Severance for unfair dismissal in Colombia: how it is calculated
Severance for unfair dismissal in Colombia: how it is calculated
Severance for unfair dismissal in Colombia is the result of a formula, not of a negotiation. It depends on two facts: the type of contract and the average salary of the last year. If your company is about to end a contract, or if you have received a dismissal letter, here is the full formula, the difference between severance and final benefits, and a worked example of three years and seven months at two salary levels to show what changes when pay goes up.
The article does not replace your accountant or a labour lawyer: it explains the mechanism so the conversation starts with numbers.
Severance is not negotiated: it is calculated
When an employer ends the contract without a proven just cause, the law puts an economic compensation in its place. That compensation has a name, a base and a formula. The name is severance. The base is the average salary of the last year. The formula depends on the type of contract and, for an indefinite-term contract, on the size of the salary compared with the legal minimum wage.
It helps to separate two conversations that are usually mixed. One is about how the exit is handled: the letter, the explanation to the team, the job reference, the payment schedule. The other is arithmetic. The first allows nuance; the second has no room for it. An employer may agree to better exit conditions, but as long as the dismissal is unfair, the floor is set by the formula.
Severance and final benefits: two payments confused every day
The final settlement of social benefits returns what the employee already earned while employed: cesantías, interest on cesantías, the service bonus and unused vacation. It is paid always, whatever the reason for termination. Severance is different: it is not a right that accumulates by working but the consequence of a termination attributable to the employer without proven just cause.
| Item | What it represents | Always paid? |
|---|---|---|
| Cesantías | One salary per year of service, deposited or paid when the contract ends | Yes |
| Interest on cesantías | Annual return on the cesantías balance | Yes |
| Service bonus | Half-yearly payment proportional to time worked | Yes |
| Vacation | Paid rest earned and not taken | Yes |
| Severance | Compensation for termination without just cause | Only when applicable |
The confusion has a typical shape. The letter says "full settlement is paid", the employee signs, and months later discovers that severance was never in the breakdown. The payment document should list each item separately, with its base and its calculation: a settlement that adds everything into one line opens a dispute that could have been avoided.
There is another difference. The final settlement is calculated day by day of service; severance is calculated in days of salary according to length of service and type of contract. Two different clocks.
When severance is owed and when it is not
Severance appears in one specific scenario: the employer decides to end the contract and cannot invoke a proven just cause. The name of the contract changes — indefinite, fixed-term, project-based — but the principle does not.
- Severance applies when the company ends the contract without just cause, whatever the contract type.
- No severance when the employee resigns of their own decision.
- No severance when there is a proven just cause: the law does not compensate a termination based on serious misconduct by the employee.
The decisive word is "proven". A just cause stated in the letter but not supported by facts, documents or witnesses is a weak just cause, and a weak dismissal ends up looking like an unfair one. If the company cannot sustain the cause with evidence, the cheapest route is usually to recognise severance rather than defend a file that does not exist.
The moment of assessment also matters: it is judged on the facts that occurred before termination, and what happens afterwards does not validate a poorly founded letter.
The indefinite-term formula depends on the salary
The indefinite-term contract has two scales. The threshold is 10 monthly legal minimum wages (SMMLV). Below that threshold, 30 days of salary are paid for the first year and 20 days for each following year. At or above it, 20 days are paid for the first year and 15 days for each following year. In both cases the fraction of a year is paid proportionally.
| Salary bracket | First year | Each following year | Fraction of a year |
|---|---|---|---|
| Below 10 SMMLV | 30 days | 20 days | 20 × months / 12 |
| Equal to or above 10 SMMLV | 20 days | 15 days | 15 × months / 12 |
The SMMLV changes every year, so the threshold is measured with the value in force on the dismissal date. Check that value before placing the case in one scale or the other: a salary close to the threshold can change bracket with the annual adjustment, and that classification drives a large part of the final result.
The fraction is calculated in complete months over twelve. If the employee has two years and four months, the fraction equals four twelfths of the applicable annual figure. Days of fraction are not rounded at will: they are settled with decimals and paid.
