Business leaders are increasingly turning to Colombia’s highly educated and skilled workforce to find independent contractors and round out their teams.
Approximately 46% of Colombian workers are self-employed, which is among the highest rates in Latin America and the Caribbean.
Whether you’re seeking experienced workers in technology, engineering, manufacturing, or other sectors, Colombia offers an attractive and cost-effective talent pool of freelancers to expand your global business.
However, navigating Colombia’s contractor-friendly market requires complying with evolving labor laws, or you risk fines, back pay, and reputational damage.
Key takeaways:
- Colombia maintains a clear legal distinction between contractors and employees, with worker misclassification carrying costly consequences.
- Between the Substantive Labor Code, the Constitution, and new regulations like Law 2381, employment rules in Colombia are complex and evolving.
- It’s essential to correctly classify workers and keep a paper trail of contracts, invoices, and payments to protect your business against disputes and prove the legitimacy of working relationships.
Understanding Independent Contractors in Colombia
Before recruiting Colombian workers, you must understand how Colombia defines independent contractors and employees to outline employment relationships, expectations, and contracts properly.
Independent contractors are self-employed individuals who take on contract work or projects to provide services to businesses.
Colombian independent contractors:
- Control their own work location and schedule, unlike an employee, who has their working hours dictated by an employer.
- Decide how they complete work, versus an employer managing the workers’ processes to complete projects and deliverables.
- Provide their own tools and technology, instead of receiving employer-owned resources, like laptops or mobile devices.
- Invoice for work provided, versus receiving a regular paycheck or salary.
- Work for more than one client, unlike employer requirements for exclusive services.
- Pay their own income taxes and don’t receive employee benefits and protections.
Simply put, Colombian contractors run their own businesses and are responsible for delivering work independent of oversight by an employer.
Colombian labor laws and employment authorities take this distinction seriously, and you must, too. If you classify a worker as an independent contractor but treat them as an employee, you face significant legal and financial liabilities.
Labor Laws in Colombia
Colombia has several legal frameworks to protect businesses and workers.
The Ministry of Labor, “Ministerio del Trabajo,” is the highest executive authority on labor guidelines and challenges.
The Ministry enforces labor laws, conducts audits, investigates worker misclassification, and issues penalties for companies failing to comply.
Colombia’s Substantive Labor Code
Colombia's Substantive Labor Code, the "Código Sustantivo del Trabajo," which dates back to 1950, governs employees' rights and protections.
Though the Labor Code does not regulate independent contractors, it provides a legal definition for employees to help businesses clearly delineate between employees and contractors.
Though the Labor Code does not regulate independent contractors, it provides a legal definition for employees to help businesses clearly delineate between employees and contractors.
The Labor Code is Colombia’s primary piece of labor legislation — essential reading before you hire locally.
Colombian Constitution
Colombia’s Constitution defines fundamental rights for employees, such as the right to fair pay, health protections, and social security.
These protections primarily apply to formal employees, not independent contractors, who are responsible for their own benefits and payment standards.
But, the Constitution supports enforcement efforts to protect workers from being denied benefits and protections through worker misclassification.
Decree 1072 of 2015 (Unified Labor Regulations Decree)
Decree 1072 of 2015 compiles various labor and employment rules into a single, organized framework to make them more accessible.
Decree 1072 strengthens employer compliance obligations, emphasizes contract expectations and norms, and outlines occupational risk responsibilities.
It also requires contractors completing physically risky work to enroll in Colombia’s labor risk insurance system, “Administradora de Riesgos Laborales” (ARL).
Pension and Social Securities Unit
In Colombia, employers contribute to the Pension and Social Securities Unit, “Unidad De Gestión Pensional y Parafiscal” (UGPP), on behalf of employees.
The UGPP funds benefits like the Family Compensation Fund, Family Welfare, Labor Risk, pensions, national healthcare, and more.
Employers were previously not responsible for Social Security contributions for contractors, but that is changing in some scenarios.
Colombia’s Pension Reform, or Law 2381 of 2024, introduces a phased requirement for Social Security contributions, depending on the contractor’s income level and contract type.
Starting in July 2025, businesses may be required to contribute to Social Security for contractors under specific service contracts, adding administrative and financial overhead for some companies.
Law 2381 is a strong reminder of why partnering with local compliance experts or an Employer of Record (EOR), like RemoFirst, can help you stay ahead of evolving global employment and tax regulations.
Worker Misclassification Risks & Penalties in Colombia
Why do Colombian authorities care about how workers are classified? They want to ensure workers receive benefits and protections when treated as employees.
