Recent modifications to the system for making contributions to the Social Security System (SSS) of self-employed workers have created new challenges for the Colombian business community.
Previously, companies did not play a significant role in SSS contributions for these workers, but given that they are now responsible for these payments, Colombian businesses must now accept a new financial and administrative burden. To fulfil these new government-mandated obligations, companies must implement new internal systems for management and control of SSS payments.
Changes to the SSS contribution system is contained in Decree 1273 of 23 July 2018, which declares that private entities, public entities, mixed ownership companies (including state-owned enterprises), consortia and temporary unions (including association agreements for nationals, foreign individuals or entities participating in public procurement) will now be responsible for SSS contributions for any self-employed workers hired through personal-service agreements.
Contributions will no longer be levied and paid in advance. According to the Decree, they should be levied and paid upon the completion of the contract. In short, the contracting party of a service agreement is now responsible for executing the payment of SSS contributions via The Integrated Form for Liquidation of Contributions (Planilla Integrada de Liquidación de Aportes or PILA).
In addition, contracting parties will have the responsibility of updating the PILA for any changes in the self-employed worker's status, such as through the commencement, suspension or termination of the agreement.
These obligations carry big challenges to national and foreign entities, given the administrative and internal adjustments that will be required to comply with the new law. Before this Decree, self-employed workers were required to pay their own SSS contributions, and the role of the contracting party was limited to requesting evidence of SSS contribution payments.
One of the biggest challenges created by this new regulation will be the gathering and processing of the material needed by the contracting party to determine the amount to be levied. Since the maximum income base allowed for SSS contributions in total is up to 25 legal minimum monthly wages (LMMW), contractors must notify their contracting party of the existence of any additional contracts they are working under that might affect their total LMMW.
Although Decree 1273 came into force in July 2018, its implementation will be gradual:
- From September 2018 self-employed workers must still pay contributions on their own upon the completion of the contract.
- From June 2019, however, companies will be required to levy and transfer SSS contributions. The Colombian Ministry of Health will be required to make some adjustments to PILA so that companies will be able to comply with the law.
In case of breach of this obligation, those responsible will be required to pay interest for late SSS payments and may be investigated and sanctioned by the Colombian Ministry of Labour and the Special Unit for the Audit of Pensions and Payroll Taxes (Unidad de Gestión de Pagos y Parafiscales or UGPP) with fines of up to 5,000 LMMW or from 5% to 60% of the amounts due, respectively.
All these modifications will directly affect any foreign company with a contractor working in Colombia. Therefore, it is recommended that all companies operating in Colombia do the following:
- Verify if it currently has expats or Colombians hired under service agreements.
- Verify whether their contractors are enrolled in the SSS, and whether contributions have been paid timely and completely.
- Ensure that expats self-employed workers verify if they are required to enrol in the SSS (i.e. determine if the expat's country of origin has executed a Social Security Agreement with Colombia.)
- Create an internal process for levying SSS contributions for all expats or Colombians hired as contractors or self-employed workers.
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