Fixed-term contract: the salaries that were still pending
In a fixed-term contract the logic changes. If the company dismisses without just cause, severance equals the salaries for the time remaining until the agreed term ended. Length of service is not what matters: the calendar still ahead is.
If the employee had five months left before expiry, severance is five months of salary. If twenty days were left, it is twenty days of salary. The reason is simple: the person planned around a known term, and early termination leaves them without that income even if the relationship was short.
Two details are often missed. First, the term that counts is the one in force at dismissal, including its extensions; a contract already extended is not read as the original. Second, the remaining time runs to the expiry date, not to the date the company had planned to end it. The contract governs, not the intention.
Project-based contract: the term is the project
In a contract for a specific project or task, severance equals the time remaining to finish the work. It is an easy formula to state and a hard one to apply, because it requires estimating how much of a job is left when that job has no fixed date by definition.
That is why progress should be documented. A project contract without progress reports, schedule or deliverables leaves the discussion in the field of opinions: the company will say one month was left and the employee will say six. When there is no certain term, the law falls back on the rules of the indefinite contract, and the days per year and the 10 SMMLV threshold return.
The practical recommendation is simple. If the contract is project-based, progress must be written down while the project advances, not when the conflict arrives: that record is what allows the remaining time to be calculated with something more than an opinion.
The base is average salary, not basic salary
Severance is calculated on the average salary of the last year. Not on the basic salary in the contract, not on the last payment, not on the figure printed on the first page. The average includes overtime and habitual commissions, that is, everything the employee received on a recurring basis.
The procedure is mechanical. Take the payroll of the last twelve months, add the payments that have a salary nature and divide by twelve. The result is the average monthly salary. The daily salary is that figure divided by thirty, the convention used to settle days of severance.
The key word is "habitual". A commission that repeats month after month is part of the base; an exceptional one-off payment deserves a separate review with the accountant. In sales, in production with bonuses and in roles with frequent supplements, the gap between basic and average can be the largest item in the whole calculation. Rebuilding the average from payroll and the employment certificate, rather than from memory, is the only way to defend the number if someone asks later.
Full example: three years and seven months
Take an indefinite-term contract, a monthly salary of COP 3,000,000 — three SMMLV, below the threshold — and a dismissal without just cause after three years and seven months. The daily salary is COP 100,000, because 3,000,000 divided by 30 is 100,000.
- First year: 30 days of salary.
- Complete following years: two years at 20 days, that is, 40 days.
- Fraction of seven months: 20 days × 7/12, that is, 11.67 days.
- Total: 30 + 40 + 11.67 = 81.67 days.
- Amount: 81.67 days × COP 100,000 = COP 8,166,667.
| Component | Calculation | Days | Amount |
|---|---|---|---|
| First year | 30 days | 30.00 | COP 3,000,000 |
| Two complete following years | 2 × 20 days | 40.00 | COP 4,000,000 |
| Fraction of seven months | 20 × 7/12 | 11.67 | COP 1,166,667 |
| Total | — | 81.67 | COP 8,166,667 |
The second step is where most mistakes happen. Three years and seven months are not three complete years after the first: they are two complete years plus a fraction of seven months. Counting three complete years inflates the figure; counting only one leaves it short. Length of service always breaks down into first year, complete following years and fraction.
The exact date matters too. If the dismissal happens one day before completing the year, the fraction changes and the total changes with it. At a salary of COP 3,000,000, each month of fraction is worth about COP 166,667; between counting the fraction right and counting it wrong, the gap can exceed one million pesos.
The same case on a high salary
Now the same employee, with the same three years and seven months, but a salary of COP 12,000,000, that is, twelve SMMLV. That is above the threshold, so the second scale applies: 20 days for the first year and 15 days for each following year. The daily salary is COP 400,000.
- First year: 20 days.
- Two complete following years: 2 × 15 = 30 days.
- Fraction of seven months: 15 × 7/12 = 8.75 days.
- Total: 20 + 30 + 8.75 = 58.75 days.
