What Severance Pay Rules Must Employers Follow in El Salvador?

Which Employees Qualify for Severance Pay?

• Employees dismissed without just cause after completing their probationary period (usually 30 days) qualify for statutory severance.
• Employees whose contracts are terminated due to employer-driven reasons such as economic redundancy or restructuring typically qualify for severance.
• Employees who resign for employer fault recognized as constructive dismissal under the Labor Code may be entitled to severance.
• Fixed-term employees dismissed before the agreed end date without just cause may qualify for severance or payment of remaining contract value.
• Employees on indefinite contracts terminated for reasons not proven as just cause by the employer generally qualify for severance.
• Employees excluded from severance are those lawfully dismissed for serious misconduct where just cause is properly documented and supported.

What Are the Legal Timelines for Paying Severance?

In El Salvador, severance must be paid at the time the employment relationship ends, together with any outstanding wages, accrued vacation, and proportional bonuses. In practice, your company should aim to pay severance on the employee’s final working day or within a few days at most, as delays can trigger disputes. Labor authorities and courts expect prompt payment and may view extended delays as non-compliance. To stay safe, document the calculation, obtain a signed settlement receipt, and ensure bank transfers or checks are issued immediately upon termination. For complex restructurings, agree on a clear payment date in writing, but keep it as close as possible to the termination date.

What Penalties Apply if Severance Is Not Paid Correctly?

If your company fails to pay severance correctly in El Salvador, you risk labor claims, administrative sanctions, and additional financial exposure. The Ministry of Labor can investigate complaints, and courts often interpret doubts in favor of the employee, increasing your liability. Non-compliance can also damage your reputation and complicate future inspections and disputes.

• You may be ordered to pay the unpaid severance plus legal interest for late payment.
• Labor inspectors can impose administrative fines for violations of the Labor Code.
• Court proceedings can add legal costs, attorney fees, and potential compensation for damages.
• Reputational harm can affect hiring, union relations, and future negotiations.
• Repeat or serious non-compliance can lead to closer monitoring and more frequent inspections by authorities.

Does Outsourcing Employment via an EOR Change Severance Liability?

Using an Employer of Record (EOR) such as https://www.playroll.com/employer-of-record does not remove the underlying obligation to respect Salvadoran severance rules. In a compliant EOR model, the EOR is the legal employer on paper and is responsible for calculating and paying severance according to the Labor Code. However, your company typically funds these costs and may be contractually liable to reimburse the EOR for any statutory or negotiated severance. If the structure is poorly designed or misclassified, authorities could still look to your business as the real employer in disputes. Clear contracts, transparent cost allocations, and local-law-compliant termination processes are essential to avoid shared liability.

Be 100 Percent Compliant in Offering Severance with Playroll

Managing severance in El Salvador means tracking service time, salary components, and valid grounds for termination for every employee. Playroll helps your team standardize this by embedding Salvadoran Labor Code rules into your workflows, so you know when severance is due, how to calculate it, and what documentation to keep. You get clear breakdowns of statutory entitlements, including notice, severance, and accrued benefits, before you confirm any termination.

Playroll’s Employer of Record and global payroll tools coordinate local legal advice, compliant contracts, and on-time payouts in one place. Your company can plan restructurings with accurate cost estimates, automate final-pay calculations, and issue payments in local currency without scrambling at the last minute. With real-time support and audit-ready records, you reduce the risk of disputes, fines, and reputational damage when ending employment in El Salvador.