Social security contributions vary enormously by country. Employers operating in different jurisdictions must take note of these differences when implementing cross- border initiatives to ensure compliance with the law.
An Ius Laboris survey covering 31 countries outlines employers’ and employees’ legal requirements. This article focuses on the Americas.
The contribution rate payable by employers remains at 20.4 percent until Dec. 31 and will then be gradually reduced to 19.5 percent by 2022. There is also an amount payable under labor accident insurance, which is dependent on the rates applicable to each employer.
Employees are required to pay a contribution equal to 14 percent of their salary. This will be automatically deducted from the employee’s salary by the employer.
Social security covers retirement, health insurance, unemployment insurance, family benefits, and work accident and illness insurance.
All employees must pay approximately 13 percent of their salary into a pension fund, which is paid into an individual account. Employees must also pay 7 percent of their salary toward health insurance. These contributions are withheld by employers from the employee’s monthly salary and paid directly to the pension fund administrators and health care institutions.
There is a limit on contributions payable from the employee’s income to the pension fund. The monthly income considered for these purposes is equivalent to 79.2 inflation- indexed units, which amounts to 2,183,227 pesos—approximately US$3,000. The same limit applies for health insurance, but employees can purchase a more expensive health plan, in which case they must pay a higher amount.
Every employer must ensure its employees are affiliated with the general social security system and make monthly contributions based on the employees’ monthly wages. The social security system in Colombia covers pensions, health and labor risks.
Contributions are calculated as follows:
Employers must pay between 26.94 percent and 35.14 percent of employees’ salaries, and employees must pay between 4.38 percent and 5.25 percent, for a total contribution to the country’s social security system of between 31.32 percent and 40.39 percent.
The contributions cover five types of insurance: occupational risk insurance, sickness and maternity, child care, disability and life insurance, retirement and old-age pension. There is a cap of 25 times the measure known as the UMA (Unidad de Medida Actualizacion), which is an economic reference tied to inflation.
Both employers and employees are subject to separate Social Security taxes, payable to the Social Insurance Funds, of 6.2 percent each (i.e., a total of 12.4 percent) of the employee’s gross wage amount, up to but not exceeding the Social Security wage base, indexed to $132,900 in 2019. Wages earned over the maximum wage base are not subject to Social Security tax.
To fund Medicare, a separate tax of 1.45 percent of the employee’s income is paid directly by the employer, and an additional 1.45 percent tax is withheld from the employee’s paycheck, for a total of 2.9 percent. Since tax year 2013, an additional Medicare tax has been applied to an individual’s Medicare wages that exceed a threshold amount based on the taxpayer’s filing status. Employers are responsible for withholding the 0.9 percent additional Medicare tax on an individual’s wages paid in excess of $200,000 in a calendar year or $250,000 for married couples filing taxes jointly.
Employers also pay federal and state unemployment insurance taxes on employee wages. The federal unemployment insurance tax rate is 6 percent on the first $7,000 of wages, but credit is given for state unemployment insurance taxes paid on time, which may lower the federal rate to as low as 0.6 percent. State unemployment insurance tax rates and the wage base against which the state rates apply vary depending on the state, general demand for unemployment benefits and the frequency of claims by former employees of the employer.
A few states—California, Hawaii, New Jersey, New York and Rhode Island—have short-term-disability insurance programs. These may be funded by employee or employer contributions, depending on the state. Additionally, all states in the U.S. generally mandate that employers maintain insurance for lost wages and medical costs related to work-related injuries and accidents.
The online link to the article can be found here.
Reprinted with permission from SHRM.org. c 2019. All rights reserved.