Severance funds in Colombia: how they are calculated, deposited and withdrawn

Severance funds in Colombia: how they are calculated, deposited and withdrawn

Cesantías — Colombia's mandatory severance savings — amount to one month's salary per year worked, and the employer must deposit them into a fund before 14 February of the following year. They are not voluntary savings, they are not the company's emergency cash and they cannot be used to plug a December cash gap: they are a labour liability that accrues month by month from the first day of work.

Here you will find the calculation with the full base, the calendar almost nobody meets, the 12 % interest paid separately, the only grounds for withdrawal and a worked example you can replicate in your payroll. At the end, the mistakes that end in a penalty.

What severance is and why it is not voluntary savings

Severance equals one salary per year worked and is settled with a cut-off date of 31 December. Someone who worked the full twelve months on the same base receives one month's salary; someone who worked six months receives half. The money belongs to the worker from the moment it accrues, even though a third party administers it.

That is why it is not voluntary savings. Nobody signs an authorisation and nobody chooses the amount: the obligation arises from the employment contract, whether or not there is profit, whether or not there is cash that month. Nor is it a benefit that can be traded for another, or a loan from the employee to the company while the deposit is pending.

The difference from the bonus and from vacation lies in where the money goes. The bonus is paid to the worker in June and December; vacation is taken or compensated; severance is transferred to a fund that administers it in the employee's name. It is the only one of the three that leaves the company and sits in someone else's account.

And it accrues month by month, not in February: every payroll run generates one twelfth of the obligation, which must be recognised as a liability in that same month's balance sheet. If it is only recorded when the deposit is made, eleven months of financial statements are dressed up and pricing and cash decisions are taken on false data.

Who receives it and who administers it: fund or employer

The standard today is the severance fund. The worker chooses the fund and the employer is obliged to enrol them and deposit there. The company cannot impose a fund or switch the worker to another administrator for its own convenience, and that choice is worth documenting in writing from day one.

There are cases where severance is handled in an employer-held account, tied to older regimes and specific situations. There the money does not leave the company every February: it stays on the balance sheet as an obligation to the worker and is paid when they leave or prove one of the legal grounds. It is an exceptional arrangement, and it should be confirmed worker by worker before projecting the year's cash flow.

With a fund, the company faces a foreseeable cash outflow every February. With its own account, it accumulates a debt that can go years without showing up and appears in full the day the worker resigns.

How the base is calculated without leaving payments out

The base is ordinary salary plus the transport allowance plus habitual salary payments. That last adjective is where the differences appear: not every extra payment counts, only the one that repeats. A few isolated overtime hours in December do not change the year's base; overtime paid every week does, and it enters at its average. The same goes for commissions: if the salesperson earns a commission month after month, that commission is part of their real salary and must be in the settlement.

The transport allowance is included even though it is not salary for other purposes. It is the exception most often missed, because accounting treats it as a non-salary payment and excludes it from everything. For severance, it is inside the base.

Two warnings. If the salary changed during the year, the base is not the last salary: time worked at each value must be weighted. And the severance base is not identical to the social security base.

The 31 December cut-off and the February deposit

The cut-off is 31 December of each year, regardless of the company's accounting close or fiscal year. On that date what accrued during the year is settled and the amount to deposit is determined. The deposit must be made before 14 February of the following year.

That turns January into a real closing month, not a paperwork month: settle, review each worker's base, reconcile with payroll, verify the fund's records and transfer. When everything is left to the second week of February, one worker's error can no longer be fixed without paying a penalty.

Depositing is not paying a tax or a parafiscal contribution: it is moving to the fund money that already belongs to the worker. The deposit generates no tax benefit for the company; it extinguishes the liability and puts the money outside its control.

Interest on severance: the 12 % almost nobody pays on time

Severance earns 12 % annual interest. It is the item most often forgotten because it does not go through the fund: it is paid directly to the worker, in cash or through payroll, before 31 January. It is not deposited, not enrolled and does not appear on the fund statement, so it falls outside almost every closing.

The calculation is made on the severance balance, not on the month's salary: balance times 12 % times days, divided by 360. Because severance accrues month by month, the interest also accumulates month by month. If the worker leaves in August, interest is calculated up to the departure date and paid in the final settlement.

Interest accrues even if the severance was never deposited. A delay in the deposit does not suspend the 12 %: the worker can end up collecting interest on money that never reached the fund, and the company absorbs that extra cost.

Proportional severance: when the year was not worked in full

If the worker was employed for less than a year, the settlement is proportional to days worked: base times days, divided by 360. With an example base of 2,200,000 pesos and 100 days, the result is 611,111 pesos.

It is not a punishment or an exception: it is the same one-twelfth rule applied to actual time. Someone who joined on 1 October accrued only three months, and that is what gets deposited in February. If they leave before the cut-off, it is settled up to the departure date, with the same days as divisor.

Under the general regime severance is settled every year and does not accumulate over the entire time worked: each 31 December the balance is cut and deposited. Retroactive severance, which accumulates the full history and is settled on the last salary, exists only for certain older regimes; if your company has workers in that situation, the calculation changes and should be reviewed with your accountant.