Colombian employees are entitled to a wide variety of employer-provided benefits, like:
- Minimum wage
- Healthcare coverage
- Sick leave
- Annual leave
- Maternity leave and paternity leave
- Public holidays
- 13th-month pay
- Overtime pay
Many of these benefits come at a direct or indirect cost to businesses.
Contractors, on the other hand, pay their own taxes and don't receive employer benefits.
Businesses that classify workers as contractors to avoid paying for benefits are participating in "sham contracting."
If the UGPP determines an employer is taking part in sham contracting, they'll reclassify the worker as an employee, and the employer is responsible for back payments of Social Security contributions, late fees, and other penalties.
The business may even face criminal sanctions if the misclassification is particularly egregious or repetitive.
Plus, the employer may be sued by the wrongly classified employee for back-paid wages and benefits.
It's common for businesses to misclassify workers unintentionally by overlooking legal requirements or overstepping the boundaries of a contractor relationship.
To make sure you don’t accidentally misclassify workers, avoid giving contractors tasks or instructions that create any semblance of an employee/employer relationship. Don’t issue tools or technology to contractors, define a schedule, or micro-manage their work.
Write clear contracts and maintain these boundaries, giving contractors autonomy to control their work process and preferences.
How to Pay Contractors in Colombia
There are plenty of tools and options to pay your Colombian contractors, including:
- Digital payment platforms like PayPal, Wise, or Payoneer
- Bank transfer in Colombian Pesos (COP) if you have a Colombian bank account
- International money orders
- Global payroll processing services
Many of these options incur additional fees and are impacted by currency fluctuations and volatile exchange rates, so do your homework before choosing a payment provider.
Also, under Colombia’s foreign exchange regime, payments to independent contractors fall under the non-regulated market, meaning they don’t need to be processed through the Central Bank.
To avoid delays or scrutiny, U.S.-based companies should document payments using Form No. 5, which confirms the funds are for services, not investments.
It’s a simple step to ensure smooth, compliant cross-border transactions.
Complying With Colombian Tax and Reporting Obligations
Colombian contractors must register with the National Directorate of Taxes and Customs, “Dirección de Impuestos y Aduanas Nacionales de Colombia” (DIAN), to receive their Colombian tax number.
Contractors submit an annual income statement to the “Registro Unico Tributario” (RUT) and pay their own taxes; employers are not responsible for withholding payroll taxes.
However, companies should prepare for future audits by always maintaining a paper trail of payments to contractors.
Invoices, contracts, and communication between employers and contractors should be carefully maintained in case the UGPP or other Colombian authorities question the working relationship.
Mitigate Risk With Clear and Comprehensive Contracts
In Colombia, signing a written agreement or service contract to hire an independent contractor is not required.
However, employment agreements are always recommended to define clear expectations up front and safeguard your business from legal unknowns.
Clear and comprehensive written contracts should include:
- Project scope and deliverables
- Payment terms and timelines
- Engagement duration and renewal terms
- Clauses around intellectual property/confidentiality/non-compete
- Dispute resolution methods
- Termination clauses
A detailed contract aligns and documents project expectations, protecting both parties in the event of a dispute or legal challenge.
Consider Seeking Help From Employment & Legal Experts
International hiring comes with its own complexities; keeping up with changing laws and local requirements can feel like a full-time job.
Rather than navigating it all on your own, consider hiring local advisors or legal counsel to provide expert guidance.
Or, avoid the costs of paying multiple legal and employment advisors and simplify the hiring process by partnering with an Employer of Record (EOR).
An EOR, like RemoFirst, offers a single platform to manage contracts and payments while ensuring compliance with Colombian employment laws.
With the right partner, you gain expert guidance and a streamlined system to reduce risk, avoid costly missteps, and confidently grow your international team.
Employ and Pay Colombian Contractors With RemoFirst
Colombian contractors can give your business a competitive edge, but missteps in compliance lead to legal headaches fast. That’s where RemoFirst comes in.
We stay on top of Colombia’s evolving labor laws, so you don’t have to.
We help companies hire, manage, and pay independent contractors in over 150 countries. Whether you need a simple way to handle contractor payments or full compliance support, RemoFirst offers flexible solutions to fit your needs.
Try our free contractor management tier to easily manage onboarding and organizing your international contractor workforce.
Or, upgrade to our full-service contractor plan for just USD 25 per contractor/month to automate payments, generate compliant contracts, and meet local legal requirements — all on one platform.
Start hiring independent contractors for free, or schedule a demo to learn how RemoFirst can support your global hiring and compliance strategy.
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