In Colombia, salary is calculated by deducting mandatory contributions and taxes from the gross income to determine net pay. Below is a simplified breakdown:

A. Gross Income:

This is your total earnings before any deductions, including base salary, bonuses, overtime, and other allowances.

B. Mandatory Contributions:

Deductions for social security are required by law. The main deductions are as follows:

• Health: 4% of the gross salary (employee contribution).
• Pension: 4% of the gross salary (employee contribution).
• Labor Risks: The percentage varies depending on the risk classification of the job. The rates range from 0.522% to 6.96% of the monthly salary.
• Pension Solidarity Fund (Fondo de Solidaridad Pensional): This deduction applies only to employees whose monthly salary exceeds a certain threshold. The deduction percentage ranges from 1% to 2% of the monthly salary, depending on the salary amount. This fund is intended to subsidize pension contributions for lower-income workers.

C. Other Deductions:

In addition to the mandatory contributions, deductions for absences, unpaid leave, or other contractual agreements may also apply.

D. Taxable Income:

After the mandatory deductions, the remaining amount is considered taxable income and serves as the basis for calculating taxes.

E. Income Tax:

Colombia uses a progressive tax system, meaning that the tax rate increases as income rises. The income tax is calculated based on the taxable income, and the rate varies according to income brackets established by DIAN (Colombian Tax and Customs Authority).

F. Net Pay:

Net pay is the amount the employee takes home after subtracting income tax and other deductions from taxable income.