Understanding Colombian Paychecks – A Guide to Wages, Deductions, and Taxes in Colombia

If you are an expat, living and working in Colombia, it’s worth understanding your paycheck.  In this guide to Colombian paychecks, I will explain what may appear on your paycheck, including what is deducted from your paycheck in Colombia and some of the other financial responsibilities your employer may have to you.  Finally, we will look at an example that will show you what is deducted from your Colombian paycheck in a hypothetical situation.

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A calculator, pen, and financial document, in this guide we will show you how to use them to understand a Colombian paycheck. Image Source: Pixabay
In this guide we will explain how the deductions on your Colombian paycheck are calculated.

How You Are Paid in Colombia

Most likely, you will be paid using direct deposit and your employer should give you a letter that will help you open a bank account.  You can also be paid by check.

Quincenal vs Mensual

You will likely be paid either twice a month, on or around the 15th and the 30th, called the quincena, or once a month.  Where I work now, for example pays once a month on the 27th.  Check with your employer when you are hired about how often they pay.

Your Colombian Paycheck Explained

When you get paid, you should receive a pay stub with a breakdown of your earnings along with what was discounted (called a comprobante de pago or comprobante de nomina).  But what appears on your Colombian paycheck?  What is deducted from your Colombian paycheck?  Below, we will break down what appears on your Colombian paycheck.

Your Earnings

This is the part that is straight forward.  On the left, you should see your earnings.  If you are paid hourly, it should show up with the number of hours you worked and your hourly rate.  If you are paid a monthly wage, it will show the amount.

You may also see, payments that are not considered salary.  For example, I am given a housing allowance to use for rent.  Other things that might appear there could be a bonus or reimbursement for something.  It is important to note that things that are not considered salary affect the amount you are discounted for your health insurance and retirement fund as well as the amount you are paid for primas and cesantías (all of which we will discuss below), differently than salary.

A cartoon man fishing for money.
Employers are obligated to give you a breakdown of your income with a paystub that will help you understand your Colombian paycheck.  Image Source: pixabay

What is Deducted From Your Colombian Paycheck?

There are a number of things that may be deducted from your paycheck.  These will appear on the right side of your pay stub.  Here, we will give you an explanation of the most common paycheck deductions in Colombia.

What is the Ingreso Base de Cotización?

Before we discuss the deductions for health insurance and retirement in Colombia, we need to discuss what is called the Ingreso Base de Cotización.  This value determines how much you and your employer contribute to both.

If you only make a salary, your Ingreso Base de Cotización is simply your salary.  However, if you have other income that is not salary, you should add 40% of that to your salary to determine your Ingreso Base de Cotizaci´ón.

If you are an independent contractor, your Ingreso Base de Cotización is 40% of your income.

A spoon on top of a calculator balancing coins and a potato.
Deductions for healthcare and pension funds from your Colombian paycheck will depend on the calculation of your ingreso base de cotización.
Image source: Pixabay.

Health Insurance

By law, if you earn a salary, you and your employer must contribute to a public health insurance plan known as an EPS.  While there are different providers, there are not different premiums or benefit levels, but a set percentage of your wage.

4% of your Ingreso Base de Cotización will be deducted for health insurance (your employer will pay another 8.5%).  This should appear on your paycheck as either EPS or Fondo Salud.

Note if you are an independent contractor, you should contribute the full 12.5% of your Ingreso Base de Cotizaci´ón.

Retirement Fund

Also, by law, if you earn a salary you and your employer must contribute to a pension fund.

Again, using your Ingreso Base de Cotización, you will be deducted 4% of your Ingreso Base de Cotización for your pension fund (your employer will pay another 12%).  This should appear on your paycheck as Fondo de Pension.

Note if you are an independent contractor, you should contribute the full 16% of your Ingreso Base de Cotización.

Two men with the word tax between them superimposed on a document with a pen.
The system is a bit complex, but we give you a basic explanation of income tax in Colombia.  Image Source:  Pixabay

Fondo de Solidaridad 

If you make more than 4 times the legal monthly minimum salary (in 2018, 3,124,968 pesos), you also contribute 1% more in tax to the Fondo de Solidaridad, the subsidized public pension fund.

