Liquidación laboral, meaning "labor settlement" or "severance settlement," refers to the complete compensation package an employee receives when they are terminated without cause. Unlike a finiquito (which covers voluntary departures), a liquidación includes additional severance payments mandated by law.
Components of a Liquidación
In Mexico, a full liquidación includes three months' salary as constitutional severance, 20 days' salary per year worked, proportional aguinaldo, proportional vacation and vacation premium, seniority premium (12 days per year, capped), and any unpaid wages. In Colombia, it includes severance (cesantías), interest on severance, proportional vacation, and proportional prima de servicios.
Legal Requirements
Most Latin American countries have strict timelines for paying liquidaciones. In Mexico, payment must happen at the time of termination. In Colombia, delays in paying severance result in penalty interest. Employees who believe their liquidación was miscalculated can file claims with labor courts, often within a statute of limitations of one to three years.
EOR Relevance
An EOR ensures liquidación calculations follow current labor law for each country, handling the complex formulas and ensuring timely payment. This protects companies from costly labor disputes that commonly arise from termination-related miscalculations in Latin America.