the services are outsourced will complete a service agreement. For all legal purposes, the company which carries out the outsourced services is the sole employer and is therefore responsible for all legal labor obligations with the employees that provide their services. The company to which the services are outsourced is not allowed to give orders relating to the mode, time or quantity of the work either to the company from which the services are outsourced or to its employees.

·         Services from independent contractors (contratistas o trabajadores independientes, prestadores independientes de servicios): a company can execute a service agreement with an individual who works as an independent contractor. However, it must be clearly established that the performance of the contract will be carried out with technical and administrative autonomy, under the account and risk of the contractor, and therefore without a relationship of dependence or subordination to the hiring company.

2.2.                    The foreign company as an employer

May foreign employers hire employees directly in Colombian jurisdiction? Yes, because foreign companies in Colombia can always operate as long as they are legally constituted as companies in our country. Remember that a foreign branch do not have a distinct legal existence from its foreign parent company, thus the establishment of the branch means the incorporation of the head office in the territory and jurisdiction of the Republic of Colombia, for all legal purposes.

To be compelled, and to have contractual rights and obligations, they must be registered before the Chamber of Commerce and before the Directorate of National Taxes and Customs (Dirección de Impuestos y Aduanas Nacionales, DIAN; the Colombian tax authority) to obtain a tax identification number (Registro Único Tributario, RUT, as explained in previous document, company law).

After filling and providing the documents required for the establishment, the company will hire workers under the same regime of domestic firms. Labor or freelance contracts will be signed by the legal representative of the branch, in the representation of the foreign company. Thus, the foreign company will be considered as the direct employer of the worker.

There are no special or different provisions for foreign companies regarding labor law, except the need for working visas required to hire foreign people.

Articles 74 and 75 C.S.T., had established the requirement to obtain a certificate of proportionality before the Ministry of Labor (Ministerio del Trabajo) to determine the number of foreigners that an employer could hire. The above provision was intended to protect local employees (not less than ninety percent of the personnel of ordinary workers and not less than eighty percent of skilled personnel, or specialists, management personnel or persons in positions of trust, were required to be Colombians).

However, with the opening that Colombia has had promoting trade with other countries – particularly due to the FTA signed with the United States – Act 1429 of 2010 abolished these provisions, so there is currently no restriction on the number of foreigners, a company can bind.

A work visa is required relevant to the work to be performed and the time spent, as well as permission from the school or membership regulating the profession that holds the foreigner. Additionally, it is necessary to obtain an alien identification before Colombian Migration, which aims to identify the alien in national territory.

May labor or employment agreements, and the termination of those agreements, be subject to any legislation other than of Colombian jurisdiction? No. According to Article 2 of the Substantive Labor Code, standards contained in said statute apply throughout the national territory, regardless of the nationality of the inhabitants. In Colombia, the principle of lex loci solutionis or territoriality of the law applies.

Consequently, all employment contracts concluded or executed in Colombia are governed by the Substantive Labor Code, regardless of whether the parties are foreign or domestic, so it might not be subject to a different jurisdiction. Any different provision would be ineffective.

In practical terms, the situation has relevance in two major events:

1)      The French company hires a French worker, through a labor contract celebrated in France, in accordance with French laws, in order to perform the service in Colombia.

In this event, the foreign employer must be aware that the working day (jornada máxima legal, the legal standard limit, after which further working time is to be considered overtime) in Colombia is eight (8) hours per day, forty-eight (48) hours per week, the maximum anticipated worldwide by the International Labor Organization (ILO). We understand that in France, there is a thirty-five (35) hours per week limit, as of 2000.

With regard to this topic, both legislations contain exceptions for managerial positions (empleados de dirección, confianza o manejo), that allows your legal department in France to prevent some eventual conflicts derived from slight divergences between French and Colombian legislation.

To Colombian law, workers of direction, trust or management (trabajadores de dirección, confianza o manejo) cover a category reserved for the key personnel determined by the terms of reference in the bidding proposal. Directives (trabajadores de dirección) are those who perform top managerial positions; trust workers (trabajadores de confianza) are those who, without being top managers, are especially entitled to perform super vigilance activities for the employer; and management workers (trabajadores de manejo) are typically those whose scope of activities involves custody of money, trade secrets or confidential information, and other managerial functions.

In practice, key personnel hired in France (top managers and their entrusted assistants) fits into this category, allowing avoidance of paying overtime in both jurisdictions.

Another example of this should be the typical not – concurrence or not – compete clause (cláusula de no concurrencia, cláusula de no competencia), of common usage in Europe. This kind of clause (under which one party, usually an employee, agrees not to enter into or start a similar profession or trade in competition against another party, usually the employer), is not allowed in any way by Colombian legislation (Art. 44, C.S.T.).

In Colombia, also, every worker has to be affiliated to our Social Security System, and there are some mandatory benefits (noticeably, severance payments and legal bonus for services; auxilio de cesantía and prima legal de servicios), that must observe Colombian regulations. These topics will be discussed in deep in next section of this document.

Anyway, arbitrage clauses are viable in Colombian labor law (Art. 130, Código Procesal del Trabajo y la Seguridad Social, C.P. del T. y la S.S.; the Colombian labor procedural code), but only if they are agreed, in writing (compromise), after the labor contract has been signed. Arbitration clause (cláusula compromisoria) is null and void for Colombian labor law, except if stipulated previously in collective labor pacts or agreements.

2)      The French company hires a Colombian worker, through a labor contract celebrated in France, in accordance to French laws, in order to perform the service in Colombia.

Io general, this option must be avoided, because all rules regarding conditions of work, and rights or obligations of both parties, will be held to Colombian law and jurisdiction, in spite of better conditions agreed between the employer and the employee (working hours, extra-legal benefits, etc.) which will result in difficulties for interpretation and compliance of the employer’s obligations.

It’s much more practical to hire Colombian personnel in Colombia, signing a labor contract (or a freelance contract, in some special cases) under the Colombian laws and jurisdiction. Not only for avoiding conflicts of legislation, but essentially because of payment of social benefits, and compulsory affiliation of workers with the Colombian Social Security System.

Another matter to consider is the assumed fact that the foreign company or our example must be a joint-stock corporation (societé anonyme, sociedad anónima S.A.), a societal modality by which the shareholders have a limited liability to the extent of their share contribution.

Like French companies, a joint stock corporation is classified as a société de capitaux (sociedad de capital) for Colombian company and labor law, as opposed to a société de personnes (sociedad de personas), e.g., French société à responsabilité limitée, S.A.R.L., equivalent to our sociedad de responsabilidad limitada, Ltda., to which partners are jointly and severally liable (his liability limited to the amount of his shares) for litigation purposes (Art. 36, C.S.T.).

The last consideration on the foreign company as an employer is the need to ensure, in cases of outsourcing, full compliance of the outsourcing provider of services to labor law, regarding to his workers assigned to activities in the foreign company’s or the public entity's interest.

Art. 34 C.S.T., stipulates that a freelance or independent contractor is an employer of his own, and not an intermediary or representative or the company who hires his services; but, eventually, the last could be considered jointly and severally liable (with no limits in the amount of indemnity) to the eyes of labor law, unless the activity performed by the worker was strange to the business purpose of the company who hires the freelance contractor to use the services of this worker.

On this matter, public contract law demands to underwrite an insurance/endowment policy (garantía única de cumplimiento) in order to ensure this kind of risk, among others (Art. 110 – 128, Decree 1510 / 2013. Additional insurance policies should be signed between the foreign company (as a contractor) and each one of the concerned outsourcing providers of services.

2.3.                    Categories of work contracts

Work contracts in Colombia may be classified as follows:

1)      Fixed term contract (contrato individual de trabajo a término fijo) must always be in writing and for a duration not exceeding three (3) years. However, the parties may extend or renewed it indefinitely. If the fixed period is of less than one year, the contract may only be successfully extended for up to three equal or shorter periods, at the end of which the period of renewal may not be less than one year, and so on successfully.

