Severance Pay and Employment Settlement in Colombia: How They Are Calculated and How to Claim Them

When I finished my first contract in Colombia, my employer handed me a piece of paper with several lines and a final figure. I had no idea if it was correct. Were the severance payments (cesantías) calculated correctly? Had they paid me the interest? And what about that proportional bonus (prima)? I signed because I didn't want to seem ignorant—a mistake that many Colombians make.

The labor settlement (liquidación laboral) is the final payment every formal employee is entitled to receive when their contract ends, whether they were fired, resigned, or the contract reached its term. It is not a favor from the employer. It is your money. And if you don't know how it is calculated, it is very easy for them to underpay you—or for it to take months for you to claim what you are owed. If you want to see real options right now, you can post your services for free on Colombia Move — posting is completely free.

In this guide, I will explain exactly what makes up a labor settlement in Colombia, how to calculate each item, how to withdraw your severance, and what to do if the employer simply does not pay.

What does the labor settlement include?

The labor settlement is not just one number: it is the sum of several rights that were generated during the contract. Upon termination, the employer must pay you:

• Accumulated severance (Cesantías) (or the outstanding balance if you had a fund)
• Severance interest proportional to the current year
• Proportional legal bonus (Prima legal) for the semester worked
• Compensated vacation (the days you did not take)
• Indemnity for dismissal without just cause (only if applicable)

Each of these items has its own formula. Let's look at them one by one.

Severance (Cesantías): your mandatory savings when the contract ends

Severance equals one month of salary for each year of work. The exact formula is:

The base salary for severance includes the transport allowance if you receive it (more on this below). It does not include voluntary bonuses, occasional overtime, or per diems.

The important thing: the employer does not hand you the severance directly every year. They are required to deposit it into a Severance Fund (Fondo de Cesantías) before February 14th of the following year. The best-known funds are Porvenir, Protección, Colfondos, Skandia, and the FNA (Fondo Nacional del Ahorro, for public employees). When the contract ends, you can withdraw the accumulated balance immediately.

While you are employed, you can only withdraw partial severance for three things: purchase or improvement of housing, payment of formal studies (for yourself, your spouse, or your children), or if you have been unemployed for 90+ days after resigning. For any partial withdrawal, you need a certification from the employer and the corresponding supporting documents.

How to withdraw severance step by step

When the contract ends, the process is simpler than it seems:

1. Request the labor certification from your employer with the exact start and end dates of the contract and your final salary.
2. Contact your fund (Porvenir, Protección, etc.) via their app, website, or branch. Most allow you to start the process 100% digitally.
3. Fill out the final withdrawal form. If it was a dismissal or resignation, you do not need additional usage support documents.
4. Wait for the disbursement. Typical times are 5 to 15 business days. If the employer did not make the annual deposits correctly, the process may take longer—in that case, the employer must pay you directly.

A common mistake: believing the fund has all the money. If the employer did not deposit for a certain year, that part is owed to you directly. Check the status of your fund before ending the contract.

Severance interest: the right that almost everyone forgets

This is money that many Colombians simply never collect because they don't know it exists. Severance interest is 12% per year on the severance balance accumulated as of December 31st of each year. And here is the key part: the employer pays this directly to you, not to the fund, before January 31st.

In other words, every January you should receive a separate payment equivalent to 12% of your severance from the previous year. If your employer never paid you this, they owe you that money retroactively (with a 3-year statute of limitations). The settlement includes the proportional amount for the current year, calculated on the days worked.

The formula for the current period is: Severance for the period × 12% × (days worked in the year ÷ 360). It is a number that seems small, but in 2–3 years of a contract, it can add up to nearly one million pesos.

Legal service bonus (Prima): what many confuse with a bonus

The legal bonus is not a discretionary gratuity—it is a right. It is equivalent to 15 days of salary per full semester worked, paid in two parts: before June 30th and before December 20th.

If you end the contract at any point in the semester, you are entitled to the proportional bonus. The formula: (Base salary × days worked in the semester) ÷ 360. The base salary includes the transport allowance when applicable.

The only case where no bonus is generated is a contract for services (prestación de servicios)—which is not a labor contract (I will explain the difference later).

Compensated vacation in the settlement

Every Colombian employee is entitled to 15 business days of vacation per year worked. If you have not taken vacation (or have only taken some) when the contract ends, the employer must compensate you in money for the outstanding days.

The formula: (Salary × days worked in the period) ÷ 720. Note: for vacation, the base salary is used without the transport allowance. If you have worked for 27 months and did not take vacation during that time, the proportional amount can be a significant sum.

Transport allowance: it applies to more workers than you think

The transport allowance in 2026 is approximately $200,000 per month. It applies if your monthly salary is equal to or less than two minimum wages (≤ $2,847,000 approximately in 2026). Although its name sounds like bus help, by law it is added to the salary to calculate severance and bonus—but not to calculate vacation or indemnity.