- Amount: 58.75 days × COP 400,000 = COP 23,500,000.
| Item | Salary of 3 SMMLV | Salary of 12 SMMLV |
|---|---|---|
| Monthly salary | COP 3,000,000 | COP 12,000,000 |
| Daily salary | COP 100,000 | COP 400,000 |
| First year | 30 days | 20 days |
| Complete following years | 40 days | 30 days |
| Fraction of seven months | 11.67 days | 8.75 days |
| Total in days | 81.67 | 58.75 |
| Total in pesos | COP 8,166,667 | COP 23,500,000 |
The comparison is the interesting part. Days fall from 81.67 to 58.75, almost 28 % fewer. The amount in pesos rises from COP 8,166,667 to COP 23,500,000, because the daily salary is four times the previous one. Put another way: the protection measured in days of salary shrinks, and the final sum grows.
Why does the law cut the days as salary rises? Because the scale assumes a high income can absorb a work interruption more easily, and because the legislator wanted to contain the cost of larger awards. The practical effect is that the 10 SMMLV threshold works like a switch: one peso above it changes the whole scale, not just that year's fraction.
Hence a warning for anyone negotiating a raise near the threshold: an adjustment that crosses it changes the calculation rule for all accumulated years, not only the current one. Better to know that before signing the change.
Special protection: when the problem stops being arithmetic
Some employees cannot be dismissed as easily as the rest. Pregnant employees, employees on leave for a work accident and union representatives with special protection (fuero) have specific safeguards: dismissal requires authorisation and, without it, the dismissal is null.
Null means the problem is not solved by paying more. Severance compensates a valid termination; nullity challenges the termination itself. In these cases the first question is not how much severance is worth but whether the dismissal can be made at all.
This protection is not a formality that can be fixed later. Before sending the letter, confirm in writing whether the person is in any of these situations and, if so, process the required authorisation. A null dismissal with severance paid is still null, and money does not close the file.
How it is paid and what happens if it is not
An unfair dismissal must be communicated in writing and paid on time. The written notice is not a formality: it fixes the termination date, and that date determines the salary in force, the length of service, the fraction and the payment deadline. A verbal notice or an undated note leaves the calculation in the air.
If severance is not paid, default interest (indemnización moratoria) applies. It is a consequence separate from the original debt: it is not about paying the same amount late but about paying the amount plus the effect of the delay. In practice, an incomplete or late payment turns one obligation into two.
The minimum file to keep is short: a dated termination letter, the calculation detail with the salary base used, payroll support for the last twelve months and proof of payment. That package speaks for the company better than any verbal explanation.
Mistakes that turn one severance into two
- Using basic salary instead of the average. The calculation falls short, the employee claims the difference and the company ends up paying twice: what was missing plus the effect of the claim.
- Miscounting length of service. Adding complete years where there was a fraction, or ignoring the first year, is the most common error and the easiest to detect in an external review.
- Confusing the scales. Applying 30 and 20 days to a salary already above 10 SMMLV inflates the payment; applying 20 and 15 to a lower salary leaves it short. The threshold is measured with the value in force on the dismissal date.
- Mixing severance with final benefits. A settlement in a single line makes it impossible to verify what was paid and what was not, and shifts the doubt to the employee.
- Dismissing without checking special protection. The case stops being economic and becomes about the validity of the dismissal, where payment does not correct the error.
- Not documenting the payment. Without a dated letter, a breakdown and a receipt, the company can prove neither the date nor the amount.
- Improvising the just cause. Stating a cause that cannot be proven has the same effect as not having one, with the aggravating factor that the letter remains as evidence against the company.
An honest closing before signing the settlement
This article explains the mechanism; it does not solve your case. There are situations where the formula does not apply by itself: where special protection exists, where the just cause is disputed, where salary is variable and commissions are hard to rebuild, where several contracts were chained together or where the employee had a mixed salary. In those scenarios, a review by an accountant or a labour lawyer changes the result.
Before signing, make three checks. First: the letter has a date and the cause is written with facts. Second: the payment detail separates benefits from severance and shows the salary base used. Third: the sum of days matches the real length of service, with the first year, the complete years and the fraction counted separately.
If the figure does not add up, the conversation must happen before the signature, not after. Severance is a formula; understanding it is the only way to discuss it with arguments rather than estimates. This text is a calculation guide, not legal advice for a specific case.
