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 paper with several line items and a final amount. I had no idea if it was correct. Were the severance payments calculated properly? Had they paid me the interest? And what about the proportional bonus? I signed because I didn't want to seem ignorant — a mistake many Colombians make.

The labor settlement is the final payment that every formal employee has the right to receive when their contract ends, whether because they were fired, resigned, or the contract came to an end. It's not a favor from the employer. It's your money. And if you don't know how it's calculated, it's very easy for you to be underpaid — or for you to spend months claiming what you're 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, 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's the sum of several rights that were generated during the contract. When it ends, the employer must pay you:

• Accumulated severance (or the pending balance if you had a fund)
• Severance interest proportional to the year in progress
• Proportional legal bonus 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. We'll go through them one by one.

Severance: your forced 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 transportation allowance if you receive it (more on this below). It does not include voluntary bonuses, occasional overtime, or travel allowances.

The important part: the employer doesn't give you the severance directly each year. They are required to deposit it in a Severance Fund before February 14 of the following year. The most well-known funds are Porvenir, Protección, Colfondos, Skandia, and the FNA (National Savings Fund, for public employees). When the contract ends, you can withdraw the accumulated balance immediately.

While you're employed, you can only withdraw partial severance for three things: home purchase or improvement, payment of formal studies (yours, your spouse's, or your children's), or if you've been unemployed for 90+ days after resigning. For any partial withdrawal you need a certification from your 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 last salary.
2. Contact your fund (Porvenir, Protección, etc.) through their app, website, or branch. Most allow you to start the process 100% digitally.
3. Fill out the final withdrawal form. If it was dismissal or resignation, you don't need additional supporting documents for use.
4. Wait for the disbursement. Typical times are 5 to 15 business days. If the employer didn't 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 didn't deposit in some year, that part is owed to you directly. Check your fund statement 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 31 of each year. And here's the key part: the employer pays it directly to you, not to the fund, before January 31.

That is, each 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 retroactive money (with a 3-year statute of limitations). The settlement includes the proportional amount for the year in progress, calculated on the days worked.

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

Legal service bonus: what many confuse with a bonus

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

If you end the contract at some point in the semester, you have the right to the proportional bonus. The formula: (Base salary × days worked in the semester) ÷ 360. The base salary includes transportation allowance when applicable.

The only case where NO bonus is generated is the service provision contract — which is not a labor contract (I explain the difference later).

Compensated vacation in the settlement

Every Colombian employee has the right to 15 business days of vacation per year worked. If when the contract ends you haven't 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 is used without transportation allowance. If you've worked 27 months and haven't taken vacation in 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 monthly. It applies if your monthly salary is equal to or less than two minimum wages (≤ approximately $2,847,000 in 2026). Although its name sounds like bus assistance, by law it's 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 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 your 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 just cause properly justified, there is no indemnity.

For indefinite contracts signed after 2002 (Law 789), with 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: severance equals the time remaining to complete the contract, with a minimum of 15 days. That is, if you're fired with 6 months left on a 1-year contract, you're owed 6 months of salary.

Real example: how much Carlos is owed

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

Almost $15 million. Not counting severance interest that the employer should have paid him each January before (and possibly didn't). These numbers are approximate — the employer must give you a detailed settlement slip with each item and exact days.

Integral 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 an integral salary. This means that all social benefits (bonus, severance, interest) are already included in that salary. However, integral salary does not include vacation or severance indemnity — those remain mandatory.

Integral salary must be expressly agreed in the contract and the employee must agree. It's not something the employer can impose unilaterally.

Service contracts: no severance or bonus

This is fundamental and creates many misunderstandings. A service contract is NOT an employment contract. It doesn't generate legal bonus, doesn't generate severance, no transportation allowance, no health or pension contributions from the contractor (you must assume them as self-employed). You only have the right to collect what's agreed in the service contract.

Now: if they call you a 'contractor' but in reality 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 labor rights recognized. Watch out for that.

What to do if the employer doesn't pay your settlement?

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

If they don't respond or deny payment: you can go to the Business Service Center of the nearest Ministry of Labor to attempt administrative conciliation — it's free and relatively quick. If that doesn't work, the next option is a labor lawsuit before the labor judge. For small amounts (less than 20 minimum wages), the process is verbal and you don't 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 severance if I don't withdraw it?

You don't lose it — as long as the fund is active, the money stays there. However, if the fund has been inactive for many years without movement, it can 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 retain it for personal debts. It's one of the few assets completely protected in Colombia.

❓ Do I have to pay taxes on the settlement?

In most cases no. Severance, bonus and severance indemnity are non-taxable income for income tax purposes, according to the Tax Code. Only if you receive very high amounts or have very high total labor income could there be some tax implication. Consult with an accountant if you're unsure.

❓ Can self-employed people have severance?

Not automatically, but yes voluntarily. If you work as self-employed or freelancer, you can join a severance fund and make voluntary contributions. It's an excellent savings discipline because the money is protected from seizure and can only be withdrawn in the cases provided.

❓ 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 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're entitled to — and that costs them money in every settlement they sign without reviewing.

If you're in the settlement process 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/community — there are labor experts who answer without charging for consultation.