2)      Contract for the duration of the contracted work or task (contrato individual de trabajo, por duración de la obra o labor contratada) has duration equal to the task assigned.

3)      Accidental or transitory contract (contrato con trabajadores accidentals o transitorios) has a term not greater than one month and refers to tasks other than those involved in the company’s normal activities. This kind of contract doesn’t have practical application to your case. We don’t think that this kind of contract really fits into your situation.

4)      Apprenticeship contract (contrato de aprendizaje), where an employee (or worker) renders a service to the employer, in exchange to acquire a professional formation in the art or occupation for which the employee has been hired. It could be of some usage for lower positions (draftsmen, assistants, etc.).

5)      Indefinite term contract (contrato individual de trabajo a término indefinido), a term or duration is not defined by the nature of the contracted job or task, is not stipulated for a fixed period, and it does not refer to an occasional or transitory task.

Contracts are also classified into oral and written contracts. No special form is required for its validity, in the absence of an express legal provision to the contrary. Anyway, the rule of thumb is that every labor contract that the foreign company needs to sign in Colombia must be in writing.

The following contracts and notices must always be in writing:

·         Fixed term contracts, their extensions, and dismissal or resignation notice.

·         Apprenticeship contracts.

·         Contracts signed with nonresident foreigners (nowadays, it’s not a legal obligation because Act 1429 of 2010 abolished previous regulations about this matter, but in practical terms, the document remains essential as evidence of celebration and existence of the labor contract, when applying for a work visa and other purposes).

·         Contracts whereby ten (10) or more employees (workers) are transferred to render their services outside the country (collective hiring). A typical example: enlistment of seafaring men (seamen). We assume that this kind of contract doesn’t have a practical application for our hypothetical case.

The following agreements or pacts between an employee (worker) and an employer must likewise be stipulated in writing, for formalistic and evidential purposes:

·         The trial period (periodo de prueba), i.e. the initial stage of the contract that allows the employer to evaluate the employee’s (worker) aptitudes, and to allow the employee (worker) to evaluate the convenience of the working terms (Art. 76, C.S.T.).

The trial period is the initial stage of the labor contract, and its purpose, as far as the employer is concerned, is to appraise the fitness of the worker; as far as the worker is concerned, the purpose of this period is to appraise the fitness of the working conditions.

The trial period must be agreed to in writing, and cannot last more than two (2) months. In labor contracts for a fixed period lasting less than one year, the trial period may not exceed one-fifth of the period initially agreed upon for the respective contract. During this period, either party may freely terminate the labor contract unilaterally, without being liable for any damages.

It should be mentioned, that a result of an injunction action (acción de tutela), the Constitutional Court, through Decision T – 978 of October 8, 2004, held that termination of the contract by the employer during the trial period is not fully discretionary, and this decision must be motivated, with objective demonstration of the absence of the minimum abilities for performing the task on the part of the dismissed worker.

·         The integral or consolidated salary (salario integral, Núm. 2, Art. 132 C.S.T., modified by the Art. 18, L. 50 / 1990), which constitutes a form of remunerating an employee, involves the payment of a complete sum which, besides providing remuneration for regular work, covers beforehand employee benefits, surcharges, and in general whatever other items are conventionally included therein.

When an employee chooses to adopt this mode of remuneration his / her decision must be put down in writing, or else the salary will be deemed to be traditional salary. It should be mentioned that the Court of Labor Cassation of our Supreme Court, has stated that, eventually, it could be possible to hold an integral salary that hasn’t been stipulated by writing (August 9, 2011; January 27, 2010; May 9, 2003; September 18, 1998).

·         Agreements between the parties to exclude certain allowances or extra-legal benefits from the base salary (pacto de exclusion salarial, Art. 128 C.S.T., modified by Art. 15, L. 50 / 1990). Anyway, it’s not possible to exclude more than 40% of the total amount of the retribution agreed between the employer and the employee (Art. 30, L. 1393 / 2010).

The practical difference between indefinite term contracts, fixed-term contracts, and contracts for the duration of the contracted work or task, relies on the amount of the indemnity for wrongful or unfair dismissal (despido injusto, terminación unilateral del contrato de trabajo sin justa causa, imputable al empleador, Art. 64 C.S.T.) that, in the case of indefinite term contracts, can be significantly lower compared to other modalities of labor contract, especially when referring to the fixed-term contract (we’ll explain this with a practical example as stated below).

Article 64 C.S.T., establishes the following rules to determine the wrongful dismissal indemnity:

·         For fixed-term contracts and contracts for the duration of the contracted work or task, the amount of salaries for the time pending to serve until expiration date arrives (fixed-term contract) or until the contracted work or task is finished.

·         For indefinite term contracts: the amount of the indemnity is calculated in terms or day’s wages, depending on the monthly salary earned by the worker at the time of the dismissal (if the amount of salary is variable, you must average the last four months salaries), as follows:

o   If the salary earned by the employee is less than ten (10) minimum monthly wages legally in force (salarios mínimos legales mensuales vigentes, SMMLV), the worker has the right to receive thirty (30) days of salary if his / her time of services was less than a year.

If his / her continuous time of services were more than a year, he / she has the right to receive the same thirty (30) days of salary above mentioned, plus twenty (20) days of salary for each additional year of service fully accomplished, and proportionally per the fraction of year.

o   If the salary earned by the employee is more than ten (10) minimum monthly wages legally in force (salarios mínimos legales mensuales vigentes, SMMLV), the worker has the right to receive twenty (20) days of salary if his / her time of services was less than a year.

If his / her continuous time of services were more than a year, he/she has the right to receive the twenty (20) days of salary above mentioned, plus fifteen (15) days of salary for each additional year of service fully accomplished, and proportionally per the fraction of year.

According to this, if you hire a worker with a monthly salary of US $400,oo (in Colombia, the salary can be stipulated in domestic or foreign currency), on January 1^st, 2019, for a fixed term of one (1) year (expiration date: December 31, 2014), and you decide to dismiss him without legal cause on April 30, 2019, the employee has the right to receive the equivalent to 245 days of salary (US $3.266,66).

On the contrary, if you hire a worker with a monthly salary of US $400,oo, on January 1^st, 2019, for a term indefinite, and you decide to dismiss him without legal cause on April 30, 2019, the employee has the right to receive only the equivalent to 30 days of salary (US $400,oo).

If the same worker was hired for a term indefinite, five years before (on January 1^st, 2014), and you decide to dismiss him without legal cause on April 30, 2019, the employee has the right to receive the equivalent to 116,66 days of salary (US $1.515,07), as follows: 30 days of salary (US $400,oo) for the first year fully accomplished (2014); plus 80 days of salary for the next four years fully accomplished (2015 – 2018), and 6,66 days of salary for the 120 days fully accomplished during the year 2019.

In short, the valuation of risks in terms of the indemnity for wrongful dismissal, teaches us that the fixed-term contract (or the contract for the duration of the contracted work or task) is not precisely the most suitable option if the term of duration is extended, and if the salary base for liquidation is high (certainly, in our opinion, this modality of the contract must be avoided for highly paid positions).

In general terms, the indefinite term contract offers a good equilibrium between job stability and a relatively cheap cost of indemnity for the wrongful dismissal. Hence, we recommend this modality of contract for the key personnel required by the public entity, and even for lower positions, considering the intended term of duration of the foreign company’s business in Colombia.

The contract for the duration of the contracted work or task us of common usage for hiring construction workers during civil works or activities subject to special contracts with third parties that require additional hiring only for specific work or task, and on a direct proportion to its schedule. In this case, the expiration date isn’t prefixed, but it can be determined according to the general timetable or schedule planned by the employer.

In practice, fixed-term contract is usually used for lower positions on a seasonal basis. It’s not recommended for long term relationships, as you can infer from wrongful indemnity calculations.

Referring to key personnel, there are not restrictions (age, nationality issues, gender, etc.) on who can be a manager or company director.

The Colombian authority on the matter of apprenticeship contracts, and also the responsibility of apprenticeship formation, is the National Apprenticeship Service (Servicio Nacional de Aprendizaje, SENA).

