Nomad Payroll

Calculate Benefits for a Domestic Employee in Colombia

Hiring a domestic employee in Colombia involves not only paying their salary but also providing mandatory benefits as required by law. Properly calculating these benefits ensures compliance with labor laws and supports your employee’s social security. Here’s a guide to understanding the main components:

1. Salary as the Base for Calculations

The benefits are calculated based on the employee’s monthly salary, which must meet or exceed the minimum wage set annually by the Colombian government. For 2024, the minimum wage is COP 1,160,000, plus a mandatory transportation subsidy of COP 140,606 if the salary is up to two minimum wages.

2. Pension Contributions

Employers must contribute 12% of the salary to the pension system, while employees contribute 4%. For example, if your domestic employee earns COP 1,300,000:

  • Employer’s contribution: 1,300,000 × 12% = COP 156,000
  • Employee’s contribution: 1,300,000 × 4% = COP 52,000

3. Health Insurance

Health insurance contributions are 8.5% from the employer and 4% from the employee:

  • Employer’s contribution: 1,300,000 × 8.5% = COP 110,500
  • Employee’s contribution: 1,300,000 × 4% = COP 52,000

4. Severance (Cesantías) and Interest

Employers are required to pay 1 month’s salary per year as severance, deposited into a fund. Additionally, they must pay 12% annual interest on the severance:

  • Severance (monthly allocation): 1,300,000 ÷ 12 = COP 108,333
  • Interest (monthly allocation): 1,300,000 × 12% ÷ 12 = COP 13,000

5. Prima de Servicios (Service Bonus)

This is equivalent to 15 days’ salary for every 6 months of work:

  • Monthly allocation: 1,300,000 × 0.5 ÷ 6 = COP 108,333

6. Vacations

Employees are entitled to 15 days of paid vacation per year. The cost can be calculated as 1.25 days of salary per month:

  • Monthly allocation: (1,300,000 ÷ 30) × 1.25 = COP 54,166

7. ARL (Occupational Risk Insurance)

Employers must enroll the employee in an ARL plan, with costs ranging from 0.522% to 6.96% of the salary, depending on the job’s risk level. For domestic employees, the usual rate is 0.522%:

  • ARL cost: 1,300,000 × 0.522% = COP 6,786

8. Parafiscal Contributions (Only if Working Over 4 Days a Week)

If the employee works more than 4 days a week, the employer must contribute 4% for family welfare funds (Caja de Compensación):

  • Parafiscal: 1,300,000 × 4% = COP 52,000

9. Taxes

Domestic employees are exempt from income taxes on their salary unless they earn significantly more than the minimum wage. However, the employer must ensure deductions for health and pension are made correctly.

Example Calculation

For an employee earning COP 1,300,000:

  • Employer Contributions:
    Pension: COP 156,000
    Health: COP 110,500
    ARL: COP 6,786
    Severance: COP 108,333
    Prima: COP 108,333
    Vacation: COP 54,166
    Total Employer Monthly Cost: COP 544,118
  • Employee Deductions:
    Pension: COP 52,000
    Health: COP 52,000
    Total Deductions: COP 104,000
  • Net Pay to Employee: COP 1,196,000

Conclusion

Understanding these calculations is essential for compliance with Colombian labor laws. Using payroll software or consulting with a labor expert can help ensure accuracy and avoid legal complications. Properly compensating your domestic employee not only meets legal requirements but also fosters a fair and supportive working relationship.