Termination & Severance Pay in Colombia
Ending an employment contract in Colombia requires a detailed, compliant process. Employers must calculate several mandatory payments, respect strict legal deadlines, and document everything properly. Mistakes are costly, as wrong calculations often trigger UGPP penalties.
To help you avoid compliance issues, this guide explains how severance pay in Colombia works, what must be paid at termination, how to calculate each concept, and what happens if employers fail to comply.
What Is an Employment Contract and Why Must It Be Settled?
According to Article 22 of the Colombian Labor Code, an employment contract is an agreement where an individual provides personal services under subordination in exchange for payment.
When the contract ends, the employer must liquidate all accrued payments. This confirms that the employment relationship has been legally closed and protects both sides.
Severance pay and related benefits compensate the employee for all rights earned up to the final working day.
Why Employment Contracts End in Colombia
Contracts may end for several reasons. Here are the most common:
Just cause under Article 62
Serious misconduct defined in internal rules
Expiration of term, in fixed contracts or project-based contracts
Unilateral decision, with or without cause
Each scenario changes the indemnity payment, but the core severance settlement obligations stay the same.
What Must Be Paid at Contract Termination?
When a contract ends, the employer must pay the following:
Pending salary
Severance (cesantías)
Severance interest (12% annual)
Service bonus (prima) proportional
Pending vacation days
Parafiscal contributions up to the final day
Social security contributions for the last month worked
Indemnity, if the termination was without just cause
Each concept must be calculated based on the employee’s final salary, including commissions or variable earnings when they form part of salary.
Detailed Breakdown: How to Calculate Each Concept
| Concept | Description | How It Is Calculated |
|---|---|---|
| Pending salary | Salary for the last days worked | Salary ÷ 30 × days worked |
| Vacation | Unused paid rest days | Salary × days worked ÷ 720 |
| Severance (Cesantías) | Mandatory benefit due at termination | Salary × days worked ÷ 360 |
| Severance interest | Interest on severance (12% yearly) | Severance × days worked × 12% ÷ 360 |
| Service bonus (Prima) | Semiannual bonus owed proportionally | Salary × days worked ÷ 360 |
| Indemnity | Compensation for unjustified termination | Depends on seniority and contract type |
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Penalties for Late Payment of Severance Pay
If employers delay the severance settlement, Colombian law imposes the following sanction: One full day of salary for each day of delay
This penalty accumulates daily until the employer pays the full settlement.
Final Recommendations
Termination in Colombia is not simply administrative. It requires precise calculations, understanding of labor law, and careful documentation.
Many companies rely on payroll experts or Employer of Record (EOR) partners to avoid UGPP fines and ensure compliance.
Europortage supports global companies hiring in Colombia with compliant payroll, severance management, and termination calculations.
FAQ
How soon must severance pay be delivered?
The payment must be made immediately. Delays generate a daily penalty equal to one day of salary.
Do employees always receive severance, even for short contracts?
Yes. Severance accrues from the first day and is always proportional.
Do employees get paid vacation if they worked less than a year?
Yes. Vacation is always paid proportionally.
When must employers pay indemnity?
Only when the termination occurs without just cause, as defined under Article 64.
