Impact of the increase in the Minimum Wage and Transportation Allowance on labor costs

By means of Decrees 2613 and 2614 of December 28, 2022, the National Government established the new Minimum Wage and Transportation Allowance, respectively, which will be in force for the year 2023. Considering the impact this has not only for workers but also for all organizations, in this newsletter we present the most significant changes that employers will have to take into account as a result of such increases.

Minimum Wage and Transportation Allowance increase

For this year 2023 the Minimum Legal Monthly Minimum Wage in Force (SMLMV) was set at One Million One Hundred Sixty Thousand Pesos (COP $1,160,000) and the Transportation Allowance at One Hundred Forty Thousand Six Hundred Sixty-Six Pesos (COP $140,606).

It is worth remembering that the Legal Transportation Allowance must only be granted to those workers who earn up to two (2) SMLMV, with some exceptions, such as when the employer provides transportation to and from the worker's home to the workplace, or when the worker lives in the same place where the service is provided, as in the case of internal domestic service workers. 

With this increase, the value of the ordinary working hour was also modified, as well as the respective surcharges, as indicated below:

Value of ordinary working day

Value of Sunday or holiday working day

$38.667

$67.667

 

Ordinary workday

Working hour

Overtime Daytime

Overtime nighttime

Hour with night surcharge

$4.833

$6.042

$8.458

$6.525

 

Sunday and holidays

 Working hour

Overtime Daytime

Overtime nighttime

Hour with night surcharge

$8.458

$9.667

$12.083

$10.150

 

Based on the foregoing, the approximate monthly payroll cost for a company with a minimum wage employee would be as follows:

 

Concept

Percentage

Value

Minimum Wage

N/A*

$ 1.160.000

Transportation allowance

N/A*

$ 140.606

Total remuneration

$1.300.606

Health

8,5%

$ 98.600

Pension

12%

$ 139.200

Occupational Risks

(Risk level 1)

0,52%

$ 6.032

Parafiscal contributions

(SENA, ICBF, CCF)

9%

$ 104.400

Total Social Security

$ 348.232

Legal bonuses for services

8,33%

$ 108.340

Unemployment aid

8,33%

$ 108.340

Interest on unemployment aid

1%

$ 13.006

Total Social Benefits

$ 229.687

Vacations

4,17%

$ 48.372

Endowment

5,00%

$ 58.000

Total monthly cost

$1.984.897

 

It is necessary to take into account that the transportation allowance must be considered for purposes of the liquidation of social benefits (bonus, severance pay and interest on severance pay) in accordance with the provisions of Article 7 of Law 1 of 1963. As for the liquidation of vacations and social security contributions, the value of such allowance must be excluded.

It is also important to highlight that article 114-1 of the Tax Statute allows employers, legal entities, to be exempted from the payment of parafiscal contributions to the ICBF and SENA and to the health subsystem for employees earning less than ten (10) SMLMV. Natural persons may also apply this exemption if they employ more than one worker.

Integral Salary for 2023

Keeping in mind that the minimum salary for 2023 was set at COP $1,160,000, the value of the integral salary will be Fifteen Million Eighty Thousand Pesos (COP $15,080,000) of which COP $11,600,000 will correspond to the salary factor and COP $3,480,000 to the benefit factor.

It is necessary to remember that the integral salary:

  • Must be agreed in writing.
  • Cannot be less than ten (10) SMLMV, plus the benefit factor, which cannot be less than 30% of such value.
  • Rewards ordinary work, benefits, surcharges and benefits (such as night work, extraordinary, Sunday and holiday work, legal and extra-legal bonuses) and in general all those that the parties include in the stipulation, except for vacations.

According to the above, the approximate cost in the monthly payroll of a Company of an employee with integral salary would be as follows:

Concept

Percentage

Value

Minimum Integral Salary

N/A*

$15.080.000

Transportation allowance

N/A*

N/A*

Total remuneration

$15.080.000

Health

8,5%

$ 897.260

Pension

12%

$ 1.266.720

Occupational Risks

(Risk level 1)

0,52%

$ 54.891

Parafiscal contributions

(SENA, ICBF, CCF)

9%

$ 950.040

Solidarity Fund

1%

$ 105.560

Total Social Security

$ 3.274.471

Legal bonuses for services

8,33%

N/A*

Unemployment aid

8,33%

N/A*

Interest on unemployment aid

1%

N/A*

Total Social Benefits

      $ -           

Vacations

4,17%

$ 628.836

Endowment

5,00%

N/A*

Total monthly cost

$18.983.307

 

It should be taken into account that Social Security contributions for these cases are calculated on 70% of the total integral salary (Article 18, Law 100 of 1993), that is, the amount of Ten Million Five Hundred Fifty Six Thousand Pesos (COP $10,556,000), as well as the parafiscal contributions (Article 49, Law 789 of 2002), and not on the benefit factor.

*N/A: Not applicable

Document

Boletin-Incremento-salario-mínimo-ING.pdf

Want to know more?