Companies who perform any kind of economic activity different from construction, who have more than fifteen (15) workers directly on its payroll; are obliged to contract apprentices according to a quota (cuota de aprendizaje) set by SENA according to D.R. 933 and 2585 of 2003, SENA Agreement 0015 and 0016 of 2003, as follows: one (1) apprentice per each twenty (20) workers, and one (1) additional apprentice per fraction of ten (10) workers or plus. Anyway, companies with a payroll between fifteen (15) and twenty (20) workers must have one (1) apprentice. Companies of less than ten (10) workers can voluntary hire one (1) apprentice on SENA’s formation.

The apprenticeship contract includes two (2) phases: working during the academic studies (fase lectiva) and working during the practice itself (fase práctica). During both phases, all apprentices must be affiliated to the health security system (with 1 SMMLV as a salary base), and must be affiliated to the hazard risk system during the practice itself.

Trough all the contract (no more than two years, continuous or discontinuous), apprentices must receive, not a salary, but instead, maintenance supports (apoyo de sostenimiento). In academic studies phase, the equivalent to the fifty percent (50 %) of 1 SMMLV, and during the practice itself, the equivalent to seventy five per cent (75 %) of said one minimum legal monthly wage.

If the employer cannot hire the apprentices he is obliged to have, it’s possible to pay a monthly quota (monetización de la cuota de aprendizaje), calculated as the multiplication of the five percent (5 %) of the total number of workers, excluding freelancers and transitory workers, by one minimum monthly legal wage (1 SMMLV).

2.4.                    Common considerations on work contracts

As an expression of continued subordination to the employer (ius variandi), a key element of the labor relation as explained earlier, the employer can:

·         Give orders and instructions at any time.

·         Change the employee's working conditions.

However, the power of subordination is limited by the Colombian Constitution, which guarantees basic minimum principles for decent working conditions.

Therefore, before making any unilateral modifications to an employee's working conditions, the employer must take certain aspects into account, such as the employee's family situation, health, place and time of work.

The employer can unilaterally make changes or transfer the employee, provided the modification complies with the following:

·         There is no reduction in salary.

·         The employee's general labor conditions and minimum rights are not lessened.

·         The decision does not cause any damage to the employee.

Not only the fixed ordinary remuneration of the worker constitutes his wage, but everything he / she receives in money which implies remuneration of his / her services, regardless of the form, or the name given thereto, such as premiums, extra pay, regular bonuses, overtime, pay for work on mandatory days of rest, percentages of sales, commissions or profit sharing.

The employer and worker may freely agree upon the methods of compensation for instance, compensation based on time unit, unit of work performed, etc., provided that the minimum legal salary (SMMLV) is always respected or such one fixed in pacts, collective bargains and arbitral awards (it’s not applicable this last provision if the company doesn’t have an union).

Board, room or clothing provided by the employer to the worker or his / her family as part of the ordinary compensation for the service rendered is regarded as wages in kind or species (salario en especie), except as otherwise agreed as contemplated under Article 15 of Law 50 / 1990; and should be expressly appraised in the labor contract and otherwise they are appraised by experts.

The benefits which are not salary are the habitual or occasional ones established by agreement or contract or granted by the employer beyond those contemplated in the law, provided that the parties have expressly agreed upon the amount of the salary in money or in-kind which does not constitute salary (pacto de exclusion salarial) as explained in previous chapter of this document.

Notwithstanding the mandatory provisions of labor law which establishes labor benefits, when a worker earns an ordinary salary exceeding ten (10) legal minimum monthly salaries, it is valid to stipulate in writing an integral or consolidated salary (salario integral), that in addition to paying for the ordinary work compensates in advance the social benefits, surcharges and allowances, such as those corresponding to night work, overtime work and work on Sundays and holidays, the legal and extra-legal bonuses, the severance pay and interest thereon, the subsidies and allowances in kind, and in general, those included in such agreement, other than vacations. In no case, shall the integral salary amount be less than ten minimum legal monthly salaries plus the factor corresponding to the benefits, which may not be less than thirty percent (30%).

Accordingly, integral salary is an option for the remuneration of key personnel, whose monthly salary exceeds the amount of 10 SMMLV. The employer pays to the worker a total sum which includes the monthly salary (no less than 10 SMMLV), and the allowance factor (factor prestacional), a lump sum that compensate in advance the social benefits, surcharges and allowances mentioned above (no less than 30% of the salary). Thus, in practice, a “minimum” integral salary can’t be less than 13 SMMLV.

Labor contracts signed with foreign non - residents in Colombia must have explicit clauses about the complete definition of the salary in kind, and the aforementioned agreement to exclude these kind of allowances from the base salary (pacto de exclusion salarial, Art. 15, L. 50 / 1990).

If employees create intellectual property (IP) rights in the course of their employment, these rules are applicable:

·         Inventions: unless otherwise agreed, all inventions created during the term of the employment using materials provided by the employer belong to the employer (Section 539, Colombia Commerce Code).

·         Trademarks: there is no specific rule for trademarks created during employment.

·         Copyright: on commissioned works (obras por encargo), Colombian copyright law doesn’t explicitly acknowledge automatic assignment by virtue of an employment relationship under an employment contract (Law 23 of 1982).

Furthermore, on common construction of this matter, it was deemed that:

o   Copyright ownership does not rest with the employer automatically.

o   Ownership of copyright is not automatically assigned to the employer by virtue of an employment relationship.

o   Therefore, any duty to later assign copyright in a given work must be included in the respective employment agreement.

The government, through decrees which are effective for the term stated therein, does fix the minimum wages for a region, profession or activity, normally after hearing mixed commissions of employees and workers. Minimum wages can also be set forth by collective pacts, collective bargains, or arbitral awards.

The ordinary workday is agreed upon by the parties, without exceeding the legal maximum, and in the absence of such agreement the maximum applies.

The legal maximum duration of the work is eight hours per day and forty-eight hours per week, with some exceptions namely those regarding activities performed by people who have functions of direction, trust or management, who are excluded from the maximum legal workday.

The rates and payments of overtime are the following: night work is paid with a surcharge of 35%, overtime for day work has a surcharge of 25% and overtime for night work has a surcharge of 75%. Pursuant to L. 789 / 2002, day work goes from 6:00 AM to 10:00 PM, and night work goes from 10:00 PM to 6:00 AM.

Sundays and national holidays are mandatory rest periods. Employees are generally not obliged to perform services these days but can still receive a salary. There are thirteen (13) national and five (5) religious holidays.

The labor hours in each day of work must be distributed in at least two sections. The employer must grant the employees a rest break that is consistent with the nature of the labor that is being performed, and the needs of the employees.

For your foreign key personnel, the integral or consolidated salary (salario integral) should be considered, because it allows paying severances to the employee directly as part of the allowance factor explained above, without incurring in penalties as explained below:

Severance pay is subject to a special regime created by Law 50 of 1993, which implies that every year the severance pay shall be calculated as of December 31 of each year, and deposited before February 15 of the following year in the severance pay fund that the employee may elect. This is the system applicable to every worker, except those with integral salary (Art. 99, L. 50 / 1990).

If the employer doesn’t deposit the severance pay in the fund, at the most as of February 14 of the following year, he is bound to pay the sum equivalent to one day of salary from February 15 to the day of effective payment; or the termination date of the contract, if he never fulfill this obligation during the life of the work relation. In that case, the causation of the aforementioned penalty ends, but the employer is due to another penalty (Art. 65 C.S.T.), this time as a consequence of refusing to pay all the salaries and allowances due to the worker at the termination date of the contract (commonly called “brazos caídos”, sit – down penalty).

Nevertheless, employers have the right to be paid their severance pay before the end of the labor contract, for using the proceeds for the acquisition or improvement of his housing facilities of for his or her matriculation, his or her spouse’s, his or her permanent companion’s or his or her children’s, in institutions of higher education.

Compensation agreed in foreign currency can be demanded in Colombian legal tender at the official rate of exchange of the date on which payment must be effected.

