Cesantías, translating to "severance" or "unemployment benefit," is a mandatory employment benefit in Colombia that functions as a form of forced savings for employees. Unlike traditional severance that is only paid upon termination, cesantías are deposited annually into a dedicated fund managed by a pension fund administrator (AFP).
How Cesantías Work
Employers must calculate cesantías as of December 31 each year, based on the employee's last monthly salary (or average salary if it varied). The amount equals one month's salary for each full year worked, prorated for partial years. Employers must deposit cesantías into the employee's chosen fund by February 14 of the following year.
Interest on Cesantías
In addition to the cesantías deposit, employers must pay interest on cesantías (intereses sobre cesantías) directly to the employee by January 31 each year. This interest is calculated at 12% annually on the accumulated cesantías balance. Late payment of interest results in penalty interest at double the rate.
EOR Relevance
An EOR in Colombia manages cesantías calculations, fund deposits, and interest payments, ensuring all deadlines are met. Late deposits trigger a penalty equal to one day's salary for each day of delay, making timely compliance essential.