What Severance Pay Rules Must Employers Follow in Ecuador?

Which Employees Qualify for Severance Pay?

• Employees with indefinite-term contracts dismissed without just cause generally qualify for statutory severance.
• Employees who resign for employer breach (constructive dismissal) may be entitled to similar severance as unjustified dismissal.
• Fixed-term or specific-task employees can qualify if you terminate the contract early without a legally valid reason.
• Employees with at least three years of continuous service may qualify for the special “desahucio” payment when the employer ends the relationship.
• Unionized and non-unionized employees alike are covered, unless a specific legal exemption applies (for example, certain public servants).
• Employees terminated for a legally proven just cause under the Labor Code typically do not qualify for severance, beyond accrued benefits.

What Are the Legal Timelines for Paying Severance?

In Ecuador, severance and all final payments should be settled immediately upon termination or within a very short, reasonable period, typically understood in practice as within a few days. The Ministry of Labor expects you to register the termination and related payments promptly in its online system. Delays can trigger inspections, fines, and potential claims for interest or damages. To stay safe, your company should aim to calculate and pay severance on the last working day or within the same week. Always provide written breakdowns of amounts paid and obtain signed receipts or electronic acknowledgments.

What Penalties Apply if Severance Is Not Paid Correctly?

If your company fails to pay severance correctly in Ecuador, you risk administrative sanctions, back payments, and litigation. The Labor Inspectorate and courts tend to favor employees where there is doubt, so underpaying or delaying severance can quickly become expensive and reputationally damaging.

• The Ministry of Labor can impose monetary fines for non-compliance with termination and payment rules.
• Courts can order payment of outstanding severance plus legal interest and possible additional damages.
• Failure to register terminations and payments properly can lead to inspections and higher scrutiny of your HR practices.
• Repeated or serious violations may increase fine levels and expose directors or legal representatives to personal liability.
• Disputes can escalate into labor lawsuits, consuming management time and legal costs.

Does Outsourcing Employment via an EOR Change Severance Liability?

Using an Employer of Record (https://www.playroll.com/employer-of-record) in Ecuador shifts day-to-day HR administration and local payroll compliance to the EOR, but it does not erase your economic responsibility. In law, the EOR is usually the formal employer of record, responsible for calculating and paying severance in line with the Labor Code. However, your company typically funds these amounts and can still be drawn into disputes if decisions about termination came from your team. You should ensure your EOR contract clearly allocates who decides on dismissals, who bears the cost of severance, and how disputes will be handled. A well-structured EOR relationship can significantly reduce your operational risk, but it does not justify ignoring Ecuadorian labor standards.

Be 100 Percent Compliant in Offering Severance with Playroll

Managing severance correctly in Ecuador means understanding the different formulas for unjustified dismissal, early termination of fixed-term contracts, and desahucio, then applying them consistently. Playroll helps your company interpret the Labor Code in practical terms, so your managers know what they can and cannot do when ending employment. With localized expertise, we help you align internal policies, contracts, and approval workflows with Ecuadorian law.

Playroll also handles the operational side: accurate calculations, compliant payslips, and timely filings with the Ministry of Labor. Your team gets clear cost estimates before any termination decision, so there are no surprises after the fact. By centralizing documentation and payment records, Playroll makes it easier to defend your company if a former employee challenges a dismissal or claims unpaid severance.