Deciding whether a contract is to use a contract for the provision of services or an employment contract is a point of great importance in Colombia, since employment relations are highly regulated and there are certain benefits for workers and obligations for employers that do not exist in other types of contract.
Usually, these two types of contract are confused, because they have certain similarities:
1. In both types of contract can be contracted the service of a person (in the employment contract it has to be always a person, while in the provision of services you can hire both a person or a company).
2. In both types of contract, there is a remuneration, although in the case of the employment contract is call salary and in the case of the provision of service contract is call fees.
What really sets them apart is that in the employment contract there is subordination and dependence, which means that the worker is subject to the rules imposed by the employer on how, when and where the service should be provide. While in the contract for the provision of service does not exist such subordination, even though the contracted person (or company) must meet certain criteria indicated by the contractor as to what he wants or needs, there is autonomy.
The typical case of a contract for the provision of service is when an architect is hire to design a house, he receives the specifications: number of rooms, number of bathrooms, size, and so on. However, is the architect who defines how much time to spend per day, whether to work on the project in his office or elsewhere, whether to do it in the morning or at night, and so forth, he just have to comply with the project. It may even be a term for the project to be done, but it does not exist an obligation to comply a schedule, or a set of rules because in this type of contract he is an independent contractor.
In the employment contract, the worker is subject to the rules determined by the employer, such as working hours, the way of dressing, rest times, the tasks to be perform each day, and there are hierarchies and bosses.
It is very important to be define the type of contract before hiring someone, because each of them comes with different obligations. In the contract for the provision of services, the contracting party only pays the agreed value and there is no place for any other recognition. While in the employment contract, the employer must pay a lot more than just the salary, such as vacation, paid sick days, a percentage of the salary to cover the worker’s health, his retirement pension, his occupational risks, and more.
It is very common that people want to use the contract for the provision of services even though it is an employment relation, since the first one is cheaper. The risk is that if a judge determines there was subordination and dependence, the contractor has to pay retroactively what he should have pay since the beginning, with interest and penalties, so at the end of the day is a risk that is better not run because it can be more expensive.