The payment of independent contractors’ social security contributions in Colombia will be now made monthly in arrears and contracting entities will be in charge of deducting and transferring the social security contributions of independent contractors. This article sets out the details of these new rules.

Author: Catalina Santos

Firm: Brigard & Urrutia Abogados

The Colombian Ministry of Health and Social Protection has issued Decree 1273 of 2018, which regulates the payment monthly in arrears of contributions to the Social Security Integral System (‘SSIS’) by independent contractors, as well as the withholding of social security contributions when a personal service agreement has been executed between an independent contractor and another party.

According to the Decree, independent contractors’ contributions to the SSIS must be paid monthly in arrears (through the Integrated Sheet of Contribution’s Liquidation ‘PILA’, for its acronym in Spanish), taking into consideration the income received during the contribution period, that is, during the preceding month. This payment scheme entered into full force and effect on 1 October 2018, which corresponds to the September 2018 contribution period.

The Decree also added a new section to Decree 780 of 2018 (the Decree that regulates the Health and Social Protection sectors) dealing with the withholding and transfer of SSIS contributions for independent contractors who have entered into personal service agreements relating to the core business of the contracting entity that is the counterparty to the agreement. The following rules now apply:

  • The base income upon which the contributions are calculated (‘IBC’) remains 40% of the monthly amount under each agreement, excluding VAT.
  • The IBC cannot be less than the minimum monthly legal wage (‘MMLW’) or higher than 25 MMLW in any circumstances.
  • When, due to the beginning or termination of a service agreement, the contribution period term is less than one month, SSIS contributions will take into account the number of days worked. In this scenario, the IBC cannot be inferior to the appropriate proportion of the MMLW.
  • If a service agreement is of undetermined duration and/or value, contributions will be calculated taking into account the amounts accrued during each contribution period.
  • The sum to be withheld is calculated by applying the percentages established in the current regulations for health, pensions and labour risks (or any that modify or replace them) to the IBC.
  • In the event that the contractor makes contributions relating to several different services, the withholding and payment of their contributions will be made separately for the amount from each one of these agreements, irrespective of whether the application of the 40% rate to the monthly amount of the agreement or agreements subject to withholding results in a sum inferior to one MMLW.
  • The contracting entity that withholds and transfers the contributions must report the start, and any suspension and termination of the service agreement through PILA.
  • The contracting entity will be financially responsible for making SSIS payments of the amounts that were not withheld or where an insufficient amount was retained, and for payment of any default interest arising from failure to comply with payment terms, without prejudice to any criminal, fiscal or disciplinary sanctions that may be imposed.
  • When there is no provision in the service agreement for payment for the services the contractor is hired to perform, the contractor will be responsible for the payment of contributions to the SSIS as well as any default interest (if applicable). In these extraordinary circumstances, the contractor must provide evidence to the contracting entity that the payment for the period in question has been made.
  • When the payments made by the contractor do not meet the total mandatory level of contributions to the SSIS, the contracting party shall inform the Special Administrative Unit of Pension Management and Payroll Contributions of the Social Security System (UGPP).
  • The contractor must pay (monthly in arrears) the full amount of contributions to the General System of Labour Risks, when the contractor’s affiliation falls within risks I, II or III (that is, where there are lower levels of risk to the contractor). Conversely, the contracting party must pay the contributions (monthly in arrears) when the contractor’s affiliation falls within risks IV or V, that is, where the contractor carries out activities that involve the highest levels of risk.
  • Withholding and payment of contributions to the SSIS for independent contractors will start from June 2019.

In order for contributions to be withheld, the Decree establishes what information contractors must supply to the contracting entity that is the counterparty to the agreement at the beginning of an agreement and whenever there is a modification that affects the amount of contributions.