Colombia Severance Pay for Unfair Dismissal: How to Calculate It

A foreign company that hires in Colombia usually learns the cost of ending an employment contract the hard way. Colombian law puts a price on dismissal without just cause, and that price grows with every year of service. A mistake in the contract type, the salary base or the 10-minimum-wage threshold surfaces late, in a claim, with interest.

At Soulbit Academy we separate two questions that are often mixed up: what must be paid when any contract ends, and how much the indemnity is when the employer dismisses without just cause. This guide covers only the second one, by contract type. For accrued benefits and the full final payment, read how the full final settlement of a Colombian labor contract is calculated.

How severance pay for unfair dismissal is calculated under Article 64

Severance pay for unfair dismissal is the additional payment an employer owes when it ends a contract without a proven legal cause. Article 64 of the Substantive Labor Code, as rewritten by Law 789 of 2002, frames it as compensation for breaking the contract.

Three variables set the amount. The first is the contract type: fixed term, project or task based, or indefinite term. The second is the salary compared with the threshold of 10 monthly minimum wages. The third is length of service, in years and fractions.

The 2026 minimum wage is 1,750,905 pesos under Decree 1469 of 2025. The 10-minimum-wage threshold therefore equals 17,509,050 pesos per month in 2026. An employee earning less than that falls into the higher scale of days per year.

Is the indemnity calculated on base salary or on everything the employee earns?

It is calculated on the employee's salary, and when pay has variable components the base is not obvious. A labor bulletin of the Supreme Court of Justice (ruling SL1659-2025) notes that Article 64 does not say how to set the base salary when pay is variable, so Article 127 of the same code applies: salary is everything the employee receives as direct compensation for their services. Confirm the base with a Colombian labor lawyer before paying.

Fixed-term and project-based contracts: paying for the time left

In a fixed-term contract, the indemnity equals the salaries for the time left until the agreed term ends. Length of service does not matter here: remaining time does. A dismissal in month 2 of a 12-month contract costs ten months of salary, while one in month 11 costs one.

Take an assumed case. An employee of a foreign company's Colombian branch earns 5,000,000 pesos on an 18-month fixed-term contract from 1 February 2026 to 31 July 2027. The employer dismisses without just cause on 30 November 2026. Eight months remain, so the indemnity is 40,000,000 pesos, on top of the ordinary settlement.

In a contract for a specific project or task, the indemnity covers the time left to finish the work, with a floor of 15 days of salary. An employee earning 4,500,000 pesos, or 150,000 pesos a day, with 5 days of work left would receive the 15-day floor of 2,250,000 pesos, not 750,000.

The maximum duration of a fixed-term contract also matters. Law 2466 of 2025 capped fixed-term contracts at four years including extensions, as our Colombia labor reform employer checklist explains. An extended contract changes the time left and therefore the indemnity, so check the real dates of every extension.

Does a fixed-term contract that is not renewed trigger the indemnity?

No, as long as the employer gives the legal notice of non-renewal. A contract that ends at the close of its term is not a dismissal without just cause, and only the ordinary settlement is paid. The indemnity appears when the employer breaks the contract before expiry without a cause that justifies it.

Indefinite contracts: days per year and the 10-minimum-wage threshold

In an indefinite-term contract, the indemnity is measured in days of salary according to service and pay level. Below 10 minimum wages, Article 64 grants 30 days for the first year and 20 days for each additional year. At 10 minimum wages or more, it grants 20 days for the first year and 15 for each additional year.

Partial years are paid proportionally. An employee with 2 years and 6 months of service has the first full year plus 1.5 additional years. The formula is simple: days for the first year, plus days per additional year multiplied by the remaining years and fractions. The result is multiplied by the daily salary, which is the monthly salary divided by 30.

Table 1 applies the formula to five hypothetical cases. Every salary and date is an assumption of this article, not a Soulbit figure and not a real company.

Case (assumptions)	Days of indemnity	Daily salary	Indemnity
Fixed term, 5,000,000, 8 months left	240 (8 months)	166,667	40,000,000
Project, 4,500,000, 5 days left	15 (legal floor)	150,000	2,250,000
Indefinite, 4,000,000, 3 years and 3 months	30 + 20 × 2.25 = 75	133,333	10,000,000
Indefinite, 17,000,000, 2 years and 6 months	30 + 20 × 1.5 = 60	566,667	34,000,000
Indefinite, 25,000,000, 2 years and 6 months	20 + 15 × 1.5 = 42.5	833,333	35,416,667

The threshold creates an effect worth knowing before a restructuring. With 2 years and 6 months of service, an employee at 17,000,000 pesos sits below it and receives 60 days, or 34,000,000 pesos. One at 17,600,000 sits above it, receives 42.5 days and is paid 24,933,333 pesos. That is a consequence of the table, not a calculation error, and it belongs in the budget.

