(a) No.
(b) Yes.
(c) No.
For (a), (b) and (c) the following apply:
- There are legal requirements for temporary services agencies to provide temporary employees so (i) that these agencies have a single purpose (to provide personnel) and (ii) that employees are provided only in three specific situations. Temporary employees will be deemed direct employees of the contracting entity if the legal requirements are not met.
- Any individual will be considered an employee if they (i) render personal services, (ii) receive orders/are subordinated (the employer determines how, when and where the work is performed) and (iii) receive wages for personal services. As an exception, for temporary workers provided by a temporary services agency, the user company/client (that benefits from the services) can subordinate these employees without this being a sign of an employment relationship between the user/client and the employee.
- For tax purposes, a self-employed individual will be treated as an employee. They will have the right to apply the tax exemptions and deductions allowed for employees.
(a) No.
(b) No.
(c) No.
For (a) and (c), as substance prevails over form for employment matters, contingent workers could be considered as employees for employment purposes if employment elements are present. Colombian laws regulate temporary services agencies and their employees. Article 34 of the Labor Code explains who is an independent contractor.
For (b), tax regulations consider contingent workers as employees and for deducting the payments made to them, it is mandatory to demonstrate that they, on their own, are making contributions to the social security system and the company is deducting income tax withholdings.
There are no specific developments, but with the rise in digital platform services, we are seeing an increasing global trend in case law and legislation aimed at protecting platform workers' labor rights. For more insight on these developments, along with other employment law updates, click here.
The following are the main risks from an employment law perspective:
- Misclassification of contractors: This would imply that the employee will be deemed a direct employee of the contracting entity. The employment court/judge will consider subjective analysis when determining whether an independent contractor is a de facto employee.
- Temporary services agencies (staffing agencies): Employees from temporary services agencies will be deemed direct employees if the legal limits to hire temporary employees are exceeded or not met.
- Joint and several liability with independent contractors: If the services rendered by the independent contractor are similar to those that the company/client considers as their core business activities, the company/client will be jointly and severally liable for all salaries, fringe benefits and severances to which the independent contractor's employees are entitled.
- Sanctions from the Ministry of Labor: Sanctions would apply upon verification of an illegal labor intermediation.
Misclassification claims are subjective. The probability of success will depend on the good practices followed by the company in managing the relationship with the contingent worker to avoid any confusion of misclassification or actions that could lead the judge to construe a de facto employment relationship.
There is no maximum penalty from an employment perspective regarding a misclassification claim before the labor courts.
However, sanctions from the Ministry of Labor could amount to the equivalent of 5,000 monthly minimum statutory salaries (for 2024 , COP 6.5 billion or approximately USD 1.58 million). The amount would depend on the number of employees involved in the illegal conduct, the time frame in which the illegal conduct has been taking place, the attitude of the company during the audit, etc.
Rejection of deductions for not complying with the social security payments or not applying the withholding tax accurately are the main risks.
For deducting the expense, the entity must pay social security contributions and withhold the corresponding income tax.
Rejection of deductions may produce a 35% higher income tax on the amount rejected, and an additional 10% for amending the tax return if the rejection occurs after filing the company's income tax return.
The Colombian social security system includes pension coverage. The following are the main risks from a social security perspective:
- There is a risk of unpaid or partially paid pension contributions. Pension rights are not subject to the statute of limitations.
- If, because of the misclassification, the company's contingent worker is in fact or deemed an employee, the company would automatically be deemed as breaching social security obligations and may be ordered to pay contributions for the entire period of the employee's work.
- Work-related accidents or illnesses chargeable to the employer in the event of lack of affiliation and coverage is another potential risk.
- The employer must pay outstanding social security (with the corresponding interest).
See our comment above on the social security perspective. There is no maximum limit on the potential award in case of litigation.
The order in a judicial process to pay social security contributions to the pension subsystem for the whole time the misclassified individual rendered their services, including interest, is the main risk.
Pension rights are not subject to the statute of limitations.
See our comment above on the pensions perspective. There is no maximum limit on the potential award in case of litigation.
No.