OECD Reviews of Labour Market and Social Policies: Colombia 2022

2. Labour informality and subcontracting

New measures to tackle informality

The Colombian Government has been taking a wide range of measures to encourage and facilitate the formalisation of workers. In particular, through the Business Formalisation Policy established in the Conpes 3956 of 2019, the government aims to (1) reduce to zero the indirect costs for formalisation; (2) support companies in the formalisation process; and (3) strengthen inspection, surveillance and control actions within the informal sectors of the population.

To start, two digital platforms have been launched to reduce the complex procedures for the registration of companies and the affiliation of workers to social security. Decree 1875 of 2017 created a one‑stop-shop called “Ventanilla Única Empresarial” (VUE), which has been operational since 2018. The VUE aims to integrate tax, commercial and social security administrative procedures to facilitate company openings. By February 2022, the VUE had been successfully linked with 38 chambers of commerce, and it is expected to integrate 19 new chambers by the end of the year, reaching the goal of 57 chambers. Between June 2018 and December 2021, nearly 116 000 new companies have been created through the VUE platform. The social security module within the VUE platform is not available yet, but is expected for May 2022.

The government also started a process of digitalisation and integration of all the social security subsystems in a single Transactional Affiliation System (SAT). The system was launched in March 2020 and will eventually connect with the VUE. Currently, the social security procedures related to health, labour risks and family subsidies are available through the platform, and it is expected to include the registration and affiliation procedures for pensions in May 2022. By January 2022, the SAT system had around 4.9 million users, which is over half the 9 million workers who are actively affiliated to social security. While the SAT system is a key tool to facilitate administrative procedures, it has not increased social security affiliation over all.

In addition to these administrative measures, the government also introduced a “Social Protection Floor” (Piso de Protección Social) through Decree 1174 of 2020, in order to provide some social protection for workers who earn less than the minimum legal monthly wage.1 This Social Protection Floor includes access to health insurance, basic pension (i.e. the Complementary Social Service of Periodic Economic Benefits, BEPS) and occupational risk insurance, albeit with a considerably lower level of protection than for workers whose earnings are equal to or higher than the minimum wage. By December 2021, 540 employers made contributions to the social protection floor for a total of 4 981 dependent workers, raising around EUR 394 771.

The Decree has been heavily criticised for a number of reasons, including the lack of consultation with trade union organisations, the limited social protection coverage it provides for a rather high contribution rate and the incentive it could create for employers to contract part-time workers for less than the minimum wage (CUT, CTC and CGT, 2021[5]).

The constitutionality of the Social Protection Floor was also challenged in the Colombian Constitutional Court, which published two judgments in August 2021. In the first decision (C‑276/2021), the Court studied the legal procedure that had been followed to introduce the Social Protection Floor, and ruled that it was unconstitutional because this matter should have been regulated through an ordinary legislative procedure (Constitutional Court, 2021[6]). However, in order not to affect the rights of citizens who had already registered through the mechanism, the judgement will take effect after 20 June 2023. With the second decision (C‑277/2021), the Court analysed whether the Social Protection Floor is a discriminatory instrument (Constitutional Court, 2021[7]). The Court concluded that, even though it brings a differentiated treatment, the Social Protection Floor has a constitutional justification because it ensures minimum social protection for people who were previously in the informal economy. As a result, even though the objective and content of the Social Protection Floor were declared constitutional, the procedure to introduce it was not, and the government now has two years to adopt it through an ordinary legislative procedure.

In addition, a National Network for Labour Formalisation (RNFL) was established to promote the advantages of formalisation. In line with the commitments made in the Final Peace Agreement, the Ministry of Labour also implemented a Rural Progressive Plan to train agricultural workers and companies in matters of fundamental labour rights and obligations in 171 municipalities prioritised by the national government under the PDET (Programas de Desarrollo con Enfoque Territorial).2 By the end of 2021, trainings had been organised in three‑quarters of all priority municipalities (131 out of 171 municipalities).

Furthermore, in July 2020, the government created an “Employment Mission” (Misión Empleo) – a technical and impartial council in charge of analysing the Colombian labour market and providing policy recommendations to improve it. In January 2022, the Mission finalised its research and presented five policy briefs on key topics, including the challenge of a social protection system in a labour market with a high rate of informality and fragmentation; labour law enforcement; active and passive policies for quality jobs; and the future of training for the labour market (Misión Empleo, 2021[8]). The Employment Mission expects that these policy briefs open interesting discussions about labour policies in the country.

In parallel, a group of academics formed the “Alternative Employment and Income Mission” (Misión Alternativa de Empleo e Ingresos). They published their own independent analysis in June 2021, studying other, more specific issues, like youth and employment, the impact of the pandemic on the labour market in rural areas and on workers’ health, elements for a reform to the pension system, informality in the labour market, etc. (Misión Alternativa de Empleo e Ingresos, 2021[9]). The studies of both “Missions” can be seen as complementary as they cover different topics.