Retención en la Fuente

This is income tax.  It is a progressive system with different brackets.  The system is a bit complicated, but I’m going to do my best to explain the basics below.

There is this value called the UVT that changes every year (for 2018 it is 33,156 pesos), and there are formulas that determine how much you pay in retención en la fuente.  Your taxable income is calculated by first subtracting the contributions you make to your health insurance and retirement funds from your total income.  25% of the remainder is then exempted.  After subtracting that, you have your taxable income.

When your taxable income exceeds 95 UVT, you have to begin paying the tax.  For 2018, this will begin with a total income of approximately 4,500,000 pesos.  The rates scale up based on several brackets that are defined by different ranges of UVTs.

If you’d like to see a full table of the exemptions, the different brackets, and how to calculate the tax, you can do so at this link.

What are primas and cesentías?

You may also see the terms prima or cesantías listed in your earnings.  These are what are commonly referred to as prestaciones sociales and are benefits your employer is legally obligated to give you.

Primas are a bonus that all employees receive every 6 months, paid at the end of June and December.  They should be half a monthly salary (if your pay varies month to month, it should be based on the average).

If you have not worked the whole 6 months but have at least 90 days, you are still entitled to a proportion of the prima based on the time you have worked.  So say, you began working in April, at the end of June, you should get 1/4 of a monthly salary as your prima.

Clip art of money, a hand holding a money bag, and a wrapped present meant to represent the bonuses you get in Colombia called primas and cesantías.
Primas and Cesantías provide nice bonuses to your income from your Colombian paycheck. Image Source: Pixabay

Cesantías are basically an unemployment fund (hence the name, it’s for when you cease or cesa working).  Over the course of the year, an employer should save 1/12th of your monthly pay each month, for a total of a complete monthly salary at the end of the year, plus interest (1% for each month you’ve worked).

One of two things will happen with your cesantías.  If your work contract ends at the end of the year, you will be paid out the money along with the interest in your last paycheck.  This is what is called the liquidación.

If your contract continues though the new year, your employer deposits the cesant´ias and interest into a fund.  These deposits can only be done at the start of the year, which is why companies just pay it out if their contracts do not continue through the new year.

In the account, the amount will continue to earn interest.  Once your present contract is up or you no longer work at the same place, you can withdraw your cesantías or leave them to continue earning interest.

Note that any income not considered salary does not count towards the calculation of your primas or cesantías, while they will both count fully towards the amount you owe in the retenci´ón de la fuente for that month.

Vacation

All employees are also entitled to be paid for 15 vacation days.  If you are on an indefinite contract, you will need to have worked for 6 months to earn them, however if you are on a defined time, you are entitled to them regardless of the time you have worked.  These are usually paid whenever you take the vacation days (or paid out as a bonus at the end of the year or end of the contract if you didn’t take them).

Note that vacation pay also will be based only on the part of your pay defined as salary, while it will count fully towards the amount you owe in the retenci´ón de la fuente for that month.

A Hypothetical Situation

Let’s imagine you work in Colombia, and you receive a monthly salary of 2,500,000 pesos plus a housing allowance of 2,000,000 pesos.  Your pay stub should look something like this:

Ingresos (Income)Deducicones (Deductions)
Salario: 2,500,000Fondo Salud (health insurance): 132,000
Auxilio de vivienda (housing allowance): 2,000,000Fondo Pension (retirement): 132,000
Ingreso Base de Cotización: 3,300,000 (2,500,000+40% of 2,000,000) *This probably won't appearFondo Solidaridad (public retirement fund subsidy): 33,000
Retefuente (income tax): 461 (this just barely makes the cut off to have to pay)
Total Ingresos: 4,500,000Total Deducciones: 297,461
Neto a Pagar: 4,202,539

Using this example, you would receive a prima of 1,250,000 payable at the end of June and December and a liquidación or deposit into your cesantía account of 2,800,000 at the end of the year, assuming you worked the full 12 months of the year.

There you have it a full explanation of what appear on your Colombian paycheck, including deductions and periodic bonuses.  I hope you found this guide useful and it helped you better understand what does and doesn’t find its way into your bank account every month.


Interested in learning more about your Colombian paycheck?

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