Do I Need a Local Entity to Hire in Colombia?

In Colombia, a "local entity" refers to a legally recognized presence, such as a subsidiary or branch office, that allows you to employ individuals directly and fulfill local payroll and employment obligations. This setup is essential for managing local taxes, social security contributions, and compliance with labor laws.

Without a local entity, you typically cannot register as an employer, manage payroll, or comply with mandatory employment protections. However, using an Employer of Record (EOR) can provide a compliant alternative, allowing you to hire employees without the complexities of establishing a local entity.

What is Required to Employ Someone in Colombia?

• Local employing entity required to directly employ? Usually yes (unless using an EOR)
• Payroll registration required? Yes (registration with the DIAN is mandatory)
• Withholding/tax remittance required? Yes (mandatory withholding for income tax applies)
• Social contributions required? Yes (employers must contribute to social security)
• Local employment agreement required? Yes (written contracts are standard in Colombia)
• Mandatory benefits to budget? Yes (includes health, pension, and severance funds)
• Works council/collective agreements considerations? Often (certain sectors may require collective agreements)

Best Options If You're Hiring in Colombia

Can I Hire Contractors Instead of Setting Up an Entity?

Yes, but you should be cautious about the nature of the relationship.

While hiring contractors in Colombia doesn't require a local entity, misclassification risks exist if the contractor functions like an employee. Colombian law emphasizes worker protections, and if the contractor is deemed to be in an employment relationship, it could lead to legal issues.

• Ensure the contractor operates independently and is not integrated into your business.
• Avoid controlling their work hours, location, or methods.
• Be mindful if the work is core to your business, as this increases misclassification risk.

How Long Does Entity Setup Take And What Does It Cost?

Typical entity setup timeline: It often takes 4–8 weeks to set up an entity in Colombia, depending on required registrations and legal processes.

Ongoing cost categories (entity route):

• Accounting, bookkeeping, and statutory filings: Estimated 2,000,000–5,000,000 COP per month ($500–$1,250)
• Payroll provider: Estimated 300,000–800,000 COP per employee per month ($75–$200)
• Employer registrations and recurring compliance: Varies by complexity
• Corporate tax filings and annual reporting: Estimated 1,000,000–3,000,000 COP per year ($250–$750)

EOR cost components (no-entity route):

• A per-employee EOR service fee (from $399 p/month with Playroll)
• Pass-through statutory costs (e.g., employer social security contributions, mandatory benefits administration)
• Any optional benefits you choose to provide beyond statutory minimums

How an Employer of Record Can Help You Hire in Colombia

Hiring in Colombia can be complex, but it doesn’t have to require setting up a local entity or taking on long-term overhead. With an Employer of Record like Playroll, you get a simple, predictable way to hire compliantly while keeping costs transparent and under control. We help you:

• Hire employees in Colombia quickly without establishing a local entity, eliminating incorporation costs, ongoing administration, and exit complexity.
• Stay fully compliant with local payroll, tax, and employment regulations with Playroll’s managed payroll services.
• Control your total employment costs, with a clear monthly EOR service fee (from $399 per employee).
• Focus on growing your business, while we manage contracts, payroll, compliance, and labor law obligations end to end.
• Scale up or exit the market easily, without the financial or legal burden of closing a local entity.