Severance Pay in Colombia: What Employers Owe at Termination

Every time a foreign company lets go of staff in Colombia, whether through a local entity or an employer of record, finance has only a few days to calculate and pay the full settlement. A mistake in any single line, from unpaid salary to the severance indemnity for termination without just cause, turns into a labor claim with a penalty that grows every day it stays unpaid.

At Soulbit Academy we cover this settlement from the employer's side, not from the worker's side filing a claim for it. The goal is for a finance team managing staff in Colombia to know which items go into every settlement, how the indemnity is calculated when it applies, and how long the company has to pay before a penalty kicks in. Calculating ordinary vacation and benefit accruals during an active contract, with no termination involved, is a separate topic we do not cover here: this guide focuses on closing out the employment relationship.

What severance pay in Colombia covers when a contract ends

The final settlement is the payment a Colombian employer owes a worker when the labor contract ends, regardless of the reason for termination. It covers unpaid salary and accrued statutory benefits up to the exit date, and, when the employer ends the contract without just cause, it adds the severance indemnity under Article 64 of Colombia's Labor Code.

The ordinary items, salary, cesantías, cesantías interest, the prima service bonus and paid-out vacation, are owed no matter how the contract ended: resignation, termination with just cause, termination without it, or the natural end of a fixed term. The indemnity is the one item that depends entirely on the reason: it only applies when the employer unilaterally ends the contract without a legally valid cause.

Does the final settlement look the same no matter why the contract ended?

No. The ordinary items of the settlement, unpaid salary, prorated statutory benefits and vacation, are calculated the same way regardless of why the contract ended. The severance indemnity is the exception: it appears only when the employer ends the contract without just cause and never when the worker resigns, both sides agree to end it, or a just cause is proven.

How the ordinary settlement items are calculated

The ordinary settlement items are calculated on salary, days worked and the transportation allowance when the worker qualifies for it, regardless of why the contract ended. Unpaid salary covers the days already worked in the last pay period that were not yet paid, valued at the worker's daily rate.

Accrued cesantías add the monthly salary and the transportation allowance when it applies, multiply by the days worked in the year, and divide by 360. Accrued cesantías interest equals that cesantías amount multiplied by 12% a year and by the same fraction of days worked over 360, under Law 52 of 1975. The prima service bonus uses the same salary base as cesantías, but over the days worked in the current semester. Unused vacation is paid out in cash on the base salary, excluding the transportation allowance, multiplied by days worked and divided by 720.

Colombia's transportation allowance for 2026 is 249,095 pesos, under Decree 1470 of 2025, and it applies to workers earning up to two monthly minimum wages. Leaving it out of the cesantías and prima base when a worker qualifies for it is one of the most common settlement mistakes.

Item	Formula	Owed regardless of cause
Unpaid salary	Unpaid days worked x daily salary	Yes, in every settlement
Accrued cesantías	(Salary + transportation allowance) x days in year / 360	Yes, in every settlement
Accrued cesantías interest	Accrued cesantías x 12% x days in year / 360	Yes, in every settlement
Accrued prima service bonus	(Salary + transportation allowance) x days in semester / 360	Yes, in every settlement
Vacation paid in cash	Base salary x days worked / 720	Yes, in every settlement

The severance indemnity for termination without just cause: the Article 64 table

The severance indemnity for termination without just cause is calculated based on the type of contract and, for an indefinite-term contract, on the worker's salary and tenure, under Article 64 of Colombia's Labor Code. Under a fixed-term contract, the indemnity equals the salary owed for the time remaining on the agreed term; under a contract tied to a specific project or task, it can never be less than 15 days of salary.

Under an indefinite-term contract, a worker earning less than 10 monthly minimum wages, below 17,509,050 pesos in 2026, gets 30 days of salary with under a year of service, plus 20 additional days for each further year beyond the first, prorated for a partial year. A worker earning 10 minimum wages or more gets 20 days of salary with under a year of service, plus 15 additional days for each further year beyond the first.