Finally, in order to promote employment creation during the pandemic, the government issued a number of decrees and resolutions in 2021. These include: (1) Decree 392 of April 2021, to offer a tax incentive to firms creating new job positions for young workers (under 28 years of age); (2) Decree 688 of June 2021, to implement the strategy “Sacúdete”, which aims to train young people to join tertiary education, find a job or become entrepreneurs; and (3) Law 2 155 of September 2021, which temporarily (until August 2023) provide incentives for job creation by subsidising a percentage of the salary for each new employee (25% of the minimum wage for young workers between 18 and 28 years, 15% for female workers over 28 years old and 10% for male workers over 28 years old). According to the Ministry of Labour, around 274 142 new jobs have been created between June and December 2021 thanks to the implementation of these measures.

These reforms, policy tools and broader initiatives are all well-intended and innovative. However, so far, they lack effectiveness in reducing informality. To bring down informality and improve social protection coverage in a sustainable way, major labour market and social policy reforms are needed, as discussed in detail in the OECD’s accession review of Colombia (OECD, 2016[1]) and the latest OECD Economic Survey on Colombia (OECD, 2022[2]). Reducing the cost of formal employment, while ensuring basic social protection for all is particularly important.

The use of formalisation agreements

The Labour Formalization Agreement programme is an important tool for the labour inspectorate to formalise workers, and the programme appears to be effective. Between 2017 and 2021, a total of 207 formalisation agreements have been signed benefiting 13 847 workers.

However, the number of beneficiaries has been declining since 2017. In 2020, only 931 workers were covered by 30 new agreements, compared to more than 6 000 beneficiaries of the 49 agreements signed in 2017. For 2021, the number of formalisation agreements increased again, reaching 53 new agreements covering 2 564 workers, but it is far from the number of workers covered by new agreements in 2013 (9 571) or 2014 (9 532). Most of the formalisation agreements during the period 2018‑21 were signed to benefit workers linked through temporary service companies (56 agreements covering 5 861 workers).

It is also worth noting that the prevailing form of formalisation contracts remains short term. Since a full fine waiver requires that workers remain employed for a period of at least five years, regular monitoring is therefore necessary to ensure that companies effectively keep these workers on their payroll.3 However, the misuse of such short-term contracts could also have other effects and, in some instances, contribute to deteriorating workers’ rights such as freedom of association and collective bargaining.

For verification of compliance with the terms of the signed formalisation agreements, a total of 837 follow-up and verification visits have been made between 2017 and 2021. However, the number of visits declined (prior to the pandemic) from 220 in 2017 to 69 in 2019, and increased again from 148 in 2020 to 279 in 2021. The recent increase is the result of a change in strategy, as such verifications can now be done virtually, via the electronic mechanism Integrated Contribution Settlement Form (Planilla Integrada de Liquidación de Aportes – PILA). These online verifications considerably facilitate the work of labour inspectors who can now easily verify whether formalised workers remain on the payroll of the company.

Misuse of civil-law contracts for employment relations

The misuse of contracts regulated under civil-law provisions remains problematic in Colombia, as they tend to undermine the labour rights of the workers involved.4 In order to improve the legal framework and avoid illegal labour informality, the government implemented two main reforms between 2017 and 2019. First, the government repealed the Decree 583 of 2016, which had been highly criticised because it allowed for labour intermediation through associated work co‑operatives, simplified joint stock companies, union service contracts, etc. Second, the Resolution 2021 of 2018 was issued to establish guidelines on Inspection, Surveillance and Control in labour intermediation processes. The resolution clarifies the differences between outsourcing and labour intermediation,5 and reiterates that only temporary services companies are allowed to intermediate labour services under a specific regulation respectful of workers’ rights. Overall, thanks to the actions carried by the Ministry of Labour, the number of associated work co‑operatives dropped from 430 co‑operatives with 36 000 associates in 2017 to 204 co‑operatives with 11 000 associates in 2020, and 295 co‑operatives with 12 000 associates by June 2021 (Figure 2.1).

Figure 2.1. The use of civil-law contracts for labour relations in Colombia

Number of associated work co‑operatives and union service contracts, 2017‑21

1. The data on associate work co‑operatives for 2021 have a cut-off date of June 2021.

Source: Data provided by the Ministry of Labour, based on data from the Superintendency of Solidarity and the Ministry’s Directorate of Inspection, Surveillance and Control.

