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

Minimum Wage and Transportation Allowance Increase

For this year 2024 the Minimum Legal Monthly Minimum Wage in Force (“SMLMV” for its acronym in Spanish) was set at ONE MILLION THREE HUNDRED THOUSAND PESOS (COP $1,300,000) and the Transportation Allowance at ONE HUNDRED SIXTY-TWO THOUSAND PESOS (COP $162,000).

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.

Likewise, for those workers who develop their activities under the modality of work at home and who are granted a transportation allowance, during the time they render their services under the home work modality, this payment shall be recognized as a digital connectivity allowance, and shall have the same salary effects as the transportation allowance.

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

The values indicated above will be in effect until July 14, 2024, since in accordance with Law 2101 of 2021 and the Unified Concept of the Ministry of Labor, as of July 15, 2024 the maximum workday will be 46 hours per week, which will modify the value of the ordinary hour and consequently the value of the surcharges.

Payroll of a minimum wage worker

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

[1] Value calculated taking into account the maximum legal working week of 47 hours in force until July 14, 2024

[2] Risk Level II: 1.044%, Risk Level III: 2.436%, Risk Level IV: 4.350%, Risk Level V: 6.960%, Risk Level III: 2.436%, Risk Level IV: 4.350%, Risk Level V: 6.960%.

*Those employers, legal entities, whose workers earn less than ten (10) SMLMV will be exempted from the payment of health and parafiscal contributions (SENA and ICBF). Natural persons may also apply such exemption provided they employ more than one worker (Article 114-1, Tax Statute).

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 the transportation allowance does not constitute a basis for the liquidation of these two items.

Integral Salary for 2024

Keeping in mind that the minimum salary for 2024 was set at COP $1,300,000, the value of the integral salary will be Sixteen million nine hundred thousand pesos (COP $16,900,000) of which COP $13,000,000 will correspond to the salary factor and COP $3,900,000 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:

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), i.e. the amount of ELEVEN MILLION EIGHT HUNDRED AND THIRTY THOUSAND PESOS (COP $11,830,000), as well as for parafiscal contributions (Article 49, Law 789 of 2002), and not on the benefit factor.

Regarding the exemption of health and parafiscal contributions (SENA and ICBF) established in article 114-1 of the Tax Statute, this exemption is not applicable to those employers that hire workers under the integral salary modality, since it only applies to those workers that earn less than 10 SMMLMV.

¿How can we help you?

In Mazars we have professional experts in the fulfillment of each one of these obligations and we put them at your disposal. In case you require support in the implementation of the or fulfillment of the obligations contained in this newslatter, please contact us at the contact e-mails and we will gladly analyze the best way to support you in your compliance. 

[3] N/A: Not applicable

[4] Risk Level II: 1.044%, Risk Level III: 2.436%, Risk Level IV: 4.350%, Risk Level V: 6.960%, Risk Level III: 2.436%, Risk Level IV: 4.350%, Risk Level V: 6.960%.