It should be noticed, that the Court of Labor Cassation of our Supreme Court has stated the following in regard to payments of labor claims originated as a consequence of the termination of the labor contract: in this event, the payment may be demanded in Colombian legal tender at the official rate of exchange of the termination date, not the date on which payment has been effected (after several years of litigation, for example). Appeals of April 6 and December 7, 1988; June 13, 1990; and February 11, 1994.

Pregnant workers are entitled to a leave of absence of twelve (12) weeks with pay during the period of childbirth. The worker may assign one (1) week to her spouse or permanent companion and in this case, the leaves of absence is reduced to eleven (11) weeks.

Law 755 of 2002 established that the father spouse or permanent companion of a woman giving birth, is entitled to four (4) days of leave of absence, if he and not the woman, is the only one contributing to the general health social security system; and that he is entitled to eight (8) days to leave of absence if both he and the mother are contributing to such system.

Every kind of business organization is bound to pay to its workers, except to those occasional or transitory ones, a special semester service bonus (prima legal de servicios), consisting of a month of salary, as follows: fifteen (15) days on the last day of June and fifteen (15) days in the first twenty (20) days of December. A bonus is payable to those who work during the whole semester, and proportionally to the worked time of the semester when they have not worked the complete period.

Workers who rendered their services for one year have the right to a vacation (vacaciones anuales remuneradas) of fifteen (15) consecutive working days with pay. The purpose of the vacation is that the worker may have a rest and can recover the energies he has put into his work during the year. When the labor contract terminates and the worker has not enjoyed his vacation, compensation in money may be made for each complete year of service and pro-rata for portions of a year. Employees of temporary services organizations, who may be working on a mission, have the right of compensating in money, irrespective of the time worked.

Social benefits differ from wages in terms of purpose. While wages aim to directly pay for the work actually rendered, social benefits intend to give the worker some personal, family and social conditions and improvements which are socially desirable.

Social or fringe benefits may be classified under two groups: ordinary benefits, which are payable to all employees, and some special benefits, which are payable by some employees, depending on their capital or assets. For the purpose of determining these benefits and the amount, an employer is bound to pay, the capital of an enterprise is understood to be the taxable assets declared the preceding year. The employer must provide evidence of this since otherwise it is assumed that he has sufficient capital to pay the full social benefits claimed.

The following are some of the ordinary benefits: occupational hazards and occupational illness, monetary benefit for nonoccupational sickness, maternity benefits and protection of minors, burial expenses for the worker and severance pay.

Among the special social benefits, the following may be listed: a retirement pension; medical, pharmaceutical, surgical and hospital care in case of non-occupational sickness; mandatory collective life insurance; service bonus; benefits regarding workers engaged in special activities such as construction, oil fields, gold, silver and platinum mines, agricultural workers, livestock and forestry enterprises.

Every employment relationship allows the parties to terminate the labor agreement unilaterally without cause and prior notice. However, if an employer unilaterally terminates an employment agreement, they must begin a disciplinary action to guarantee the employee's right of defense and due process. If this process is not performed, it can be concluded that the contract was terminated without just cause and that the employer must pay the corresponding compensation.

Under a fixed-term contract, the employer should notify the employee thirty (30) days before the termination of the contract, to avoid its automatic renewal on the same terms. Additionally, under some of the clauses for termination with just cause (causes that don’t cause indemnity in favor to the dismissed worker), the employer is obligated to give a fifteen (15) days’ notice prior to the termination of the employment contract (Article 7 of Decree 2351 of 1965).

It must be noticed that the terminating party is responsible for indemnifying the damage, which includes consequential damages and loss/reduction of remuneration caused. If the employer is responsible for contract termination, the amount of indemnity is valued according to Article 64 of the Substantive Labor Code. An example of this valuation has been shown earlier in this document, comparing the differences between fixed-term and indefinite-term contracts.

On the other hand, if the employee is the one who resigns or is dismissed, the employer doesn’t have the right to demand any indemnity (except if the employer suffers unfair damages as a result of the resignation or dismissal, i.e., when crimes, intentional damages to the company’s property or unfair disclosure of confidential information is committed by the worker; in these cases, the employer can retain the severances until ordinary justice defines, Art. 250 C.S.T.).

Pursuant to Article 29 of Law 789 of 2002, if upon the termination of the contract, the employer does not pay the worker the wages and benefits to which he is entitled, except in cases of withholding authorized by law or agreed to by the parties, he/she/it is obliged to pay to the worker, by way of damages, an amount equal to the last daily wage of the worker for each day of delay, during a term up to twenty-four (24) months, or if the delay is shorter than such term, to pay such daily wage for such shorter term. If within such term of twenty-four (24) months the worker has not brought up a suit in the labor jurisdiction through an ordinary legal action for compensation of damages on the ground on the lack of full payment at termination, the employer is bound only to pay interests at the highest rate certified by the Financial Superintendence, applicable to credits freely allocable.

It must be noticed that previous rule applies for workers who earn more than the minimum legal wage. If the worker earns exactly this amount or less (part-time workers, or day laborers), the employer is obliged to pay to the worker, by way of damages, an amount equal to the last daily wage of the worker for each day of delay, until effective payment is performed (regardless of the date of compliance of employer’s obligation).

The employer must inform the employee as to the payment of the contributions related to social security and payroll taxes, attaching the supporting vouchers therein, within the sixty (60) days following the termination. This report implies the burden of proving effective payment. If the employer fails to observe this obligation, the employer is obliged to pay to the worker, by way of damages, an amount equal to the last daily wage of the worker for each day of delay, until effective payment, is performed (regardless of the date of compliance of employer’s obligation).

According to the Supreme Court of Colombia, indemnity for the employer’s omission on paying to the worker the wages and benefits to which he is entitled, and indemnity for the employer’s omission on proving to the employee as to the payment of the contributions related to social security and payroll taxes explained above are mutually exclusive.

Prior authorization from the Ministry of Labor is required for collective dismissals (as will be explained below in this report), and dismissal of employees under special employment protection:

·         Persons with disabilities (Art. 137, L. 12 / 2012) and women who are pregnant or on maternity leave (Art. 240 C.S.T.) have reinforced employment protection, for example, they cannot be dismissed or relocated by their employer without due cause and judicial authorization. If the employer fails to comply with this obligation, he is obliged to pay to the worker an indemnity of one hundred and eighty days (180) of wage, additional to all the others that the employee is entitled by law as a consequence of the unfair dismissal.

·         Additionally, there are some special protections that are granted to members of unions, as a consequence of the protection of the right to form unions which is expressly provided in the Constitution (as will be explained below in this report).

Social security contributions are those that have to be passed over to Organizations Providing Health Services and to Retirements Pension Funds, for the health care and the building up of the future retirement pensions of the employees. The payroll taxes are the contributions mandatorily payable to the Family Welfare Institute (Instituto Colombiano del Bienestar Familiar, ICBF), the National Apprenticeship Service (Servicio Nacional de Aprendizaje, SENA) and the Family Subsidy Funds (Cajas de Compensación Familiar), and are based on the payroll of the employer.

Parafiscal payments or payroll taxes are payments based on the payroll of a business organization, which have a special destination and are payable to specially designated parafiscal entities. In Colombia such payroll taxes are:

1)      Contributions for the integral social security system: In Colombia, the so-called integral social security system (Sistema de Seguridad Social Integral) involves:

a)      General retirement pensions system (Sistema General de Pensiones): under Colombian Law (Act 100 of 1993), there are two (2) regimes for handling pensions system: the Medium Premium Regime (Régimen de Prima Media con Prestación Definida, RPM), and the Individual Savings Regime (Régimen de Ahorro Individual con Solidaridad, RAIS). The medium premium regime is handled nowadays by Colpensiones, and the individual savings regime is managed by the private retirement pension funds.

