The rules on severance pay in detail

Compensation is payable under the Labour Code for any unilateral termination of the contract by the employer (Law 789, 2.003, Article 28). The amount varies depending on the worker’s salary and length of service in the company and is calculated in accordance with the following rules:

  • For fixed-term contracts, the amount is the salary payable for the remainder of the term.
  • For employment agreements whose term is based on how long projects take to complete, the amount payable will be the salary payable until the tasks are completed, but not less than 15 days’ pay.
  • For indefinite-term contracts, which is the most common type, severance for unfair dismissal is calculated as follows:
    • Employees earning less than ten times the legal minimum monthly salary will be entitled to 30 days’ salary per year of service for the first year and 20 days for each year after that.
    • Employees who earn a salary equal to or over ten times the legal minimum monthly salary will be entitled to 20 days’ salary per year of service for the first year and 15 days for each additional year.
    • Employees who, on 27 December 2002, had been working continuously for the employer for ten years or more will be entitled to 45 days’ salary per year of service for the first year and 40 days’ each year after that.
    • Employees who, on 1 January 1991, had been working continuously for the employer for ten years or more will be entitled to be reinstated in their post (unless they had previously agreed in writing to waive this right) or to compensation equivalent to 45 days’ salary per year of service for the first year and 30 days for each year after that.
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Author: Brigard & Urrutia Abogados

Date: December 2018

 

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