The rules on severance pay in detail
Upon termination of employment, regardless of the cause, employees are entitled to receive the following severance payments, which are considered to be vested rights:
- Seniority premium: This is compensation paid to employees with an indefinite-term labour relationship on the termination of employment, irrespective of the reason for the termination. It is calculated at the rate of one week's wages for each complete year of service, from the beginning of the employment. If an employee has not completed a year of service, payment is made proportionately, by multiplying the amount earned by 1.92%.
- Accrued and proportionate annual leave: On termination of employment, the employee is paid annual leave of 30 days for each period of 11 months worked or, proportionately, one day for each period of 11 days worked.
- Accrued and proportionate 13th month payment: The proportionate 13th month payment is paid as an additional month of salary per year, paid in three installments (i.e. in April, August and December) during the working relationship. It is a special bonus granted by the employer which does not form part of salary. However, when the employment relationship is terminated, the employee is entitled to receive the proportion of this payment that has been accumulated throughout the year.
- Employees who have worked for less than two years are also entitled to an advance notice payment equivalent to one month's salary.
Author: Arosemena Noriega & Contreras
Date: December 2019