Alerts are being raised about the effects of the labor reform on MSMEs: what are they?

The final approval of the labor reform by Congress left a bitter taste in the productive sector. Although the government celebrated the result as a legislative victory, business associations, legal experts, and consulting firms sounded the alarm and urged people not to take the issue lightly.

All this, especially given the impact the new regulatory changes will have on micro, small, and medium-sized enterprises (MSMEs), which account for more than 90% of the country's business community and would be the most affected by the upcoming changes to the labor market rules.

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Just days before the conciliation between the Chamber and Senate, voices such as ACOPI, Fenalco, Godoy Córdoba, BDO, AmCham Colombia, and the law firm Orza & Escandón warned that the reform could become an obstacle to the sustainability of these productive units. Their message, albeit with different nuances, is that if there are no adjustments to the conciliation, MSMEs will be left unprotected against new economic burdens, regulatory rigidities, and the distortion of key provisions such as the apprenticeship contract.

More costs, less oxygen

The Colombian Association of Micro, Small, and Medium-Sized Enterprises (ASMEs) has a strong assessment, warning that the reform introduces changes that substantially increase the cost of formal hiring without considering progressive or gradual criteria for MSMEs. The most critical case, they noted, is the change to the apprenticeship contract, which now becomes a full employment relationship, with full affiliation with the social security system and conditions similar to a regular contract.

"This change could increase the cost an employer must assume for each apprentice by more than 105%," the union warned. They also warned that this transformation could be unconstitutional, as it disrupts the educational, rather than employment, nature that defines this type of relationship.

Bruce Mac Master, president of Andi, holds a very similar opinion, arguing that, beyond the sectors that may be pleased with what has been approved, it must be taken into account that the new regulations could translate into more informality and job losses due to the upcoming tax burdens.

"We had designed an intermediate version that would eliminate the costs associated with unemployment, the costs potentially associated with informality, which basically meant creating exceptions for SMEs and small and medium-sized companies. Unfortunately, yesterday, the Senate voted against that bill. I truly believe a huge mistake is being made," said the union spokesperson.

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A political decision

In an equally critical tone, Fenalco pointed out that Congress yielded to pressure from the Executive Branch, not only to avoid calling the referendum announced by President Gustavo Petro, but also to maintain a political narrative that ignores the operational realities of businesses. According to the trade union, the reform, as approved, could destroy more than 454,000 formal jobs, primarily in the commerce, tourism, and security sectors.

The cost overruns estimated by Fenalco range between 18% and 34% for certain sectors. This burden stems from increased night, Sunday, and holiday surcharges, the requirement to prefer open-ended contracts, and the elimination of mechanisms that allowed for adaptability during peak operating periods in many economic activities.

"The approval was not the result of a tripartite consensus between the government, employers, and workers, as required by the ILO. It was a decision motivated by political pressure, and this has economic costs that the country will bear in terms of unemployment," said Jaime Alberto Cabal, president of Fenalco.

From a legal perspective, the firm Orza & Escandón emphasizes that, although the reform has already been approved, there is still an open dispute in the conciliation stage and that "what happened in Congress was an institutional way of resolving extra-institutional pressure: the threat of a referendum by decree."

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For these lawyers, the Executive branch used direct participation as a mechanism to pressure the legislative branch and concluded that "although a plebiscite narrative was constructed, the truth is that the Government imposed the reform by a clean vote, with little room for maneuver for the unions."

What is discussed now in conciliation, they say, will be key to determining whether the final text incorporates any nuances that correct excesses and compensate for the lack of progressivity that currently worries MSMEs.

Monitor compliance

At BDO, labor expert Giovanni González warns that many micro and small businesses are unable to even apply the new regulations due to economic and administrative limitations. He explains that "there are no exceptions or differentiated treatment. All will have to respond to surcharges, social security, and new conditions, regardless of their size."

Added to this is the operational risk that sectors that operate on a rolling basis, such as education or sports, will not be able to maintain the permanent contract as the sole rule, which calls into question their viability. Furthermore, the expert warns that the Ministry of Labor lacks the operational capacity to oversee this new framework in more than one million MSMEs, which could render the regulation a dead letter or open the door to informality.

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Meanwhile, Santiago Martínez Méndez, a labor lawyer from Godoy Córdoba, also points out that small businesses will be the hardest hit by regulatory rigidity and cost overruns, since "large companies have the capacity to plan, restructure their operations, and absorb the impact. Small companies don't."

The new apprenticeship contract, which previously had reduced costs, now represents a full burden. And this, according to Martínez, could lead many companies to abandon this option or simply not renew apprenticeships, with the result that "the net effect is less training and fewer job opportunities for young people in vulnerable sectors."

Time to correct

Finally, from AmCham Colombia, its president María Claudia Lacouture insists that while the reform brings progress, the approved text discourages formal employment, limits competitiveness, and fails to consider the reality of new forms of work, since "without gradualness or a sector-by-sector vision, the reform could force many MSMEs to close, instead of strengthening them." Lacouture also joins the call by other unions for conciliation to be a real space for correction and adjustment, not a legislative formality, and believes that it is possible to construct a reform that protects labor rights without jeopardizing those who generate them.

We'll have to wait and see what happens before the end of the week in the conciliation process, which has a deadline of June 20th, otherwise the deadlines for this project to become a reality and not founder due to a lack of paperwork would be missed.