A concrete example: a worker on an indefinite-term contract, earning 3,000,000 pesos a month with 4 years of service, gets 30 base days plus 20 days for each of the 3 years past the first, for 90 days of salary in total. The same calculation with a salary of 20,000,000 pesos, above the 10-minimum-wage threshold, would yield 20 base days plus 15 days for each of those 3 years, 65 days of salary in total.

Contract type	Tenure or salary	Indemnity
Fixed term	Any tenure	Salary owed for the remaining agreed term
Tied to a project or task	Any tenure	Never less than 15 days of salary
Indefinite, salary below 10 minimum wages	Under 1 year	30 days of salary
Indefinite, salary below 10 minimum wages	Over 1 year	30 days plus 20 days per additional year
Indefinite, salary at 10 minimum wages or above	Under 1 year	20 days of salary
Indefinite, salary at 10 minimum wages or above	Over 1 year	20 days plus 15 days per additional year

What does not trigger a severance indemnity in Colombia

Not every exit triggers the Article 64 indemnity: the law reserves it for termination without just cause driven unilaterally by the employer. The first case that does not trigger it is a genuine voluntary resignation, with no pressure from the employer behind it. The second is termination by mutual agreement, when both sides sign off on the exit and neither claims damages. The third is termination with a proven just cause, one of the serious grounds listed in Article 62 of the Labor Code. The fourth is the natural end of a fixed-term contract, when the employer gives notice of non-renewal within the time the law requires.

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

No, as long as the employer gives notice of non-renewal at least 30 days before the agreed term ends, the contract simply terminates and only the ordinary settlement items are owed. If the employer misses that notice window, the contract automatically renews for an equal period, and the employment relationship continues instead of generating an indemnity.

When the employer must pay and the Article 65 late-payment penalty

The employer must pay the full final settlement at contract termination; if it does not, Article 65 of Colombia's Labor Code triggers a late-payment penalty of one extra day of salary for every day of delay, capped at 24 months. That penalty starts running the day after termination, without the worker needing to file a claim first for it to begin accruing.

Once 24 months pass without full payment, the penalty stops adding days of salary and switches to moratory interest on the unpaid balance, calculated at the maximum unrestricted-credit rate certified by Colombia's Financial Superintendence, from the start of month 25 until the balance is paid.

Is the Article 65 late-payment penalty applied automatically?

Not automatically. Labor case law requires a judge to weigh whether the employer acted in bad faith before applying the penalty, and a company that can show a genuine reason for the delay, not merely a cash shortage, has room to contest it. This penalty is separate from the one that applies when an employer deposits cesantías into a worker's fund late, a distinct case we cover in cesantías: a severance guide for employers.

Common mistakes when settling a contract in Colombia

The first is calculating the salary base on fixed pay alone, without adding commissions or other variable pay that legally counts toward cesantías and the prima bonus. The second is miscounting tenure for the Article 64 table, especially when a worker had a suspended contract period that does not count the same as time actually worked. The third is treating an employer-induced resignation as a genuine voluntary one, something a labor judge can reclassify as termination without just cause.

Another common mistake shows up in the social security report: if the worker's exit is not reported on time in PILA, the company stays exposed to a UGPP audit of that period up to 5 years later. Confusing a worker under a labor contract with an independent contractor at the point of exit is another frequent risk, one we cover in contractor vs. employee: how to legally pay each one. Payroll software that calculates cesantías, prima, vacation and indemnity correctly closes off much of these risks, as covered in payroll software in Colombia: what to check.

What Soulbit automates when paying a final settlement, and what it does not

Soulbit does not calculate a final settlement, determine the Article 64 severance indemnity, or apply the Article 65 late-payment penalty; that calculation stays with the employer or its local payroll provider, the same way it does for the rest of payroll. We cover that full flow in how to pay payroll in Colombia.

What Soulbit automates is the next step after the calculation: holding balances in stablecoins such as USDC and USDT and in fiat currencies including COP, USD, EUR and GBP, converting between them, and disbursing the already-calculated net amount to the Colombian bank account of a worker leaving the company, with KYB and anti-money-laundering processes in place. That flow applies the same way to a one-off final settlement as it does to the rest of the team's recurring payroll, as detailed in COP and USD payment disbursement in Colombia.