What Law 2466 of 2025 changed about the indemnity, and what it did not

Law 2466 of 2025 did not change the indemnity formula. The text of Article 64 on the Bogota legal register lists Article 28 of Law 789 of 2002 as the latest modification, and Law 2466 of 2025 does not appear in that article's notes.

What did change are hiring rules that raise or lower the cost of a dismissal indirectly. The four-year cap on fixed-term contracts and the preference for indefinite contracts as the general rule alter which contracts a payroll holds and what it costs to end them. The wider employment cost is in the cost of an employee in Colombia after the labor reform.

This guide does not cover the list of just causes in Article 62 or the procedure before a dismissal; confirm both with a Colombian labor lawyer against the text in force after Law 2466 of 2025. Until your Colombian lawyer confirms it against the current text, treat any dismissal with just cause as a decision you must be able to prove before a judge.

What happens if the employer claims just cause and the judge disagrees?

The dismissal is treated as one without just cause, and the employer owes the Article 64 indemnity plus the pending settlement. The burden of proof sits with whoever ends the contract. That is why the file with the facts, dates and the employee's side of the story matters as much as the arithmetic.

Base mistakes that make a dismissal indemnity more expensive

The first mistake is using an outdated salary. A recent raise, a recurring commission or a variable payment can change both the base and the 10-minimum-wage threshold. The second mistake is miscounting service: periods when the contract was suspended do not count the same as time worked.

The third mistake is applying the wrong contract type. A fixed-term contract extended several times, or a project contract that works as an indefinite one in practice, can be reclassified. The fourth mistake is forgetting that some employees have reinforced protection, such as pregnant employees or those on maternity leave, and that dismissing them can carry consequences beyond the ordinary indemnity. Consult a lawyer before acting.

The fifth mistake is paying the indemnity and delaying the rest. The indemnity does not replace the settlement, and late settlement triggers the Article 65 penalty explained in our settlement guide. The sixth is failing to report the exit in PILA on time, which leaves a period open to UGPP review.

How a foreign employer should budget and control a dismissal before paying

A dismissal without just cause is budgeted as a concrete cash outflow: the indemnity, the ordinary settlement and the contributions for the last period. Computing the full amount before deciding lets you compare it with alternatives such as a mutual agreement, which does not trigger the Article 64 indemnity but requires a document signed by both parties.

A foreign parent faces an extra step. The indemnity is set in pesos, while the budget may sit in another currency. Fix the peso amount first, then convert it at the rate your treasury actually obtains on the payment date, and record the rate used. Do not budget the peso amount at a rate that is out of date.

Table 2 orders the control steps a finance team can apply. It is a generic checklist and does not replace a labor lawyer's review.

Step	What to verify	Owner
1. Contract type	Term, extensions and whether it is fixed term, project based or indefinite	HR
2. Salary base	Current salary, variable components and comparison with 10 minimum wages	Payroll
3. Length of service	Start date, suspensions and fractions of a year	HR
4. Reason for dismissal	Facts, evidence and advice on whether just cause exists	Legal or outside lawyer
5. Total calculation	Indemnity plus ordinary settlement and pending contributions	Finance
6. Payment and records	Approval of the net amount, disbursement and filing of the receipt	Treasury

For a mid-sized employer, a single dismissal of an employee with several years of service can weigh on that month's cash. Reserve the full amount in advance rather than paying it from operating cash without planning.

What Soulbit automates when paying an indemnity, and what it does not

Soulbit does not calculate the Article 64 indemnity, does not calculate the settlement and does not decide whether a dismissal has just cause. That work stays with the employer, its payroll software and its labor adviser. Soulbit also gives no advice on contract type or on the 10-minimum-wage threshold.

What the V1 of Soulbit supports is the step after the calculation. A company holds a balance in USDC and USDT and in fiat (USD, EUR and GBP), converts through OTC trades by quote and disburses the already calculated net amount to the employee's Colombian bank account over the local bank rail. The process includes KYB verification, AML/KYT monitoring and institutional custody.

Soulbit supports batch and recurring payments, so an indemnity can be disbursed together with other payments in the cycle. The flow is detailed in batch payroll: from file to disbursement. Check the app stores to verify whether Soulbit's mobile apps are available before describing them as live.