What does this mean in practice? That if you earn $2,500,000 and receive a transport allowance, your base for severance and bonus is $2,700,000, not $2,500,000. That detail can mean several hundred thousand pesos in the final settlement.

Indemnity for dismissal without just cause

This only applies if the employer fires you without a valid cause recognized by law. If you resigned, if you completed the term of a fixed-term contract, or if you were fired with duly justified just cause, there is no indemnity.

For indefinite contracts signed after 2002 (Law 789), with a salary ≤ 10 minimum wages:

• First 12 months: 30 days of salary
• Each additional year (or fraction): 20 additional days of salary

For fixed-term contracts: the severance pay equals the time remaining to complete the contract, with a minimum of 15 days. That is, if you are fired with 6 months remaining on a 1-year contract, you are owed 6 months of salary.

Real example: how much Carlos is owed

Carlos worked for 2 years and 3 months at a company in Medellín. Salary: $2,500,000/month. He received a transportation allowance ($200,000). He was fired without just cause on an indefinite contract. How much is he entitled to?

Almost $15 million. This is without counting the severance interest the employer should have paid him every previous January (and likely did not). These numbers are approximate — the employer must give you a detailed settlement slip (colilla de liquidación) with every item and the exact days.

Comprehensive salary: when the rules change

If your monthly salary is equal to or greater than 13 minimum wages (≈ $18.5 million in 2026), you can agree to a comprehensive salary. This means that all social benefits (bonus, severance, interest) are already included within that salary. However, the comprehensive salary does not include vacations or indemnity — those remain mandatory.

The comprehensive salary must be explicitly agreed upon in the contract and the employee must consent. It is not something the employer can impose unilaterally.

Service provision contracts: no severance or bonus

This is essential and causes many misunderstandings. A service provision contract is NOT an employment contract. It does not generate a legal bonus, it does not generate severance, there is no transportation allowance, and there are no health or pension contributions by the hiring party (you must assume these as an independent). You only have the right to collect what is agreed upon in the service contract.

However: if they call you a 'contractor' but in reality they treat you like an employee — with a fixed schedule, direct supervision, exclusivity, and continuity — the law calls that a 'reality contract' (contrato realidad) and you can sue to have your labor rights recognized. Watch out for that.

What to do if the employer does not pay your settlement?

You have several paths, from least to most conflict. First: send a formal collection letter (right of petition or written communication) with the specific items you are claiming and the calculations. Give them 10 business days to respond. Many employers pay at this step to avoid problems.

If they do not respond or deny payment: you can go to the nearest Ministry of Labor Business Attention Center to attempt an administrative conciliation — it is free and relatively fast. If that also fails, the next option is a labor lawsuit before a labor judge. For small amounts (less than 20 minimum wages), the process is verbal and you do not need a lawyer.

The labor statute of limitations in Colombia is 3 years. After that time, you lose the right to claim. Do not wait.

Frequently asked questions about severance and settlement

❓ Do I lose my severance (cesantías) if I don't withdraw them?

You do not lose them — as long as the fund is active, the money remains there. However, if the fund has been inactive for many years without movement, it may charge commissions. Check your balance annually with the fund's app.

❓ Can the bank seize my severance?

No. Severance pay is unseizable by constitutional mandate (Article 53 of the Constitution). No bank or entity can withhold them for personal debts. It is one of the few assets completely protected in Colombia.

❓ Do I have to pay taxes on the settlement?

In most cases, no. Severance pay, the bonus, and termination indemnity are non-taxable income for income tax purposes, according to the rules of the Tax Statute. Only if you receive very high amounts or have very high total labor income could there be any tax implications. Consult with an accountant if you have any doubts.

❓ Can independents have severance (cesantías)?

Not automatically, but yes, voluntarily. If you work as an independent or freelancer, you can affiliate with a severance fund and make voluntary contributions. It is an excellent savings discipline because the money is protected from seizures and can only be withdrawn in the cases provided for.

❓ How do I simulate my settlement before resigning?

Most severance funds (Porvenir, Protección, Colfondos) have simulators in their app or website. You can also use a spreadsheet with the formulas in this guide. Ask Human Resources for your exact date of entry and salary history so the numbers are accurate.

Do you have questions about your settlement?

Labor rights in Colombia are stronger than many people think. The problem is that few people know exactly what they are entitled to — and that costs them money in every settlement they sign without reviewing.

If you are in the process of a settlement or have doubts about whether you were paid correctly, I recommend asking for the detailed settlement slip and reviewing it item by item with the formulas in this guide. If the numbers don't add up, do not sign until you understand why.

Do you have a specific question about your case? Ask the community at colombiamove.com/comunidad — there are labor experts who answer without charging for the consultation.