How to Calculate Severance Pay in Colombia: Complete Guide 2026

Liquidacion laboral in Colombia refers to the complete package of payments an employer must make to an employee when their employment contract ends, regardless of the reason for termination. This right is enshrined in the Codigo Sustantivo del Trabajo (Colombian Labor Code) and is non-waivable, meaning no agreement between the parties can eliminate the employer's legal obligation to pay what is owed.

The liquidacion includes components such as prima de servicios (service bonus), cesantias (severance savings), interest on cesantias, vacation pay, and in certain cases, indemnizacion por despido sin justa causa (wrongful dismissal compensation). The correct calculation of each component depends on factors like the worker's salary, length of service, and type of contract.

It is important to understand that the liquidacion is not an additional benefit or a bonus: it is money the worker has already earned during the employment relationship, simply paid in a lump sum at the time of termination. That is why knowing how it is calculated is essential to verify that the amount received is correct.

Many workers in Colombia are unaware of their full entitlements, which allows some employers to pay less than what the law requires. With this guide, you will be able to calculate your own liquidacion and compare it with what your employer offers, using our Colombia severance calculator to verify the results.

Before starting the calculations, you need to know the official values used as the base:

Concept	2025 Value	Note
SMMLV (Minimum Wage)	$1,423,500 COP	9.54% increase from 2024
Transportation allowance	$200,000 COP	Applies to salaries up to 2 SMMLV
Base salary + allowance	$1,623,500 COP	Base for prima and cesantias at minimum wage

The transportation allowance (auxilio de transporte) is included in the calculation base for prima de servicios and cesantias, but is not included in the base for vacation pay or social security contributions. This is a common error that can result in an incorrect liquidacion.

For workers earning more than 2 SMMLV ($2,847,000 in 2025), the transportation allowance does not apply. However, if the employer pays it voluntarily, it will be considered part of the salary for the purposes of calculating benefits.

Additionally, if your salary is variable (includes commissions, overtime, night surcharges, or Sunday/holiday pay), you should average your income over recent months to obtain a fair salary base. Generally, the average of the last 3 months is used, or the last full year if variability is high.

The prima de servicios is a social benefit equivalent to 30 days of salary per year worked, paid in two installments: the first before June 30 and the second before December 20. If you worked less than a full semester, it is paid proportionally.

Formula:

Prima = (Monthly salary + Transportation allowance) x Days worked in the semester / 360

Practical example: A worker earning $2,000,000 COP who worked 4 months (120 days) of the second semester:

• Base: $2,000,000 + $200,000 = $2,200,000 (allowance applies because salary is below 2 SMMLV)
• Prima = $2,200,000 x 120 / 360 = $733,333 COP

If the worker had completed the full semester (180 days), the prima would be:

• Prima = $2,200,000 x 180 / 360 = $1,100,000 COP

The prima is always paid proportionally. This means even if you only worked one month, you are entitled to the corresponding fraction. No employer can refuse to pay proportional prima by claiming the worker did not complete the semester or the year.

To quickly verify your calculation, use our Colombia severance calculator which performs the computation automatically with current values.

Cesantias are a social benefit designed as mandatory savings for the worker. They are calculated similarly to the prima de servicios and equal one month of salary for each year worked, or proportionally for partial years.

Cesantias formula:

Cesantias = (Monthly salary + Transportation allowance) x Days worked / 360

Example: The same worker earning $2,000,000 with 240 days worked in the year:

• Cesantias = $2,200,000 x 240 / 360 = $1,466,667 COP

The employer must deposit cesantias in a cesantias fund before February 14 each year. Failure to do so triggers a penalty of one day's salary for each day of delay (penalty for late payment).

Interest on cesantias:

In addition to cesantias, the employer must pay interest at 12% per year on the cesantias balance. This interest is paid directly to the worker before January 31 each year.

Interest formula:

Interest = Cesantias x Days worked x 0.12 / 360

Example: Continuing with the previous case:

• Interest = $1,466,667 x 240 x 0.12 / 360 = $117,333 COP

If the employer does not pay interest on time, they must pay a penalty equal to double the interest owed. This is a worker's right that few people are aware of and that is frequently underpaid.

At the time of liquidacion, both the cesantias for the final period and the corresponding interest are paid. Cesantias from previous periods should already be deposited in the fund.

Every worker in Colombia is entitled to 15 business days of paid vacation per year of service. When the employment relationship ends and the worker has unused vacation days, these must be compensated in cash as part of the liquidacion.

Vacation formula:

Vacation pay = Base monthly salary x Days worked / 720

Important: Unlike prima and cesantias, vacation pay is calculated without including the transportation allowance. Only the base monthly salary is used.

Example: Worker earning $2,000,000 with 240 days worked:

• Vacation = $2,000,000 x 240 / 720 = $666,667 COP

If the worker had completed a full year (360 days):

• Vacation = $2,000,000 x 360 / 720 = $1,000,000 COP

This equals 15 days of salary, which is exactly half a month. The simplified formula divides by 720 (which is 360 x 2), yielding the equivalent of half a month's salary per full year worked.

