How to Calculate Labor Severance in Colombia in 2026: Step-by-Step and Practical Example

Calculating labor severance in Colombia often raises questions for both employees and employers when a contract ends. Whether due to voluntary resignation, termination of the agreed term, or dismissal, Colombian law requires the timely calculation and payment of items accumulated during the time worked.

For 2026, the Legal Monthly Minimum Wage (SMMLV) is temporarily set at COP 1,750,905 by means of Decree 159 of 2026, issued after the Council of State provisionally suspended Decree 1469 of 2025. As of August 6, 2026, COP 1,750,905 remains the current temporary value while a final decision is pending. The transport allowance is COP 249,095 according to Decree 1470 of 2025 for those who meet its conditions. These are the figures I use in the example in this guide.

Quick answer: What payments make up a labor settlement?

A standard labor settlement upon ending an employment contract in Colombia includes:

• Pending salaries: Days worked in the last period that have not yet been paid.
• Severance (Cesantías): One month of salary for every year worked, or proportional to the time worked (includes transport allowance if applicable).
• Interest on severance: 12% annual interest on the accumulated severance balance (or proportional).
• Service bonus (Prima de servicios): 30 days of salary per year, payable in two biannual installments or proportionally to the current semester (includes transport allowance if applicable).
• Vacation: 15 business days of paid rest for every year worked (calculated on the basic salary, without transport allowance).
• Indemnity for dismissal without just cause: Only applies if the employer terminates the contract unilaterally without a demonstrated legal cause.

Settlement Base Salary (SBL) and transport allowance

The first essential step is to determine the Settlement Base Salary (SBL). For most employees with a fixed salary, this corresponds to the ordinary monthly allocation plus concepts that constitute salary (commissions, night surcharges, Sunday pay, and overtime).

If you need to verify how overtime affects your monthly income before calculating, you can consult our guide on how to calculate overtime and night surcharges in Colombia.

There is a fundamental rule regarding the transport allowance (COP 249,095):

• It IS INCLUDED in the SBL for the calculation of severance (cesantías) y and service bonus for employees earning up to 2 SMMLV (COP 3,501,810).
• It IS EXCLUDED from the SBL for the calculation of vacation and social security contributions.

Legal formulas for calculating labor settlements

Below are the formulas established by labor regulations and validated by the Ministry of Justice (LegalApp) for labor calculations of 360 days per year:

Concept	Mathematical Formula	Calculation Base (SBL)
Severance (Cesantías)	(SBL × Days worked in the year) / 360	Basic salary + Transport allowance + Variables
Interest on Severance	(Accumulated severance × Days worked × 0.12) / 360	Exact amount of severance settled
Service Bonus	(SBL × Days worked in the semester) / 360	Basic salary + Transport allowance + Variables
Vacation	(Basic Salary × Total days worked) / 720	Only basic salary (without transport allowance)

To delve into the cutoff periods and specific rules for the biannual bonus, consult our guide on the service bonus in Colombia for 2026.

Practical example of settlement in 2026

Let's imagine a practical case based on the current values for 2026:

• Position: Operations Assistant
• Salary: 1 SMMLV = COP 1,750,905
• Transport allowance: COP 249,095
• SBL with transport (Severance and Bonus): COP 2,000,000
• SBL without transport (Vacation): COP 1,750,905
• Start date: January 1, 2026
• Retirement date (voluntary resignation): August 30, 2026
• Time worked in the year: 240 days
• Time worked in the 2nd semester (for service bonus): 60 days (July and August)
• Vacation previously taken: None (240 days remaining)

Step 1: Severance Pay Calculation

(COP 2.000.000 × 240 días) / 360 = COP 1.333.333

Step 2: Severance Interest Calculation

(COP 1.333.333 × 240 días × 0,12) / 360 = COP 106.666

Step 3: Service Bonus Calculation (2nd semester)

(COP 2.000.000 × 60 días) / 360 = COP 333.333

Step 4: Vacation Calculation

(COP 1.750.905 × 240 días) / 720 = COP 583.635

Total Settlement Result

By adding the four concepts, the worker will receive a total estimated amount for benefits and vacation of COP 2,356,967 (plus any salary days earned in the last month of work that are pending payment).

Indemnity for unfair dismissal

When the termination of the contract happens unilaterally by the employer and without proven just cause (according to articles 62 and 64 of the Colombian Labor Code), the employer must pay additional indemnity.

The value depends on the type of contract:

• Fixed-term contract: The value of the wages corresponding to the time remaining to fulfill the stipulated term.
• Contract for work or labor: The value of the wages corresponding to the time remaining to complete the contracted work or labor (with a minimum of 15 days of salary). If your contract belongs to this category, check the specific details in our guide on the work or labor contract in Colombia.
• Indefinite-term contract (salaries below 10 SMMLV): 30 days of salary for the first year worked and 20 additional days for each subsequent year (or proportional for a fraction).

Frequently Asked Questions

❓ What does the labor settlement include when ending a contract?

It includes pending wages, proportional severance pay, interest on severance pay, the service bonus for the current semester, and compensation for unused vacation. If the dismissal was without just cause, the corresponding legal indemnity is added.

❓ Is the transport subsidy added to calculate vacation?

No. The transport subsidy is only included in the base calculation for severance pay and the service bonus. For the vacation calculation, only the ordinary basic salary earned by the worker is used.

❓ When must the employer pay the labor settlement?

The settlement payment must be made upon termination of the contract. A delay can have consequences under article 65 of the Labor Code, depending on the circumstances of the case; if there is a disagreement, it is advisable to seek guidance or labor conciliation.

❓ How is the settlement calculated if I worked less than a year?

All social benefits and vacation are calculated strictly proportional to the days actually worked during the calendar year or semester, applying the same formulas divided by 360 or 720 depending on the concept.

❓ Am I entitled to a settlement if I resign voluntarily?

Yes. Voluntary resignation does not deprive the worker of their accumulated social benefits (severance, interest, bonus) nor their pending vacation. The only thing that does not apply in the case of resignation is the indemnity for unfair dismissal.

❓ What is the current 2026 minimum wage decree for calculating the settlement?

Decree 159 of 2026 temporarily sets the SMMLV at COP 1,750,905. It is in force following the provisional suspension of Decree 1469 of 2025 by the Council of State and, as of August 6, 2026, it remains the current base while the process is decided.