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

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:

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

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:

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