When it can be withdrawn and when it cannot

When the contract ends, withdrawal is unconditional: no requirement, no supporting document beyond the termination itself, and the cause does not matter. Resignation, dismissal, completion of the project or mutual agreement produce the same right. The worker applies to the fund and the fund pays.

During the employment relationship the rule is the opposite: withdrawal is allowed only for housing or education, with the supporting documents the fund requires in each case. The fund defines which document proves each ground and may return the request if the support does not match. That is why it is worth checking the list before promising the worker the money will be ready this week.

• Housing: the ground exists and is proven with the fund's documents, not with a letter from the company.
• Education: same logic; the support must match the stated purpose.
• End of contract: full withdrawal, unconditional and without justifying the cause.
• Other needs: travel, debts, a vehicle or medical expenses are not legal grounds during the employment relationship.

A partial withdrawal reduces the balance and therefore the interest for the following period. If the company tracks the liability, that movement must be recorded in the same month, not when the fund statement arrives.

What happens if the employer does not deposit

If the employer does not deposit, there is a penalty of one day's salary for every day of delay. It is not a fine in favour of the State: it is an amount recognised in favour of the worker for the breach, and it accrues from the delay alone, without any need to prove specific damage.

The penalty does not replace the obligation. The money is still owed, it is still deposited sooner or later, and the 12 % keeps accruing on the balance. The cost of the mistake compounds: principal, interest and penalty, each on its own.

Two effects do not appear in the rule but do appear in daily operations. The worker loses access to their money for housing or education exactly when they need it, and that becomes an internal conflict. And the company loses the fund's clearance letter, the clean certification usually requested for credit, tenders or the sale of the business: a small liability can block a large transaction.

A full example: one year and one departure

Let us work with example values, not with this year's current figures: a salary of 2,000,000 pesos and a transport allowance of 200,000 pesos. The base is 2,200,000 pesos. Always check the minimum wage and the allowance in force for the year you are settling, because they change every January.

1. Base: 2,000,000 + 200,000 = 2,200,000.
2. Severance for the full year: 2,200,000.
3. Monthly provision: 2,200,000 / 12 = 183,333.
4. Interest for the year: 2,200,000 x 12 % = 264,000, paid before 31 January.
5. Deposit: 2,200,000 to the fund, before 14 February.

Now the departure. The worker ends the contract with 2 years and 4 months. The first two years are already deposited in the fund, one salary per year on each period's base. The last stretch is 4 months of the current year, which were not deposited:

1. Severance for the last stretch: 2,200,000 x 120 / 360 = 733,333.
2. Interest for the last stretch: 733,333 x 12 % x 120 / 360 = 29,333.
3. Total for this item in the final settlement: 733,333 + 29,333 = 762,666.

The 4,400,000 from the two previous years is not paid by the company: the fund pays it when the worker files the withdrawal request. If the two flows are confused, the settlement comes out inflated and the company ends up paying the same year twice.

One detail that changes the result: if during those 4 months the worker withdrew severance for housing, the balance on which interest is calculated drops and the 29,333 is no longer correct. Interest is calculated on the real balance, not on what was theoretically accrued.

How it is recorded and provisioned

Severance is a liability, not an expense of the month it is paid. It accrues month by month: each payroll recognises the expense and increases the obligation. In the example, the monthly expense is 183,333 for severance and 22,000 for interest, that is 205,333. That is the real labour cost of having that person on payroll and it belongs in the cost of the product or service, not in a February line item.

When the deposit is made no new expense appears: the liability falls and cash falls. If the company recognises the expense only in February, the result of the previous months looks better than it is and the profit being projected or distributed is overstated.

Monthly reconciliation avoids surprises: accumulated provision against the final settlement at the cut-off. If there is a difference, it almost always comes from a salary change, a bonus that entered or left the base, or an unrecorded partial withdrawal. Adjusting in January costs less than correcting during a review.

It is worth keeping three balances apart: severance, interest and fund contributions. They are paid on different dates, to different recipients and under different rules. Mixing them in a single accounts payable leaves no way to know what is pending and what has already been transferred.

Mistakes that end in a penalty

Almost all of these mistakes share one origin: the calculation is done once a year, in a hurry, on data nobody reviewed in the previous eleven months. The penalty does not come from bad faith, it comes from haste.

An honest closing before you decide

This text explains the general mechanism and does not replace your accountant's advice or a review of the rules in force. The minimum wage, the transport allowance and some fund procedures change every year; the February calendar and the 12 % are the stable part, but the values must be verified for the year being settled.

If your company has workers under older regimes with retroactive severance, or pays a significant share through variable commissions, this article's calculation falls short and a case-by-case study is needed. It also does not apply in the same way to independent contractors, who do not generate severance, or to companies that hold severance in their own account, where the risk is liquidity rather than depositing.

Before acting, check three things: which regime each worker is under, what the year's real base was and whether interest was paid in January. With that clear, the February deposit is routine. If payroll and accounting live in systems that do not talk to each other, that is where the differences get lost; Kardex Tauro connects invoicing, inventory and payroll so the liability is visible as it accrues and not when it has already become a penalty.

Keep reading

• Service bonus in Colombia: how it is calculated and when it is paid
• Final settlement in Colombia: what is paid and how it is calculated