Severance pay (Cesantías) is a social benefit paid by the employer in favor of the employee, equivalent to one month’s salary for each year of service, or proportionally for the time worked. Its main purpose is to provide financial assistance when the employment relationship ends.

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What are annualized severance payments?
Annualized severance payments are a system of annual definitive settlement managed through the so-called “severance funds” created by Law 50 of 1990. This applies to employees hired under a work contract from January 1, 1991, onwards, as well as to previous employees who choose to opt into this system.

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Unlike retroactive severance pay, annualized severance remains in the employer’s possession for a maximum of one year, since it must be deposited into the severance fund administrator chosen by the employee no later than February 14 each year (covering the amount accrued in the immediately preceding year).

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