Severance Pay and Labor 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 service bonus (prima)? I signed because I didn't want to look ignorant — a mistake many Colombians make.

The labor settlement (liquidación laboral) is the final payment that 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 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 explain exactly what makes up a settlement in Colombia, how to calculate each item, how to withdraw your severance payments, and what to do if the employer simply doesn't pay.

What does the labor settlement include?

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

• Accumulated severance payments (cesantías) (or the remaining balance if you had a fund)
• Severance interest proportional to the current year
• Proportional legal service bonus (prima) for the semester worked
• Compensated vacation (the days you didn't 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 payments (cesantías): your forced savings when the contract ends

Severance payments are equivalent to one month of salary for every year of work. The exact formula is:

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

The important thing: the employer does not give you the severance directly each year. They are required to deposit it into a Severance Fund (Fondo de Cesantías) before February 14th of the following year. The most well-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: buying or improving a home, paying for formal studies (for you, 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 payments 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 last 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 documentation.
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 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% annually on the balance of severance accumulated as of December 31st of each year. And here is the key part: the employer pays it directly to you, not to the fund, before January 31st.

That is, 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 based 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 a 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 transportation allowance when applicable.

The only case where a bonus is NOT generated is a service provision contract (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 when the contract ends you have not taken vacation (or have only taken some), the employer must compensate you in money for the pending days.

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

Transportation allowance: applies to more workers than you think

The transportation 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 fare help, by law it is added to the salary to calculate severance and the bonus — but not to calculate vacation or indemnity.

What does this mean in practice? That if you earn $2,500,000 and receive a transportation 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 fulfilled the term of a fixed-term contract, or if you were fired with a duly justified 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 is equivalent to the time remaining to complete the contract, with a minimum of 15 days. In other words, if you are fired with 6 months remaining on a 1-year contract, you are owed 6 months of salary.

Real-life 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 does not include the severance interest that the employer should have paid him each previous January (and possibly did not). These numbers are approximate — the employer must provide you with a detailed settlement slip with each item and the exact number of 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 vacation or severance pay — those remain mandatory.

The comprehensive salary must be expressly agreed upon in the contract and the employee must agree to it. It is not something the employer can impose unilaterally.

Service provision contracts: no severance or bonus

This is fundamental 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 contractor (you must assume them 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 fixed hours, direct supervision, exclusivity, and continuity — the law calls that a 'reality contract' 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 Service Center to attempt an administrative conciliation — it is free and relatively fast. If that doesn't work either, 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. Don't wait.

Frequently asked questions about severance and settlement

❓ Do I lose my severance if I don't withdraw it?

You don't lose it — as long as the fund is active, the money is still 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 is unseizable by constitutional mandate (Article 53 of the Constitution). No bank or entity can withhold it 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, the bonus, and the 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 implication. Consult an accountant if you have doubts.

❓ Can independent workers have severance?

Not automatically, but yes voluntarily. If you work as an independent or freelancer, you can join 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 on their app or website. You can also use a spreadsheet with the formulas in this guide. Ask Human Resources for your exact start date and salary history so the numbers are accurate.

Do you have questions about your settlement?

Labor rights in Colombia are more solid 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 checking.

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, don't sign until you understand why.

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