The same resolution also allowed for the monitoring of the misuse of union service contracts. However, the legal framework to control union service contracts is insufficient and several challenges remain in practice.6 These challenges include: (1) businesses can set up fake unions to contract workers; (2) a civil contract instead of a labour contract is used to formalise a working relationship; (3) a trade union can be created for the sole purpose of entering into a union contract; (2) workers are required to affiliate to the trade union if they want the job; and (4) employers interfere in the trade union that owns the contract. The number of union service contracts nearly tripled from 942 in 2017 to 2 779 in 2021, covering 331 510 workers (Figure 2.1).7 As 99% of the union service contracts are signed in the health sector, the growth in union service contracts is largely the result of the expansion of the public and private network of health service providers during the pandemic.

For this reason, the OECD has recommended to prohibit union service contracts in previous reports on Colombia. In the same way, the Government of Canada recommended the elimination of union service contracts under the Canada-Colombia Action Plan and, in the interim, is monitoring the use of these contracts in trading sectors (Employment and Social Development Canada, 2018[10]). The Committee of Experts on the Application of Conventions and Recommendations of the International Labour Organization (ILO) requested the government to plan and conduct a detailed assessment of the use of union service contracts, in particular in the health sector; and take the necessary measures, including legislative measures, to ensure that union service contracts do not undermine the trade union rights of workers (ILO, 2021[11]). The ILO is also following the union service contracts closely in view of a complaint under the Case No. 3137 (ILO, 2015[12]). Finally, the Appeal Chamber for Labour Cases of the Supreme Court of Justice issued two decisions in June and August 2021, pointing out its concerns regarding the permanent use of illegal labour intermediation to contract administrative and medical staff in the health sector (Supreme Court of Justice, 2021[13]; 2021[14]).

Also in the public sector, there is a persistent misuse of administrative law contracts for regular labour relations (contrato de prestación de servicios). This practice was already reported in the OECD’s Public Governance Review of Colombia in 2013 (OECD, 2013[15]), which recommended additional controls to reduce the reliance on off-payroll staff and contractors. The collective agreements signed with the public sector in 2013, 2015, 2017 and 2021 also included a commitment to reduce the misuse of this type of contracts. However, the number of off-payroll staff increased from 189 357 in 2014 to 243 427 in 2016 (Sanabria, González and Becerra, 2019[16]). By October 2020, the national and local government had contracted 392 648 people as self-employed or off-payroll staff through contracts for the provision of professional services, which represents 31% of the total number of public sector workers (Procuraduría General de la Nación, 2021[17]). In September 2021, the Council of State ordered measures to avoid the use of such contracts, by establishing rules to identify when the contracts for the provision of services are covering real labour relations (Council of State, 2021[18]).

As pointed out in previous OECD reports on this matter, the Colombian Government should improve its efforts to protect the labour rights of subcontracted workers, both in the public and private sector, by: (1) strengthening the legal framework, as appropriate, to prohibit all forms of abusive subcontracting, including through the use of co‑operatives, union service contracts and simplified stock companies; (2) ensuring investigations of all abusive subcontracting, especially in rural areas, and publishing on an ongoing basis notifications of complaints, investigations, and outcomes; (3) resolving existing investigations regarding abusive subcontracting in a timely manner, imposing fines where appropriate, and publishing the results on an ongoing basis; (4) collecting all outstanding fines for subcontracting violations within the legally mandated time frames; and (5) requiring firms to formalise employees working under abusive subcontracting through regular employment contracts that provide access to all basic labour rights.

Notes

← 1.  The minimum social security contributions in the regular system are calculated based on the minimum wage and thus too expensive for workers earning less than that.

← 2.  These municipalities are the territories most affected by the armed conflict, poverty, illicit economies and institutional weakness.

← 3.  Decree 2025 of 2011 foresees a reduction of 20% for each year that the formalised workers remain with the firm, implying a full fine waiver after five years.

← 4.  Through union service contracts, associated work co‑operatives, simplified joint stock companies, and dependent self-employment, people work under similar conditions as regular employees, but they do not benefit from the same rights stipulated in the labour code, like an equal economic compensation, the employers’ contribution to the social security scheme of the worker, the right to join trade unions and collective bargaining in the firm where they are providing their services.

← 5.  In outsourcing, goods and services are provided to a third party, but not personnel. In labour intermediation, personnel are supplied through companies authorised for this purpose and in specific circumstances that the law has established.

← 6.  Union service contracts (contratos sindicales) were established in the Labour Law Code as a legal tool to contract works or services directly with trade unions. While union service contracts have been in place for a long time, misuse for employment relations was facilitated in 2010 when the authority of signing a service contract was transferred from the union’s general assembly to the union’s president. This change in the law implied that it was no longer necessary to obtain the workers’ agreement, allowing businesses to construct fake unions and contract out their services.

← 7.  Union service contracts can be traceable, but not the number of workers covered under those contracts. As the government cannot interfere in internal matters of trade unions, the real number of workers under union contracts is beyond government reach. However, the government presented an estimate of the number of workers under union contracts for 2021.