The contribution rate is 16 % of the salary perceived by the worker (remember what has been stated about agreements between the parties to exclude certain allowances or extra-legal benefits from the base salary, Art. 128 CST). On said amount, employers are bound to pay 12 % and employees 4 % (Art. 3, L. 797 / 2003; D. 4982 / 2007).

b)      General health social security system (Sistema General de Seguridad Social en Salud): the system is handled, for employees and their families (contributive regime) by the Health Promoting Entities (Empresas Promotoras de Salud, EPS).

The contribution rate is 12,5 % of the salary perceived by the worker (remember what has been stated about agreements between the parties to exclude certain allowances or extra-legal benefits from the base salary, Art. 128 CST). On said amount, employers are bound to pay 8,5 % and employees 4 % (Art. 10, L. 1122 / 2007).

It must be noticed that as a result of our latest Tax Reform (Art. 25, L. 1607 / 2012, and Art. 7, D. 1828 / 2013), and with the aim to promote formal employment, foreign companies who are income and complementary tax’s registered (declarantes del impuesto sobre la renta y complementarios) for Colombian source’s incomes made through branches or other kind of permanent establishments; are exempted to pay the employer’s contribution to this payment (8,5 % of the salary), only when applying to workers whose salaries are 10 SMMLV or less.

c)       General occupational hazards system (Sistema General de Riesgos Laborales): the purpose of this system is to prevent and protect employees from accidents and illnesses that may arise from or as a consequence of the work they perform, and to take care of such workers which may suffer those accidents or illnesses. The system is handled by Life insurance companies (Empresas Administradoras de Riesgos Laborales, ARL) especially authorized for the purpose by the Financial Superintendence.

The contribution rate, all paid by the employer, varies from 0,522 % and 6,960 % of the salary perceived by the worker, depending of the level of occupational hazard (five levels) assigned to the company in regard to its corporative purpose (remember what has been stated about agreements between employers and workers to exclude certain allowances or extra-legal benefits from the base salary, Art. 128 CST), as it’s defined by Article 13 of Decree 1172 / 1994.

Worker’s protection begins twenty-four (24) hours after the celebration of the labor contract. Thus, is advisable to wait for at least one o two days between the signing and the beginning of the work contract in order to assure full protection through the ARL.

2)      Contributions payable to family subsidy funds: contribution rate, all paid by the employer, is 4 % of the salary perceived by the worker (remember what has been stated about agreements between the parties to exclude certain allowances or extra legal benefits from the base salary, Art. 128 CST). According to L. 21 / 1982.

3)      Contributions to the National Apprenticeship Service: contribution rate, all paid by the employer, is 2 % of the salary perceived by the worker (remember what has been stated about agreements between the parties to exclude certain allowances or extra-legal benefits from the base salary, Art. 128 CST).

As a result of one of our latest Tax Reform (Art. 25, L. 1607 / 2012, and Art. 7, D. 1828 / 2013), foreign companies who are income and complementary tax’s registered (declarantes del impuesto sobre la renta y complementarios) for Colombian source’s incomes made through branches or another kind of permanent establishments; are exempted to pay the employer’s contribution to this payment (2 % of the salary), when applying to workers whose salaries are 10 SMMLV or less.

4)      Contributions to the Family Welfare Institute: contribution rate, all paid by the employer, is 4 % of the salary perceived by the worker (remember what has been stated about agreements between the parties to exclude certain allowances or extra legal benefits from the base salary, Art. 128 CST).

As a result of one of our latest Tax Reform (Art. 25, L. 1607 / 2012, and Art. 7, D. 1828 / 2013), foreign companies who are income and complementary tax’s registered (declarantes del impuesto sobre la renta y complementarios) for Colombian source’s incomes made through branches or another kind of permanent establishments; are exempted to pay the employer’s contribution to this payment (3 % of the salary), when applying to workers whose salaries are 10 SMMLV or less.

Apart from being informed about the amount of the different contribution, payable by employees, there are some topics of especial importance when hiring foreign employees who are going to work in the territory of Colombia:

·         According to Art. 15, L. 100 / 1993 (modified by the Art. 3, L. 797 / 2003), everyone who is working by means of a labor contract, is bounded to be mandatory affiliated to the general retirement pensions system.

·         Nevertheless, foreigner workers who by means of a labor contract stay in the country and are not affiliated to any retirement pension system in their country of origin o anyone else and freelance workers, are considered as voluntary affiliated to the Colombian general retirement pensions system (Num. 2, Art. 3, L. 797 / 2003).

·         According to Art. 157, L. 100 / 1993, everyone who is working by means of a labor contract (regardless of his / her nationality), retired persons and freelance workers with payment ability, must be affiliated to the general health social security system, in the contributive system (régimen contributivo). Foreign workers are not exempted.

·         According to Art. 2, L. 1562 / 2012, everyone who is working by means of a labor contract (regardless of his / her nationality), is bounded to be mandatory affiliated to the general occupational hazards system; as well as freelance workers hired for more than a month or whose activity has been classified as hazardous by the Ministry of Labor retired persons who are working with a labor or a freelance contract, internships, and other individuals.

Therefore, in practice, all foreign workers (freelance or with labor contract) are bounded to be affiliated to the general health social security system and to the general occupational hazards system; and don’t need to be affiliated to the general retirement pensions system, if they prove their affiliation to the equivalent entity in their country of origin or in general, in another country.

Colombian workers (those who are working by means of a labor contract) are bounded to be affiliated to the general health social security system, to the general occupational hazards system, and to the general retirement pensions system.

If they want to work with a serious company (who impedes the entrance of workers who can’t prove his / her affiliation to the ARL), Colombian freelance workers are bounded to be affiliated at least to the general health social security system, to the general occupational hazards system. In practice, they end being affiliated also to the general retirement pensions system.

In short, the employer’s economic obligations to the workers are as follows:

·         Monthly obligations: salary (with surcharges generated by overwork, work performed on Sunday and holidays; contributions to the integral social security system (general health social security system; general retirement pensions system and general occupational hazards system; family subsidy funds).

·         Semi – annual obligations: semester service bonus (prima); the employee is required to pay half salary in June and December, and in proportion per fraction to workers with a regular salary scheme.

·         Annual obligations: severance payment (cesantía; the employer is required to liquidate a salary at December 31 for each year of service and proportionately per fraction to workers with regular salary; and to deposit this payment in a private fund before February 15 of the next year); severance interest (1 % per month, 12 % per year on the amount of severance); vacation (the employer is required to recognize 15 paid working days of rest for each year of service, at an amount equal to the ordinary or regular salary).

As mentioned above, the employer is obliged to recognize to his / her employee the surcharges generated by overwork and for work performed on Sundays and holidays, as follows:

·         Overtime: Article 168 of the Substantive Labor Code provides that overtime is paid with a surcharge of 25 percent and an additional night surcharge of 75 % over the value of ordinary time. Night shift is paid with a surcharge of 35 percent on the regular hourly rate.

·         Sunday: According to article 179 of the Labor Code, as amended by section 26 of Act 789 of 2002, work on Sundays and holidays is paid with a surcharge of 75 % in proportion to the hours worked. This article also states that work on Sundays is regular when the employee works three or more Sundays during a calendar month and casual when the employee works two or fewer Sundays on the month.

If work on Sunday is regular (ie, over three Sundays in the month), then according to paragraph 2 of the above article, remuneration, on the basis that was developed on the ordinary shift, would be only of 75 % plus the mandatory rest in the next week; rest that is already included in the monthly payment.

If work on Sunday is casual (i.e., two Sundays in the month), then the compensation corresponds to 75 % of the regular day for the work done on Sunday, and the rest of one complete day on the next week, or the payment of the rest – whichever the employee chooses.

If the work on Sunday is performed on a night shift, an extra day shift or an extra night shift then the appropriate overtime percentages should be applied.

Finally, regarding tax, employees can deduct from taxes almost all expenses incurred in the payment of the Labor rights of their workers.

In addition to the benefits listed above, workers in Colombia are entitled to the following benefits, limited to workers who earn less than 2 SMMLV:

·         Clothing and labor footwear (dotación, calzado y vestido de labor): clothing and Labor footwear three (3) times a year.

