An employment contract vs. one of service provision

An employment contract differs from one of providing services in three main aspects: contributions to the Social Security System (Pensions, Health and Occupational Risks), social benefits and indemnities by virtue of the termination of the employment relationship.

 

An Contingent Employment contract differs from a contract for the provision of services in three main aspects: contributions to the Social Security System (Pensions, Health and Occupational Risks), social benefits to which a worker is entitled and compensation under the termination of the employment relationship.

In the relationship created through a work contract, regardless of the name given at the time of contracting, three constituent elements will always be present:

- The person who is directly related to the employer is in charge of carrying out the activities for which they are hiring.

- There must always be a continuous subordination regarding the development of these activities.

- There is a salary for the work done.

For its part, the contract for the provision of services is characterized by being an agreement of wills, where independently and autonomously a person, called a contractor, is obliged to perform or execute a specific activity, in accordance with the purpose of the contract itself , in favor of another, called the contracting party.

Another important thing is that in the contract for the provision of services there is an economic retribution that is not called "salary" but "fees".

Characteristics of a work contract

- Its nature is of labor content. 
- The work must always be done by a natural person and in a personal way. 
- The execution of the activity is done through constant subordination by the employer. 
- Must meet schedule

Health: the contribution corresponds to 12.5 percent of the monthly salary of each worker, distributed in 4 percent contributed by the worker and 8.5 percent, by the employer.

Pension: correspond to 16 percent of the monthly salary of each worker, where 4 percent must be contributed by the worker and 12 percent, by the employer.

Social benefits: These additional payments to the salary (layoffs, unemployment interest, service premium, vacations, etc.) only emanate from a work contract, never from a contract to provide services. 
When a work contract is signed (and a full salary has not been agreed), the person receives by law:

- 12 salaries per year

- Premium (one salary divided into two payments, one in June and another in December). Some companies grant extralegal bonuses.

Severance payments: a monthly salary that the employee receives for each year of work. It is recorded in the individual account of the fund that the worker chooses, no later than February 14.

Unemployment interest: corresponds to 12 percent and is paid in January.

Holidays: a paid rest of 15 working days. Some companies pay an extra vacation premium, but they are not required to do so.

- Affiliation with EPS

- Affiliation to professional risks

- Affiliation with family compensation fund

Others:

- If the employee earns up to two minimum wages, he is entitled to three times a year.

- If the employee dies, the company has the obligation to pay a sum equal to the last month of salary for burial expenses.

- In the event that a disability occurs, it must be remunerated, as well as maternity leave.

Compensation: in a work contract there is the right to compensation when the employment relationship is terminated by the employer in an unjustified manner. The indemnity incorporates the value of the lost profit and the corresponding to the emergent damage that causes the decision in the economic sphere of the worker.

The compensation is differentiated according to the value of the salary earned and the type of employment contract, that is, if it is a fixed or indefinite term contract. The details are in article 64 of the Labor Code.

CHARACTERISTICS OF A SERVICE PROVISION CONTRACT

- Its nature entails a content of a civil and / or commercial nature.

- The work can be done by a natural person or by a legal person.

- A very important point: in the execution of the activity there is ample and sufficient freedom on the part of the contractor to carry out the activity contracted.

- You must not meet schedule or permanent orders

Health: the contribution must be made in full by the contractor, that is, 12.5 percent on a contribution basis of 40 percent of the gross monthly value of the contract.

Pension: the entire 16 percent must be paid by the contractor on a contribution basis of 40 percent of the gross monthly value of the contract.

In addition to health and pension, the person must pay the 11 percent withholding tax, regardless of the value of the contract and, depending on the profession, a percentage of the Industry and Commerce Tax (ICA).

Others

- Does not include vacations

- Does not include maternity leave

- Does not include disabilities

- The contractor is charged a 10 percent fee for non-respondents and 11 percent for respondents.

Compensation: There is no place to pay compensation of an employment nature, but as it is a civil or commercial relationship, the legislation in charge can establish an eventual compensation and more if it is demonstrated that the contractor complied fully with all the activities entrusted to contract.

LABOR RISKS FOR BOTH CONTRACTS

These contributions depend on the activity carried out by each worker, since there is no single contribution rate but it varies from 0.522 percent to 6.96 percent of the monthly salary in the case of workers or on a contribution base of 40 percent. percent of the gross monthly value of the contract in the case of contractors. In other words, this depends on the dangerousness of the activity (details in Law 1562 of 2012).

In the work contract, the contribution is made 100 percent by the employer, while in one for the rendering of services, it corresponds to the contractor in full.

CONCLUSIONS

The distinction between an employment contract and a service contract lies in its nature and in the practical effects that derive from its execution.

Establishing the advantages of one with respect to the other depends necessarily on each specific case and the purpose sought by the person.

"Being formally hired in a company has very big advantages economically speaking. However, not all people have the ability to be good employees or good entrepreneurs, are two groups of people who have very different characteristics in terms of ability to adapt, follow instructions, motivation of achievement, need for approval and recognition, among others factors, "says Inés Pardo, manager of Altos Ejectives Ltda., partners of Carrer Partners International, global talent management firm.

For Pardo, the price of a formal contract is very high emotionally. "Of the greatest advantages of an independent person, freelance, associate, or contracted for the provision of services, you do not have to comply with a work schedule, you can invest the time in the way that best suits you, and dedicate yourself to activities that He really enjoys it, also allows him to be more productive and does not invest 40 percent in activities different from his function as a person does, "he adds.

"Among the attributes of being independent is autonomy, having achievements where you are the one directly responsible, creating strong networks with your customers and suppliers, as well as the design of policies and processes in an autonomous manner", complements Cristina Herrera, manager of Talent.

However, the decision to be independent or employed also depends on the personality, motivations and needs of each individual, including economic ones.

Some experts point out that there are stages of life that require the person to be employed, trained, learn, save and others in which the person is more productive and happy being independent.