It is important to clarify that if the worker already took some vacation days, only the remaining unused days are compensated. Additionally, vacation can be accumulated for up to two years, but regular use is recommended for mental health and well-being.

Indemnizacion por despido sin justa causa (wrongful dismissal compensation) is an additional payment the employer must make when they decide to terminate the contract without a valid legal reason. It is important to distinguish it from the regular liquidacion: compensation only applies in unjustified dismissals, while the liquidacion is always paid.

For indefinite-term contracts:

Salary range	Compensation
Up to 10 SMMLV ($14,235,000)	30 days' salary for the first year + 20 days for each additional year
Over 10 SMMLV	20 days' salary for the first year + 15 days for each additional year

For fixed-term contracts: The compensation equals the salary corresponding to the remaining time left on the contract.

Compensation example (indefinite contract): Worker earning $3,000,000 COP dismissed without just cause after 3 years and 6 months:

• First year: 30 days = $3,000,000
• Second year: 20 days = $2,000,000
• Third year: 20 days = $2,000,000
• Additional half year: 20 x (180/360) = 10 days = $1,000,000
• Total compensation: $8,000,000 COP

The just causes for dismissal are specifically enumerated in Article 62 of the Colombian Labor Code. If your employer cannot prove one of these causes, you are entitled to compensation. There is also a penalty for late payment: if the employer does not pay the liquidacion at the time of termination, they must pay one day's salary for each day of delay.

Many people confuse these two concepts, partly because other Spanish-speaking countries use them differently. In Colombia, the situation is as follows:

Liquidacion laboral (severance package):

• It is the calculation and payment of all pending social benefits at the time of contract termination
• Includes prima, cesantias, interest, and proportional vacation pay
• It is a non-waivable right of the worker
• It is always paid, regardless of the reason for termination
• The employer is legally obligated to make this payment

Finiquito (settlement document):

• It is a document detailing each concept and amount in the liquidacion
• The worker signs it to confirm receipt of the indicated amounts
• It is not a negotiable agreement: the employer cannot offer less than the legal minimum
• Signing the finiquito does not prevent future claims if the amounts are incorrect

In countries like Mexico and Chile, the term "finiquito" has a more specific legal meaning. In Mexico, for example, finiquito is the payment for voluntary termination, while liquidacion is reserved for dismissals. In Colombia, no such distinction exists: everything falls under the concept of liquidacion.

If you believe your liquidacion was calculated incorrectly, you can file a complaint with the Ministry of Labor or initiate a labor lawsuit within 3 years following the termination of the contract (ordinary labor statute of limitations).

Let us calculate the full liquidacion for a real-world scenario. This exercise will help you understand the process from start to finish and verify your own liquidacion.

Case details:

• Monthly salary: $2,500,000 COP
• Transportation allowance: $200,000 COP (applies because salary is below 2 SMMLV)
• Start date: March 1, 2025
• End date: September 16, 2025
• Days worked: 200 days
• Termination type: voluntary resignation (no compensation)

1. Prima de servicios:

• First semester prima (already paid in June): proportional to 122 days
• Second semester prima (pending): July 1 to September 16 = 78 days
• Prima = ($2,500,000 + $200,000) x 78 / 360 = $585,000 COP

2. Cesantias:

• Cesantias = ($2,500,000 + $200,000) x 200 / 360 = $1,500,000 COP

3. Interest on cesantias:

• Interest = $1,500,000 x 200 x 0.12 / 360 = $100,000 COP

4. Vacation pay:

• Vacation = $2,500,000 x 200 / 720 = $694,444 COP

Total liquidacion:

Concept	Amount
Prima de servicios (2nd semester)	$585,000
Cesantias	$1,500,000
Interest on cesantias	$100,000
Vacation pay	$694,444
TOTAL	$2,879,444 COP

You can replicate this calculation by entering the same data in our Colombia severance calculator. We also recommend checking tax withholding amounts with the withholding tax calculator.

It is important to know that some components of the liquidacion may be subject to income tax withholding (retencion en la fuente). The prima de servicios, for example, has special tax treatment: it is exempt up to a certain amount. Cesantias and their interest also have tax benefits when used for housing or education purposes.

Wrongful dismissal compensation is subject to income tax withholding, but a special table is applied to reduce the tax impact on the worker. To calculate the withholding effect, you can use our withholding tax calculator.

Recommendations when receiving your liquidacion:

• Verify each component: Calculate prima, cesantias, interest, and vacation on your own. Compare with what the employer offers.
• Check the employment certificate: Make sure the start and end dates are correct, as even one day's difference can change the amount.
• Confirm the transportation allowance: If your salary is below 2 SMMLV, it must be included in the prima and cesantias base.
• Do not sign under pressure: You have the right to take time to review the calculations before signing the settlement document.
• Keep copies of everything: Save your contract, pay stubs, termination letter, and settlement document for at least 3 years.
• Consult a lawyer if there are discrepancies: If the amounts do not match, you can go to the Ministry of Labor or hire a labor attorney.

For a complete view of your salary situation, you can also use our Colombia payroll calculator which shows a detailed breakdown of salary, deductions, and social security contributions.