·         Transportation aid (auxilio de transporte): an economic aid that aims to financially assist the worker’s displacement to the work site.

Apart from the semester service bonus (prima legal de servicios), employers may grant bonuses attached to employees’ performance but these must be deemed as salary. Every payment received by an employee as direct compensation for service is considered a salary.

Employers are responsible for the safety of their employees when at work. Employers must develop an occupational health program. To maintain and improve health and safety at work, every employer must adopt, among others, the following measures (Law 9 of 1979):

·         Installation of evacuation signals in open areas, entrances, exits, and stairs.

·         Wide and clear stairways and corridors.

·         Permanent supervision of activities in areas where chemicals, food, flammable or hazardous materials, or combustibles, are stored or handled.

·         Monitoring the proper operation and maintenance of electrical control systems.

·         Monitoring the location, accessibility and required nature of fire extinguishers, ensuring staff are trained for their appropriate use.

·         Maintaining warning signs.

·         Monitoring the availability and content of first aid kits.

Employers are obliged to notify every work accident, within twenty-four (24) hours to its Empresa Administradora de Riesgos Laborales, ARL, under penalty of being liable of the cost of indemnities.

An employee is entitled to time off in the case of illness or injury if he presents a medical certificate to his employer. Employees that suffer from illness receive 66,67 % of their salary from their employer for the first three days of absence from work. From the fourth day onwards (for a period not exceeding 180 days) compensation is received directly from the General Health Social Security System for the same percentage of the salary.

However, the Social Security Risk System must pay the employee 100 % salary for the period of absence from work, where the illness/injury either: a) due to a work-associated accident; b) results from a work – associated disease.

Part-time work does not justify less favorable treatment. The salary must be proportional to the hours worked.

In Colombia companies can review the background records of new applicants, provided that they have the applicant’s express consent. Under Colombian labor laws, employers cannot withdraw an offer of employment based on the outcome of the background checks of a candidate.

It’s usual in Colombia for companies to review the background records of new applicants for employment purposes. However, current employee reviews must follow a particular drive (such as promotions or loans). Any information concerning commercial and financial content, medical records or any personal data is restricted. Accordingly, if the employer requires this information, written consent must be given by the employee.

Enacted legislation regarding data protection establishes a prohibition on the transfer or disclosure of any personal data without proper authorization. Penalties apply when data protection regulations are violated.

There are no filings needed to be made directly with the authorities when hiring a new employee. An employer can restrict an employee’s activities during the employment (pacto de exclusividad) only if the employee agrees (Article 26 of the Labor Code). As said earlier, restriction of activities (non competency clause) is not enforceable once the employment agreement is finished.

Employees can be members of the board of directors. The employer is not required to consult its employees on company decisions. The approval of employees is not required unless otherwise stated in the company’s bylaws. An employer is only liable for the actions of its employees if the employees commit the actions while performing their duties.

Colombian law provides protection from harassment, defined as persistent and demonstrable conduct taken against an employee by a co-worker, superior or boss, with the purpose of generating fear, intimidation, terror and anguish, or of inducing that employee's resignation (Law 1010 of 2006).

Harassment generally includes any conduct capable of offending or threatening dignity, life, physical integrity or sexual freedom. The Constitution prohibits all forms of discrimination based on gender, family origin, age, language, ethnicity, religion, disability or gender orientation.

Every company must include preventative and corrective measures against labor harassment. Nonetheless, employees who have been harassed may file a complaint before the Ministry of Labor, which can be enforceable up to three years after the occurrence of the harassment.

In order to do so, companies must have an internal process for reporting, preventing and addressing labor harassment (Law 1010 of 2006). A special committee must investigate and inform the company of the necessary measures which are taken.

The internal procedure must be confidential and the identity of the accuser (or whistleblower) is protected. The employer cannot terminate the employment agreement of the accuser, informer or whistleblower (Article 11, Law 1010 of 2006) during both: the course of the investigation, or the following six (6) months after the investigation.

There are incentives and grants for employing people, most of them related to social taxes, which are granted to employers when hiring persons who are, among others: handicapped, disabled, people under 28 years old, from the military, and women over 40 years old.

Employers that hire new employees under 28 years old, women over 40 years old, handicapped people or people that are in situations of displacement or reintegration to society are able to deduct amounts paid for payroll fees from their taxes (Articles 9 to 13, Law 1429 of 2010).

Payroll fees are an additional contribution for those companies, who are obliged to pay to certain welfare entities, which amount to 9 % of the company's payroll. Such deductions apply for two or three years as of the moment in which they hire the new employee, depending on which of the conditions mentioned above is the one fulfilled by the employee hired.

In addition, other incentives are available to employers if disabled employees comprise more than 10 % of their total workforce. Benefits include (Law 361 of 1997): preferential treatment in public contracting, and tax deductions.

Nevertheless, since the objective of these incentives are to promote the increase of the company’s payroll with the population of special vulnerability (who tend to be less qualified than people demanded by the terms of reference of the public bidding), we consider that most of them are not of practical interest or application for the case studied.

In the case of employer bankruptcy, there is no fund set aside to safeguard employment debts. Once the company enters insolvency proceedings, employee credit prevails above third party and tax obligations.

2.5.                    Some issues regarding collective labor law

We consider that, although the subject is relevant for foreign companies, it isn’t necessary to go more deeply into this topic, apart from pointing out the following:

The union is an organization of workers seeking to defend and promote their social, economic and professional interests as regards their working activity. Trade unions have as their main goal the welfare of its members and generate enough strength and bargaining capacity to establish a social dialogue between employers and workers.

As regards foreign workers, as indicated in Article 2 of the Labor Code, the employment statute applies to the entire national territory. In this vein, foreign workers living in Colombia have the opportunity to belong to a union, as well as national personnel.

In Colombia, the exercise of the right of association has special protection under articles 38 and 39 of the constitution, which lists it as a constitutional right. Hence, workers are free to join together to formally constitute permanent organizations without intervention from the state or employers.

Article 38 of the Colombian National Constitution sets forth that the right of free association for the development of the different activities that people perform in society is guaranteed. Article 39 of the same legal body, says that workers and employers have the right to organize associations and labor unions, without the intervention of the government. Article 55 of said Constitution, states that with the exceptions provided in the law, the right to collective bargaining to govern labor relations is guaranteed. Finally, Article 56 of the Constitution guarantees the right to strike, except in essential public services defined by an act of Congress, and that the law shall regulate such right.

Collective labor law is regulated under the Colombian Labor Code, which includes one part dealing with individual labor relations and the other part dealing with collective labor relations. Unlike American labor law, Colombian labor law does also deal with individual labor relations matters.

In accordance with Colombian criminal provisions, it is forbidden for every person, to attempt against the right of unionization, for instance, obstructing or barring affiliation of his personnel to a labor organization; discharging (to discharge is to fire a worker), suspending or modifying the working conditions of his employees due to activities addressed to creation of labor union organizations, or adopting reprisal measures against workers in response to their accusations, testimonies or participation in investigations addressed to establish a breach of regulations protecting the right of unionization.

Regarding the obligation of employers to respect the free exercise of trade union association, Act 1493 of 2010, which amended Article 292 of the Colombian Penal Code, increased penalties for disrupting or impeding the exercise of the right of association establishing deprivation of freedom to between 1 and 2 years, with fines of between 1 and 300 times the minimum wage.

One of the different kinds of unions is the base unions (sindicatos de base), which are formed by individuals belonging to different professions and crafts or specialties, rendering their services to the same business enterprise, establishment or institution.

A labor or base union, in order to be created and to subsist, requires a minimum number of twenty-five (25) members. Thus, a typical measure that companies take if they are afraid of unionization is to avoid having such a number of personnel working in their establishment by means of a labor contract.

From the date of a workers’ meeting or assembly founding a labor union, every union by the simple fact of its foundation, is vested with legal personality. Nevertheless, every union must be registered with the registry, which for that purpose, is held by the Ministry of Labor.

Within the five (5) business days following the foundation Member’s Assembly, the union shall deliver to the Ministry of Labor a written application for the union’s registry. The following documents shall be attached to such application:

·         Copy of the minutes of the foundation of the union, signed by the participants in the meeting with the indication of their identification cards.

·         Copy of the minutes recording the election of the board of directors, signed by those who participated in an election.

·         Copy of the minutes of the meeting where the bylaws of the union were approved.

·         The counterpart of the union’s bylaws, certified by the secretary of the board of directors.

No union may act as such or carry on the activities and functions provided for under the bylaws or exercise the rights inherent to its condition, before the registry with the Ministry of Labor of the minutes related to its foundation.

By special union immunity (fuero sindical) is meant the guarantee granted to some members of the union, consisting in: that they cannot be discharged, that their working conditions cannot be impaired, and that they cannot be transferred to establishments of the same business enterprise, or to a different municipality, without just cause adjudged to a labor judge.

The following workers are covered by the special union immunity:

·         Founders of the union, from the date of the foundation up to two (2) months after the registry of the union with the Ministry of Labor, without exceeding six (6) months.

·         Workers who, prior to the union registry with the Ministry of Labor, became members of the union. They are covered by the immunity for the same period as the founders.

·         Members of the board of directors and sub directors of every union, without exceeding five (5) principals and five (5) alternates, and members of sector committees without exceeding one principal and one alternate. This immunity is effective during the time of their mandate and six (6) months more.

·         Two (2) members of the claims commission contemplated by the bylaws, appointed by the unions enjoy the immunity for the same period as that of the members of the board of directors and six months more, being stated that more than one (1) claim commission may not exist.

A judge must deny permission applied for by an employer to discharge a worker protected by the immunity, or to demote or transfer him, if the employer fails to prove the existence of just cause, which are a) liquidation or definite shutdown of the business enterprise or establishment and the total or partial suspension of activities of the employer for more than one hundred and twenty (120) days; and b) The just causes for termination (dismissal) of the labor individual contract by the employer, contemplated in the labor code.

By the way, Article 61 of the labor code (modified, Art. 5, L. 50 / 1990), statutes several motives or causes to put a labor contract into an end, without indemnity to the worker. One of these legal causes are the liquidation or definitive closure of the enterprise or the establishment (lit. e), or suspension of the employer’s activities for more of one - hundred and twenty (120) days (lit. f).

In these two events, the employer must ask for permission to the Ministry of Labor and information to its employees of the fact that constitutes the cause for the contract’s termination. The Ministry of Labor will decide about the permission in a term of two (2) months. If the permission is granted, the company can terminate the contracts with their workers, without generating the indemnity of Article 64 C.S.T.

Hence, if the foreign company wants to end its business activity in Colombia, it must follow this procedure in order to terminate all the labor contracts currently in force with their Colombian personnel, no matter if they are or not unionized. This is another reason for encouraging the use of the indefinite term contract as a main modality of work contract with Colombian personnel.

2.6.                    Outsourcing and temporary workers

Temporary employment agencies services (TEAS) and outsourcing companies are the employers of temporary and agency workers. In Colombia, it’s only possible to hire temporary workers through TEAS in the following cases:

·         When the labor to be performed is occasional, accidental or transitory.

·         When the person is hired to replace personnel.

·         When the person is hired to respond to increases in production, sales, transport needs, or in harvesting seasons or seasons of special needs in the rendering of services. This type of contract is valid for six (6) months and can be renewed for a further six (6) months.

The TEAS and outsourcing companies must comply with Colombian labor legislation regarding temporary or agency workers.

If the TEAS or outsourcing company don’t fully comply with these stipulations, the receiving company may be deemed as the real employer and therefore liable for obligations regarding salaries and social security, among others.

TEAS agency workers are entitled to both:

·         A salary equivalent to their colleagues who perform the same activity.

·         All the extra-legal benefits that the end-user has established regarding entertainment, nourishment, and transportation (among others).

Outsourcing in Colombia is permitted but is subject to restrictions due to abuses committed in the practice that led to the violation of workers’ labor rights.

With the enactment of Act 1429 of 2010, the government promoted the formalization of employment prohibiting the development of work of the ordinary course of the business through pre – cooperatives or associated labor cooperatives, or through any other figures that disregard labor and employment rights and the guarantees of workers.

Meanwhile, Decree 2798 of 2013 according to the prohibition contained in article 63 of Act 1429 of 2010, provides that “the use of partnerships, associations, corporations, foundations and contracting of services of collaboration and management of human Resource, Temporary Service Companies, Collaboration Services Companies, or individuals, that use forms of engagement involving unawareness or violation of constitutional labor rights, statutory and non – statutory, individual or collective of unions, negotiation and strike” is prohibited.

This doesn’t mean there cannot be outsourced activities, processes or sub-processes in order to improve efficiency in production' development; what is prohibited is the implementation of outsourcing schemes that promote the provision of personnel, or in which are generated irregular labor situations to allow differences between direct employees and those of the contractor when the outsourced activity is not exercised in full freedom and technical and managerial autonomy by the contractor.

However, as explained earlier, Article 34 of the Substantive Labor Code provides that when the contracted work is similar or related to the ordinary course of business of the contracting company, the latest shall respond in solidarity for the unpaid labor claims of the workers of the contractors (responsabilidad solidaria del beneficiario de la labor).

2.7.                    Visas and issues related

French and in general, European citizens don’t need visa TP – 11 (for resting and leisure activities), TP – 12 (to assist or participate in academic, scientific, artistic, cultural or sports events; to assist to work interviews with entities of the public or private sector; to assist to entrepreneurial or managerial training, business or entrepreneurial contacts, or journalism coverage) or TP – 13 (to impart specialized technical assistance, with or without labor contract, to entities of the public or private sector) for entering and temporarily staying in the Colombian territory.

In accordance with Colombian immigration laws, citizens of more than 80 countries are called “not – restricted nationality foreigners”. Foreign nationals with nationalities not included in the list of not – restricted nationality countries must request a Visitor Visa from the Colombian Consulate abroad in order to enter the Colombian territory. Article 1 of Resolution 5707, issued by the Ministry of Foreign Affairs on 5 November 2008, establishes that the nationals of the following countries do not require a visa for short trips to enter and remain temporarily in Colombia:

Germany, Andorra, Antigua and Barbuda, Argentina, Australia, Austria, Azerbaijan, Bahamas, Barbados, Belgium, Belize, Bolivia, Brazil, Brunei-Darussalam, Bhutan, Canada, Czech Republic, Chile, Cyprus, Vatican City, South Korea, Costa Rica, Croatia, Denmark, Dominica, Ecuador, El Salvador, United Arab Emirates, Slovakia, Slovenia, Spain, United States of America, Estonia, Fiji, Philippines, Finland, France, Georgia, Grenada, Greece, Guatemala, Guyana, Honduras, Hungary, Indonesia, Ireland, Iceland, Marshall Islands, Solomon Islands, Israel, Italy, Jamaica, Japan, Kazakhstan, Latvia, Liechtenstein, Lithuania, Luxemburg, Malaysia, Malta, Mexico, Micronesia, Monaco, Norway, New Zealand, The Netherlands, Palau, Panama, Papua New Guinea, Paraguay, Peru, Poland, Portugal, United Kingdom of Great Britain and Northern Ireland, Czech Republic, Dominican Republic, Romania, Russia, Saint Kitts and Nevis, Samoa, San Marino, Saint Lucia, Saint Vincent and the Grenadines, Singapore, South Africa, Sweden, Switzerland, Suriname, Trinidad and Tobago, Turkey, Uruguay, and Venezuela.

Additionally, Resolution 0928 of March 2009 establishes that citizens of Russian nationality, that wish to enter Colombia, do not require a visa.

As explained above, citizens of these countries are not required to carry out any prior activities with the Colombian authorities abroad in order to enter in the Colombian territory so long as the purposes of their trip are the same as the description of the visa’s categories: TP – 11, TP – 12 and TP – 13 according to Decree 834 / 2013.

Nevertheless, to work in Colombia, every foreigner (including European and French citizens) must obtain a temporary work visa. The foreigner must obtain a business visa if he or she plans to do business there without receiving remuneration in Colombia.

The prior approvals that a foreign national requires to work in Columbia are either a TP – 4 visa or an NE visa and a professional permit (temporary professional license, permanent professional card or a not – necessity certificate). The visas and permits are commonly used by multinationals in order to allow their executives to enter the country, so that they can conduct business activities.

1)      TP – 4 visa (temporary work visa)

This visa is issued to foreign nationals intending to work in Columbia who are employed by companies established or domiciled in Columbia. It has a duration of three (3) years and can be renewed for a further two (2) years. The temporary work visa allows multiple entries into Colombia that are not limited to a minimum period of time, as is the case with a business visa. This visa can be lost if the person to whom the visa applies is absent from the country for more than one hundred and eighty (180) days. It must be renewed before its expiry date so that the applicant’s permanence in the country is not lost.

TP – 4 visas are applicable to foreign nationals who:

o   Are hired by local companies to develop activities in their specific field, such as technicians, journalists, people from art groups and legal representatives, amongst others.

o   Are appointed by a government department or entity.

o   Are managers, technical or administrative staff of foreign private or public entities and have been transferred from abroad to assume specific posts in the company.

An online or personal application can be filed before the Colombian Ministry of Foreign Affairs, either before a Colombian Consulate abroad or before the Visas Coordination Division in Bogotá.

In strictly regulated areas, foreign nationals must obtain approval from the Professional Councils, who are responsible for regulating their respective professions. This is achieved through certificates, issued by the Professional Council, that validate the workers’ qualifications.

Foreign nationals must register at the Migration Authority (Migración Colombia) within fifteen (15) days of entering Colombia, if using any type of visa issued for a term exceeding three (3) months. Migración Colombia then issues a foreign national’s identity card, which expires at the same time as the foreign national’s visa. The card, together with the passport, must be presented when the employee travels outside Colombia; it is also used for identification purposes while the foreigner is within the Colombian territory.

If the foreign national does not register with Migración Colombia within fifteen (15) days, the foreign national may be subject to financial penalties by Migración Colombia and the visa could be canceled. The employer must also inform Migración Colombia about any foreign national employees within fifteen (15) days of the employee’s arrival and within fifteen (15) days of the termination of the labor relationship.

The procedure for study and granting this visa usually takes between thirty (30) and forty (40) business days. For Europe and Cuba, the administration costs €39, and the visa itself costs €190.

2)      NE visa (previously called the Business Visa)

The NE visa (previously called the Business Visa) is now divided into four categories (NE – 1 to NE – 4). NE – 1 and NE – 4 visas are the most commonly used.

The NE – 1 visa can be granted for up to three (3) years and the NE – 4 visa for up to five (5) years – although both are typically granted for one (1) year – , and they allow multiple entries, allowing for a maximum stay of one hundred and eighty (180) days in the country (for either continuous or discontinuous days). If an individual remains in the country beyond the authorized length of stay the visa is rendered invalid.

The following people (among others) can apply for an NE visa:

o   Traders, manufacturers or individuals who want to enter to Colombia in order to perform business interests or managements in Colombia or who are interested in investing, creating a company or establishing a commercial presence in Colombia (they must apply to visa NE – 1).

o   Legal representatives, officers, directors or executives of multinational companies, who want to enter to Colombia in order to invest or establish an enterprise (they must apply to visa NE – 4).

o   Foreigners who want to enter to Colombia on a temporary basis as a business person, within the framework of an FTA or other international agreements, in order to perform activities of business management, to promote business, to develop investments, to establish the commercial presence of a company, to promote the commerce of cross – border goods and services or other activities defined by these instruments (they must apply to visa NE – 2; for Europe and Cuba, administration costs €39, and the visa itself costs €170).

o   People who are visiting Colombia as the head, representative or member of a foreign governmental trade office that promotes economic and trade activities with Colombia (visa NE – 3).

Possession of an NE – 1 or NE – 4 visas, does not allow the holder to establish a permanent residence in Colombia, nor will they be entitled to receive a salary / wages of any kind while in Colombia.

An online or personal application can be filed before the Colombian Ministry of Foreign Affairs, either before a Colombian Consulate abroad or before the Visas Coordination Division in Bogotá.

The cost depends on the type of visa, though a NE – 1 visa has, for Europe and Cuba, administration costs €39, and the visa itself costs €286; and a NE – 4 visa has, for Europe and Cuba, administration costs €39, and the visa itself costs €239.

The procedure for study and granting this visa usually takes about 20 business days.

Any violation of Colombian immigration law enables the Director of Migración Colombia to impose financial penalties in accordance with the law in order to ensure that immigration laws are upheld. Penalties can range from between one (1) month to fifteen (15) month’s salary at the minimum wage. A foreign national not abiding by immigration law can also be deported from Colombia.

In practice, the foreign company's personnel must apply mostly to visas TP – 4, NE – 1 and NE – 4, depending on the characteristics of the mission during the establishment and operation of the branch.

In the case of foreign visitors who are exempted to ask for TP – 11, TP – 12 and/or TP – 13 visas; in accordance with Colombia immigration laws, after arrival at the airport in Colombia officers from Migración Colombia will grant the visitor a ninety (90) day term, which can be renewed for an extra ninety (90) days for a maximum cumulative period of one hundred and eighty (180) days within the same year. The following are the most common entry permits issued to visitors, which may suit to the needs of the foreign company's personnel:

1)      PIP – 6: it is recommended to foreign national travelers to hold an invitation or sponsorship letter from either their current employer or an entity in Colombia willing to sign such a letter. Upon arrival, they should state the purpose of their visit as a business, and the proper entry permit will be stamped on their passports.

2)      PIP – 7 (visitante técnico): this permit is granted for a foreign national who needs to urgently arrive at the country in order to perform a technical activity, and the company must prepare a letter written to Colombia Migration Special Administrative Unit (Migración Colombia) justifying the urgency of the trip to perform technical work. The technical entry permit is issued for thirty (30) days and cannot be renewed. Additionally, technical entry permits are only granted for a maximum of thirty (30) days within one (1) year. If the activity intended takes more than this time, the foreigner must apply for a visa TP – 13 (technical assistance).

The temporary visitor entry permit and the technical entry permit have no costs. A Technical Entry Permit takes up to three (3) business days to obtain.

2.8.                    Taxation of employment income

Every employer is obliged to deduce and to retain, for further purposes to deposit it in favor of the Directorate of National Taxes and Customs (Dirección de Impuestos y Aduanas Nacionales, DIAN; the Colombian tax authority) or in financial entities authorized; a sum of the wages paid to its workers, as an anticipatory payment of the income and complementary tax (impuesto sobre la renta y complementarios).

This tax mechanism, known as a tax deduction at source (retención en la fuente), allows anticipatory payment of his / her taxes to employees. If the employer doesn’t retain the aforementioned tax deduction at source to the employee then is considered as a jointly and severally debtor of the sum obliged to retain.

Tax deduction at source must be made by the employer or the retainer/holder agent (agente retenedor) at the moment of payment of the salary or the fees / professional fees (in the case of independent contractors or freelance workers). As a consequence, the retainer agent (being the employer, or the client or contractor of services, the last one in regard to freelancers) cannot discretionally determine the moment of deduction. The employer responsible for tax deduction at source is obliged to present on a monthly basis at authorized banks, a tax deduction at source’s declaration of the people on its payroll.

Each year, employers and other retainer agents must give a certificate of tax deduction at source to the employees on their payroll. This certificate must contain a detailed relation of every labor payments, social security deposits and tax deduction at source. This document replaces the tax declaration for employees not obliged to declare income tax return and must be kept at least for five (5) years from its date of issue. Legal entities can issue these documents in a computer continuous printed form, without needing an autograph signature.

Considerations about Colombian tax laws regarding employment income for foreign nationals working in Colombia will be explained in detail, in a further document.

Thanks a lot to everyone, and we'll see you soon in a new post.

Camilo García Sarmiento